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

I have been a non-resident Indian (NRI) for many years and have invested in Indian stocks using income earned abroad, deposited in my NRE account. In FY25, I sold some shares and made capital gains, but my AD (authorized dealer) banker deducted TDS on the gains. I thought income from NRE accounts was exempt from tax, so why was TDS applied? 

-Name withheld on request

Any payment made to NRI pursuant to taxable income earned by such individual is subject to TDS under section 195. While interest earned on NRE (non-resident external) savings accounts is tax-exempt, this exemption applies only to interest income, not to capital gains from the sale of investments made using an NRE account.

Even though the funds used to buy the shares came from your NRE account, the capital gains from selling those shares are treated separately from the interest income exemption for NRE accounts. As a result, NRIs are liable for TDS on capital gains from their investments in India, and AD bankers must deduct the appropriate tax when these investments are sold.

However, if 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 overseas earned income. My banker advised me to open a non-PINS account linked to my NRO account. I want a guidance on this.

-Name withheld on request 

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 allow NRIs to invest in the Indian secondary stock market (buying and selling shares of listed companies) using funds from their overseas income through NRE account. An NRI can maintain only one PINS account with an AD bank at any given time. Since PINS is linked to an NRE account, both principal and earnings can be repatriated freely without limits. 

On the other hand, non-PINS accounts linked to NRO have no restrictions on the number that an NRI can open, allowing for greater flexibility for making investments in India. However, the principal and earnings are subject to $1 million repatriation limit per financial year.

Harshal Bhuta, partner, P. R. Bhuta & Co. CAs

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