ITR Filing for NRIs: Why Refunds on Short-Term Capital Gains Are Not Allowed

One frequently asked question by NRIs investing in Indian equities is whether a refund of tax deducted at source can be claimed if their total short-term capital gains are within the basic exemption threshold.

An NRI asked that his only income in India come from investing in equities through a Portfolio Investment Scheme (PIS) account, where tax is deducted at source on all capital gain,s and his total realised short-term capital gain will be less than Rs 2.5 lakh.

Can he claim a refund of the tax deducted by filing an ITR, since taxable income is below Rs 2.5 lakh?

In India, different types of income are taxed in different ways. Income like salary, business profits, and interest is taxed based on income tax slabs. But some incomes are taxed at special rates. For example, Long-term capital gains (LTCG) are taxed at 12.5%, and short-term capital gains (STCG) are taxed at 20%.

If a resident taxpayer’s total income is below the basic tax-free limit, they can use the remaining amount to lower the tax on their capital gains from listed shares or equity mutual funds. For example, an 85-year-old resident with a normal income of Rs 3 lakh and STCG of Rs 5 lakh can manage the Rs 2 lakh shortfall in their exemption limit (Rs 5 lakh for super seniors) against STCG and pay tax only on the balance of Rs 3 lakh.

However, such benefits are not available to NRIs. Experts advised that as an NRI, you should pay full tax on STCG- 20% on gains realised on or after July 23, 2024 and 15% on gains realised before this date. The bank has already deducted the tax as required, so you can’t get a refund for it. Since your total income is below the basic exemption limit, you also don’t need to file an Income Tax Return (ITR).