Certainly! When it comes to NRIs (Non-Resident Indians) investing in the Indian stock market, there are specific tax implications to consider. Let’s break it down:
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NRE (Non-Residential External) Account and NRO (Non-Residential Ordinary) Account:
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NRIs can invest in India through either an NRE or NRO account.
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The NRE account is an external account, which means funds are fully repatriable. You can freely transfer money from this account back to your foreign country.
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The NRO account, on the other hand, is a resident account, and funds are non-repatriable beyond $1 million per year.
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Trading in Indian Equities:
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After opening an NRE or NRO account, an NRI needs to open a Portfolio Investment Scheme (PINS) account to trade in Indian equities.
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Additionally, you can open a trading and demat account with a broker.
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Shares held for over 12 months are considered long-term instruments. If you sell these shares, the following tax rates apply:
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If the gain on sale is more than ₹1 lakh, it is taxable at 10%.
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If the long-term gain is less than ₹1 lakh, it is exempt from tax.
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If you sell shares before 12 months of acquisition, it is considered short-term capital gain, and it is taxable at 15%.
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Equity F&O Trading:
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NRIs can trade in equity futures and options (F&O) using non-PIS (Portfolio Investment Scheme) NRO trading accounts on a non-repatriation basis.
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The tax rate for profits derived from NRI derivative trading in a calendar month is fixed at 30%. Additionally, a 3% service charge applies, resulting in a total tax of 30.90%.
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Mutual Funds and Dividends:
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Any income earned from stock market investments by NRIs, including mutual funds, is subject to taxation in India.
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Tax Deducted at Source (TDS) is deducted by Asset Management Companies (AMCs) on redemption of mutual funds or dividend payouts3.
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