For Non Resident Indians (NRIs) who continue to dabble in stock markets back home, Tax Deduction at Source (TDS) on capital gains is a constant source of worry. Banks generally deduct tax at the maximum rate of 30% on short term capital gains. At times banks have been known to display high-handedness by deducting tax at a higher rate of 33%. The problem is compounded in those cases where the NRI has no tax payable. If refunds are to be claimed while filing returns it would imply blocking funds and waiting for the assessment's completion. Let us take an example to understand how TDS works.

Short term gains for a NRI trading in shares

Transaction Date	Particulars of Shares sold	Profit Amt (Rs)	Loss Amt (Rs)	TDS @ 30%
11-Apr-03	A Ltd.		45,000
25-May-03	B Ltd.	55,000		16,500
30-Jun-03	X Ltd.	27,500		8,250
11-Aug-03	A Ltd.		15,500
Total				24,750

In the above case the bank has deducted Rs 24,750 as tax. But the actual liability is only Rs 6,600; Yes!-a substantially lower sum because NRIs can ensure that the TDS amount is based on net capital gains.

TDS computation on net capital gains

Transaction Date Particulars of Shares sold Profit Amt (Rs) Loss Amt (Rs) TDS @ 30% 11-Apr-03 A Ltd. 45,000   25-May-03 B Ltd. 55,000   16,500 30-Jun-03 X Ltd. 27,500   8,250 11-Aug-03 A Ltd.   15,500   Total   82,500 60,500

Particulars Amt (Rs) Profit 82,500 Loss 60,500 Net Capital Gains 22,000 TDS @ 30% 6,600

In this case the NRI saves Rs 18,150 (24,750 less 6,600) in tax deductions. The prerequisite is that NRIs obtain a certificate from the Income Tax department instructing the bank to deduct tax on net capital gains.

 

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