Like a resident tax payer, a non-resident is also entitled to the basic exemption limit of Rs 2.50 lakh if they are not 60 yet

NRI guide to equity taxation: Here’s how dividends, capital gains and interest are treated

A non-resident Indian (NRI) investor seeks clarity on whether income from equities and bank accounts in India is taxable.

Today's Ask Wallet Wise breakdowns how dividends, capital gains and different types of interest are taxed for non-resident Indian.

The Ask Wallet-Wise initiative offers expert advice on personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com and we will try to get a top financial expert to address them.

My son is an NRI having an NRE account in India. He invests in equities in India. I would like to know if such earnings are taxable in India. While I know that interest income for NRIs is not taxable, I have no idea if dividends are taxable. Is he eligible for exemption limit of Rs 2,50,000 like resident Indians?

Expert's Advice: A non-resident is liable to pay tax in India only on his Indian income. Not all interest received by NRI are tax free. Though the interest earned on his NRE and FCNR accounts are tax free, others like interest on NRO account is fully taxable in India. The interest earned on NRO account is subject to TDS regardless of the amount earned. The dividend income as well as the capital gains from listed shares and equity schemes of mutual funds are subject to tax in India.

Like resident taxpayers, non-residents are also eligible for the basic exemption limit of Rs 2.5 lakh (if they are below 60). If the income (excluding certain capital gains) is below this limit, only residents can adjust their capital gains against the unused exemption. This benefit is not available to non-residents.

So, he has to pay full tax on certain incomes such as short-term capital gains (STCGs) on listed shares, equity mutual fund scheme as well as on long-term capital gains (LTCGs) of all kinds. Please note, he will not have to pay any tax in India for interest and dividend income up to the amount of basic exemption applicable to him.

Your son will have to pay tax on all STCGs earned on Indian equity at flat rate of 20 percent and for LTCGs on Indian equity at 12.50 percent beyond initial LTCG of Rs. 1.25 lakh.