Taxability of STCG on transfer of Equity Shares/Units of Equity Oriented Mutual Funds for Non-Resident Individuals

Taxability of Short-Term Capital Gains (STCG) on transfer of Equity Shares/Units of Equity Oriented Mutual Funds for Non-Resident Individuals

If a Non-Resident Individual transfers Equity Shares or Units of Equity Oriented Mutual Funds through a recognized stock exchange within one year of their purchase, and this transaction yields profits/gains, then such profits/gains shall be classified as Short-Term Capital Gains (STCG) which is subject to income tax @ 15% as per Section 111A of the Income Tax Act.

Other related provisions w.r.t. Non-Resident Individuals

The benefit of basic exemption limit shall be available from incomes other than those that are taxable under the head of capital gains. To illustrate, If the non-resident individual’s total income comprises of short-term capital gains on Equity Shares/Equity Oriented Mutual Funds and Dividend/Interest Income, the basic exemption limit would be available only from Dividend/Interest Income;
In case his total income solely comprises of short-term capital gains on Equity Shares/Equity Oriented Mutual Funds only, then his total income shall be subject to taxation @ 15%, without any benefit of the basic exemption limit;
The Chapter VI-A deductions such as premium paid on Life/Health insurance, medical expenditure incurred on parents, NPS/PPF contribution, interest on saving bank shall not be allowed from Incomes subject to taxation under the head capital gains;
Income Tax Rebate u/s 87A shall not be available to Non-Resident Individuals;
The benefit of offsetting current year losses and brought forward short-term capital losses shall be available against such gains/profits. It is worth noting that such losses can be carry forward subject to filing of ITR within the due date specified u/s 139(1);
Further, Income Tax so computed shall be increased by the Health Cess @ 4% and the applicable surcharge;

Allow us to elucidate this matter by providing an illustration of Mr. A who is a non-resident in India. During the previous year, Mr. A has earned short term capital gains on transfer of equity shares, in addition to interest and dividend income. Furthermore, he expended a sum of Rs 150,000 towards life insurance premiums and Rs 25,000 towards health insurance premiums. We will compute his taxable income at different income levels.

Computation of Taxable Income of Mr. A (Non-Resident)

(All figures in INR)

Particulars	Case I	Case II	Case III
STCG on transfer of Equity shares on recognized stock exchange	200,000	200,000	200,000
Interest / Dividend Income from India	Nil	100,000	450,000
Gross Total Income	200,000	300,000	650,000
Chapter VI-A Deduction U/s 80C, 80D, 80TTA etc.	Nil	100,000 (Chapter VI-A deductions are allowable only from interest / dividend income)	175,000
Total Income	200,000	200,000	475,000
Basic Exemption Limit	Not Available	Available from Interest / Dividend Income only	Available from Interest / Dividend Income
Income Taxable at Flat Rate @ 15%	200,000	200,000	200,000
Income Taxable at Applicable Slab Rate	Nil	Nil	275,000