Stock Trading: How is spouse of NRl taxed on stock trading gain?

Before 2011, Non-Resident Indians (NRIs) couldn’t open a joint bank account with residents. However, liberalizing the foreign exchange rules, the Reserve Bank of India (RBI) has allowed residents of India to include a non-resident close relative in their resident bank account on ‘former or survivor’ basis from 2011. However, such non-resident relatives shall operate such accounts only on behalf of the resident account holder for domestic payment and not for creating any beneficial interest for himself/ herself. For stock trading and investment in mutual funds, non-residents need to open an NRI account

Stock Trading: How will spouse of NRl be taxed on stock trading gain in India?
Tax on stock trading

Also Read: NRI Tax Filing Deadline for FY 19-20 Updated to 31st May 2021

The Reserve Bank of India has also allowed Non-Resident Indians (NRIs) to open an NRE/ FCNR account jointly with their resident close relatives(s). However, such resident relatives can operate the account as a power of attorney holder. 

In case of a joint resident account with an NRIs, only the resident account holder can trade in stocks and will be liable to pay tax on stock trading gain funded from the joint bank account in India.   

Tax on stock trading

For example Mr. Abhishek is an NRI and has an NRE trading account and savings account with a private bank in India. Abhishek also has a regular resident bank account, jointly held with his spouse in India. His question is whether he can open a stock trading account in his wife’s name (his wife is an income tax payer state government employee) and start paying for the purchase of stock out of the resident joint savings account? And if yes, how would his spouse be taxed on the gains in such transactions?

Under the Income Tax Act, 1961, the income earned from the sale of shares will be categorized depending on the objective behind the investment in such shares and accordingly taxed as ‘Profit and Gains from Business (BI)’ or ‘Capital Gain (CG)’. Hence, the profit earned from the sale of shares held as stocks in trade will be taxable as business income or profit made from shares held as an investment (capital asset) will be taxable as capital gains under the Income Tax Act. 

Assuming the shares are held as investment, long-term capital gain of more than Rs. 1 lakh from sale of listed shares are subject to capital gain tax at the rate of 10%. On the other hand, short-term CG (STT paid) shall be taxable at the rate of 15%. In addition, surcharge (where applicable) and health and education cess at the rate of 4% shall apply. 

Also Read: NRI Tax: Top 10 Mistakes made by NRIs while Filing ITR in India

Note that dividend distribution tax (DDT) has been abolished effective from FY 2020 – 21. As a result, dividend income from shares is taxable in the hands of the shareholders according to applicable tax slab rates. As per Section 64, any income generated from investment or assets purchased in the name of close relatives (spouse, minor children or daughter-in-law) is clubbed with the total income of the investor and taxed accordingly. This is applicable to all sorts of investments including fixed deposits, shares, etc. 

Hence the income earned from the stock trading shall be clubbed with the total income of Abhishek’s wife and accordingly taxed as per applicable rates. 

Also Read: Income Tax e-filing: Top 10 NRI Income Tax Filing Benefits

Sort your Taxation in India with SBNRI

Tax filing is a sensitive matter and requires due diligence. NRIs will need to seek help from financial and tax experts. At SBNRI, we understand this struggle. You can connect with our financial experts directly on SBNRI App for NRI tax queries. Also visit our blog and YouTube Channel for more details. 

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Can NRI have 2 joint bank accounts?

Yes, an NRI can be a joint holder in more than one account, provided he/she is a close relative of the resident bank account holders. 

Which bank gives highest interest for NRIs?

It depends on the NRI account type you are applying for. For example, RBL bank offers the highest interest on NRE accounts, ranging from 4.75% to 6.75% per annum. 

What is the penalty for not converting a resident account to NRO account?

According to FEMA (Foreign Exchange Management Act), the penalty for not converting a resident account into NRO account is Rs. 5,000 on daily basis from the first day of intervention until the penalty is paid or Rs. 2 lakh when the sum is not quantifiable. 

Can NRI claim TDS refunds?

If the tax liability of an NRI is less than the TDS debited from his/her income, they can file an income tax return to claim refunds.  

How much money can NRIs repatriate?

There is no upper limit on the upper transaction from NRE and FCNR accounts. However, NRIs can remit up to $1 million in a financial year from an NRO account. 

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