A quick guide for NRIs while filing tax for the investment made in India
But it’s important to know the tax implications of such investments.
Tax on investments made in fixed deposits
Interest earned on fixed deposits from the NRO account is taxable. The deposits in the NRO account may include income from rent, dividends, pension, interest, etc., received in India.
The interest earned will be subject to TDS at 30%. There is no threshold limit for a tax deduction. Like, TDS is deductible if the interest on fixed deposits of resident Indians exceeds Rs 40,000 during the year. No such limit applies to NRIs for interest earned on fixed deposits from the NRO account.
However, income earned from fixed deposits or savings from NRE accounts is tax-free. Also, interest from an investment in FCNR deposits is exempt from tax. The tax will be deducted (TDS) only on income taxable in India. Hence, no TDS will be deducted on interest earned from NRE and FCNR accounts as they are tax-free.
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Tax on capital gains on listed equity shares or units of equity-oriented mutual funds The tax liability on capital gains on listed equity shares or units of equity-oriented mutual funds is categorised into long-term and short-term capital gains.
If the investment in equity shares or mutual funds is held for less than 12 months, then the capital gains are considered short-term capital gains. Such short-term capital gains are taxed at 15% and subject to TDS at the same rates.
Otherwise, investments held for more than 12 months shall be treated as long-term capital gains and taxed at 10% on long-term capital gains above Rs 1 lakh. Also, TDS at 10% will be deducted from such long-term capital gains.
Tax on capital gains on debt mutual funds
If the investment in debt mutual funds is held for less than 36 months, it will be considered short-term capital gain and subject to tax at normal tax slab rates. However, TDS on short-term capital gains on debt mutual funds will be deducted at 30%.
If the investments are held for more than 36 months, they will be considered long-term capital gain and taxed at 20%, and so is the TDS.
Tax on sale of unlisted shares
The capital gains on investments made in unlisted shares will be considered short-term if they are held for less than two years and will be taxed at normal income tax slab rates. However, TDS on short-term capital gains on unlisted shares will be deducted at the highest slab rate at 30%.
If the unlisted shares are sold after two years, they will be considered long-term capital gains and taxed at 20% with indexation benefits.
Tax on purchase or sale of property
Where NRI purchases any property from the resident of India, the NRI is required to deduct TDS at 1% on the payments to be made to the seller of a property, provided the purchase amount is Rs 50 lakh or more.
If the NRI sells property in India, tax must be paid at 20% for long-term capital gains (property held by NRI for more than two years). And for short-term capital gains (property held by NRI for less than two years), tax should be paid at normal tax slab rates.
However, the buyer of the property is required to deduct TDS at 20% (plus cess and applicable surcharge for LTCG) if there is a long-term capital gain. Otherwise, the NRI should deduct TDS at 30% (plus cess and applicable surcharge for STCG) for short-term capital gains on the sale of property.
Double Taxation Avoidance Agreement (DTAA)
NRIs can take advantage of the DTAA. Where the Indian Government has an agreement with the country of the taxpayer’s (NRIs) residence, the NRIs can pay taxes as per the agreement. They can pay tax in both the countries and claim tax relief from the country of their residence or pay tax in either of the countries, as cited in the DTAA agreement.