NRIs can invest in the Indian stock market by purchasing shares through the Portfolio Investment Scheme (PIS) of the RBI. NRI investors can also invest in government securities, debentures, listed non-convertible debentures, etc. on repatriation or non-repatriation basis.NRI investment in India’s equity shares, mutual funds, etc. is subject to the restrictions/ conditions under the Foreign Exchange Management Act (FEMA). Dividend income and the capital gains earned by NRIs from shares listed in India and equity oriented schemes of mutual funds are taxed in India. NRI capital gains tax on shares depends upon the type of instrument and the period for which they are held before the sale.
NRI Capital Gains Tax on Shares 2023
Below is the classification of NRI tax liability based on the class of instruments and the period for which the NRI holds them before selling.
- NRI long-term capital gain on listed equity shares or equity oriented mutual funds
- NRI long-term capital gain on other assets
- NRI short-term capital gain on listed equity shares/ equity-oriented mutual funds
- NRI short-term capital gain on other assets
How NRIs are taxed for capital gains
Capital gains tax on NRI investors is applicable in the same way as resident investors.
Long-term capital gains tax on sale of equity shares/ equity oriented mutual fund units:
Listed equity shares or equity-oriented mutual funds that have been owned by an investor for more than 12 months are long-term instruments. Sale of such instruments is subject to tax at the rate of 10% if profit generated or long-term capital gain from the sale is more than Rs. 1 lakh. If the long-term gain is less than Rs. 1 lakh, then the profit is exempt from LTCG tax. The securities transaction tax (STT) on the acquisition and sale of equity shares should be paid. For equity oriented mutual funds, security transaction tax must be paid on the sale of units. Indexation benefit is not allowed on the cost acquisition.
LTCG tax on other assets
In case of unlisted equity shares (other than debt mutual funds) or securities of an Indian company, the holding period of an asset should be more than 24 months to be considered as long term capital assets. The tax liability of such securities is 10% without indexation benefits.
Debt-oriented mutual funds that an NRI holds for more than 36 months are considered as long term capital assets. The tax liability on capital gains from the sale of such type of funds is 20% after indexation.
Short-term capital gains tax on sale of equity shares/ equity oriented mutual fund units
Listed equity shares and equity-oriented mutual fund units sold by an NRI investor before 12 months of its acquisition are called short-term capital assets the profit is classified as short-term capital gains. STCG on shares for NRI shall be taxable at 15%. STT should be paid on such transactions.
Short-term capital gains tax on other assets
The securities (other than debt mutual funds) and shares of an Indian company that are sold in less than 24 months qualify as short-term capital asset. Short-term capital gain tax applicable on this type of asset is calculated as per the slab rate applicable to the non-resident.
The deb-oriented mutual funds held for less than 36 months are classified as short-term assets. Short-term capital gain tax applicable on this type of asset is calculated as per the tax slab rates.
How to pay NRI capital gains tax
Health and education cess chargeable at the rate of 4% will be applicable over and above the given income tax rates and surcharge. Unlike the resident Indians, NRI investors are not eligible to benefit from the basic exemption limit. Any redemption made by an NRI is subject to TDS at the highest tax rates. TDS shall be the tax slab rate of 30% for any STCG on unlisted securities.
Relief from double taxation
India has entered into the DTAA (Double Taxation Avoidance Agreement) with more than 90 countries. As per the agreement, NRIs are liable to pay tax in only one country. Hence, NRIs who have already paid taxes on capital gains in India needn’t pay tax for the same in the country of their residence.
Before investing in the Indian market, NRIs must consult market experts to make informed decisions. You can get detailed mutual fund advisory from experts at SBNRI. You can download SBNRI App from the Google Play Store or App Store to ask any questions related to investment in stock market/ mutual funds, NRI account opening online and tax filing in India. To ask any questions related to Mutual Funds, click on the button below. Also visit our blog and YouTube channel for more details.