Is NRI investing in Indian stocks? Know about TDS on capital gains

I have been a non-resident Indian (NRI) for many years and have been investing in Indian stocks using earnings earned abroad which were deposited in my NRE account. In FY25 I sold some shares and got capital gain but my AD (Authorized Dealer) The banker deducted TDS from the profit. I thought income from NRE accounts is exempt from tax, so why was TDS applied?

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Any payment made to an NRI in accordance with the taxable income received by such person is eligible for TDS under section 195. While interest earned on NRE (Non-Resident External) savings accounts is not taxable, this exemption applies only to interest income rather than capital income. Profit from sale of investments made using NRE account.

Even though the funds used to purchase the shares came from your NRE account, the capital gain on the sale of those shares is treated separately from the interest income tax exemption for NRE accounts. As a result, NRIs are liable for TDS on capital gains on their investments in India and AD bankers have to deduct the corresponding tax on sale of these investments.

However, if the excess TDS has been deducted, you can file an income tax return in India to claim a refund.

I am an NRI. I want to invest in Indian share market from my income earned abroad. My banker advised me to open an account without PINS linked to my NRO account. I would like some guidance on this.

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For NRIs interested in investing in the Indian stock market, there are two main investment accounts: PINS (Portfolio Investment Scheme) accounts linked to NRE accounts and non-PINS accounts linked to NRO (Non-Resident Ordinary) accounts.

PINS is designed to enable NRIs to invest in the Indian secondary stock market (buying and selling shares of listed companies) using funds from their overseas earnings through an NRE account. An NRI can only have one PINS account with AD Bank at a time. Since the PINS is linked to the NRE account, both the principal and earnings can be repatriated freely and without restrictions.

On the other hand, non-PINS accounts linked to NROs have no limit on the number an NRI can open, allowing greater flexibility when investing in India. However, principal and income are subject to a repatriation limit of US$1 million per financial year.

Harshal Bhuta, Partner, PR Bhuta & Co. CAs