Home / Money / Personal Finance /  I am an NRI and invest in stock market in India. How gains, dividends are taxed

Question: My son is an NRI. He invests in listed shares and equity mutual funds in India. I would like to know if such earnings are taxable in India. As far as I know interest for NRI are not taxable but have no idea if dividends are taxable or not. Is he eligible for exemption limit of 2,50,000 like residents Indians.

Answer: A non-resident is liable to pay tax in India only on his Indian Income. Not all interest received by NRI are tax free in India. Though the interest earned by a non-resident on his NRE and FCNR account are fully tax free but other interest like interest on NRO account are fully taxable in India. Even the interest on NRO account are subject to TDS without any threshold limit. The dividend income as well as the capital gains earned by your son from shares listed in India and equity oriented schemes of mutual funds are subject to tax in India.

Like a resident tax payer, a non-resident is also entitled to the basic exemption limit. In case income other than long term capital gains of any nature and short term capital gains on equity shares/equity mutual funds is less than the amount of basic exemption, a resident is entitled to set off such short fall against the long term capital gains and short term capital gains on equity products. The same facility to set off the short fall is not available to a non-resident. So he has to pay full tax on these capital gains even if he does not have any other income or such other income is below the taxable limits. So he may not have to pay any tax on dividends but he will have to pay tax on all short term capital gains earned on Indian equity at flat rate of 15%. On such long term capital gains he will enjoy a basic exemption of one lakhs on long term capital gains on Indian equities and beyond one lakhs he will have to pay @ 10% without any indexation benefit.

The writer is a tax and investments expert and can be reached at jainbalwant@gmail.com

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