I recently became an NRI after moving to Germany. While a resident, I invested via SEBI-registered PMS in India. This year, I’ve sold listed equity shares held from three months to five years. What are the tax implications for an NRI on these gains?
Name withheld on request
The Indian income tax law defines a ‘capital asset’ broadly to include any property held by a taxpayer, except stock-in-trade and certain personal assets. For listed equity shares, the CBDT has clarified that taxpayers can classify them either as stock-in-trade or investments.
Listed shares held for over 12 months can be treated as investments, making gains eligible for capital gains tax. Once chosen, tax authorities cannot dispute it. If classified as stock-in-trade, gains are treated as business income regardless of holding period. For listed shares held under 12 months, classification as investments depends on factors like purchase intent (profit vs appreciation), accounting treatment (investment vs stock-in-trade), transaction frequency and volume, and source of funds (own vs borrowed), among others.
When shares are treated as stock-in-trade, the resultant business income is taxed at the individual’s applicable income tax slab rate (plus applicable surcharge and cess). On the other hand, the gains derived from listed shares held for more than 12 months qualify as long-term capital gains (LTCG) and are taxed at a rate of 12.5% (plus applicable surcharge and cess). If held for less than 12 months, the gains are treated as short-term capital gains (STCG) and taxed at 20% (plus applicable surcharge and cess).
An exemption of up to Rs 1,25,000 is available on LTCG from the sale of listed equity shares, so only gains exceeding this amount are taxable. For NRIs, the PMS provider usually deducts tax at source (TDS) before crediting funds to the NRI’s account.
As a non-resident, you may rely on the India-Germany DTAA if it offers more favorable treatment than Indian law. Under Article 13, India can tax gains from listed Indian shares per domestic rules. However, if you treat the shares as stock-in-trade and have no permanent establishment in India, the business income would not be taxable under Articles 7 and 5 of the DTAA.
For claiming treaty benefits, you will be required to obtain a tax residency certificate from the German tax authorities and furnish Form 10F on the Indian income-tax portal.