Most Non-Resident Indians have bank accounts or investments in Indian banks and are required to file tax returns. Filing returns are not only a legal obligation on us, it also gives a clean chit of our financial transaction in the country.
Unlike Resident transactions, NRI investments in India are subject to TDS. Hence, when an NRI sells stocks with short-term capital gain, the sale proceeds are credited to the bank account only after deducting Tax at source, widely known as TDS. This many a times end up in paying more tax than an NRI ought to pay.
Let’s take an example:
Let’s assume that ‘A’ sells stocks worth 5 lakhs with a short-term loss of Rupees 30000 on day 1 and sells stocks at a short-term profit of Rupees 1 lakh on day 2. The sale proceeds of day 2 will be credited to A’s bank account only after deducting tax of Rupees 15000 (appx 15% on profit of 1 lakh). The loss incurred on day 1, in this case, is not to be considered while deducting TDS on day 2’s transaction. Hence, ‘A’ ends up paying more tax i.e on entire 1 lakh instead of paying on the net profit of Rupees 70000.
The excess tax thus, paid can be claimed as a refund only by filing returns in India at the end of the year.