An NRI and a resident can owe the same tax on the same trades and not hold the same money
The short answer
Nothing here turns on your passport. It turns on days physically present in India, tested every year under section 6. Once that count makes you non-resident, the rates on listed equity are the rates a resident pays: twenty percent short-term, twelve and a half percent long-term above 1,25,000 in the year, with surcharge capped at fifteen percent and a four percent cess. What changes is when the money leaves. A resident nets the whole year and settles at filing. A non-resident has tax deducted at source on each sale by a bank or broker that cannot see losses booked later in the year, cannot know how much of the long-term threshold is used, and can only work from a cost it holds on file. The deduction is routinely larger than the liability, and the excess returns only as a refund. Same bill, and a hole in the cash that can last more than a year.
The most repeated claim about non-resident taxation is that an NRI pays more tax on Indian shares. On listed equity sold on an exchange, that is not what the statute says. The rate is the rate a resident pays. Almost everything a non-resident feels is a timing difference, and timing differences never appear in the comparison tables that circulate.
Residential status is also not something a person holds. It is recomputed every year from a calendar, and the treatment of Indian market income moves with it.
Residence is a day count, not a passport
Section 6 asks two questions and both are arithmetic. Were you in India for one hundred and eighty-two days or more during the year. Or for sixty days or more during the year together with three hundred and sixty-five across the four preceding years. Either yes makes you resident.
The second limb catches people because sixty days is a long holiday rather than a relocation. It is relaxed for an Indian citizen leaving for employment and for a citizen or person of Indian origin visiting India, for whom the sixty becomes one hundred and eighty-two. That relaxation is itself cut back where total Indian income, leaving aside income from foreign sources, exceeds fifteen lakh rupees. For that person the number is one hundred and twenty days, which is a long summer with the family rather than a move.
A third route counts no days in India at all. An Indian citizen whose Indian income exceeds fifteen lakh rupees and who is not liable to tax in any other country by reason of domicile, residence or a similar criterion is deemed resident. The target of the provision is the person tax resident nowhere.
Being caught by the one hundred and twenty day limb or by deemed residency does not produce the full resident position. It produces resident but not ordinarily resident, under which foreign source income stays outside the Indian net unless it derives from a business controlled in India or a profession set up in India. Indian market income sits inside the net in every one of these states.
The test counts physical presence, so arrival and departure days both matter and travel documents are the evidence. It runs on a year beginning 1 April, so a fortnight in late March can move the answer.
The account decides what leaves the country, not what is taxed
The account architecture is set out at length in the guide to the NRE and NRO routes. What matters here is narrow: the account never changes the tax on a gain. It changes who computes and deducts it, and what may afterwards leave the country.
Interest on an external account is exempt while the holder is a person resident outside India under the exchange law, which is a foreign exchange test rather than the income tax day count, so the two can diverge for a year.
The identity of the deductor is what carries into the rest of this page. On the repatriable route the designated bank operating the scheme computes the gain and deducts. On the non-repatriable route the broker does. Either way the computation is made by a party working from its own records, first in first out, at the moment of the sale.
Delivery only, and the tax question it deletes
A non-resident on the equity side takes delivery. Intraday squaring off and short selling are not available. The long argument about when a resident trader's equity activity stops being investment and becomes a business, which changes the head of income and the treatment of losses, is worked through in the guide to short-term and long-term treatment for an active trader.
For a non-resident that argument largely collapses. Shares acquired under the designated route are capital assets and what comes out of them is a capital gain. With no intraday there is no speculative business on the equity side to characterise. One head of income, one computation per sale, performed by somebody else. Derivatives are the exception, on the non-repatriable side, where the book is non-speculative business income carrying the turnover computation and the audit question. The two books sit inside one return and never merge.
The rates are the same. The moment the money leaves is not.
Section 195 requires any person paying a non-resident a sum chargeable to tax in India to deduct at the time of credit or payment. There is no threshold below which it does not apply. A resident with a small gain has no deduction event at all. A non-resident with the identical gain has one.
| Income | Statutory rate | Surcharge | Ceiling with cess |
|---|---|---|---|
| Short-term gain on listed equity, on exchange | 20 percent | Capped at 15 percent | About 23.9 percent |
| Long-term gain on the same, above 1,25,000 | 12.5 percent | Capped at 15 percent | About 15.0 percent |
| Long-term gain on other assets | 12.5 percent | Capped at 15 percent | About 15.0 percent |
| Short-term gain outside the equity route | Slab rates, at the maximum | Full slabs | Approaching 39 percent |
| Gains on debt oriented fund units | Slab rates, at the maximum | Full slabs | Approaching 39 percent |
| Dividend | 20 percent | Capped at 15 percent | About 23.9 percent, treaty may reduce |
| Interest on an ordinary account balance | 30 percent | Full slabs | Approaching 39 percent |
| Interest on an external account balance | Exempt | None | No deduction |
Read the last column, not the first. What leaves the account is the statutory rate grossed up by whatever surcharge the deductor applies and by the four percent cess. The fifteen percent cap is a genuine protection: without it a large gain would meet the higher slabs.
One benefit does not cross the residence line. A resident individual whose other income falls below the basic exemption may set the unused part against gains taxed at the special rates, and that relief is written for a resident individual or Hindu undivided family. On a small book it is the one place a non-resident genuinely pays more, rather than merely earlier.
Four reasons the deduction is bigger than the bill
Losses are invisible at the moment of deduction. The deductor computes on the sale in front of it. A loss booked three months later reduces the liability and returns nothing already taken. Set off is a return level operation, so the deduction runs on a systematically larger base than the liability.
The long-term threshold is frequently not applied. The 1,25,000 exemption belongs to the person for the year, across every account and intermediary. No single deductor can know how much is already spent, and the common resolution is to deduct on the gross gain and leave the threshold to the return.
Surcharge is applied on somebody else's estimate of your income. The deductor forms a view of the payee's income from what it can see. The cap bounds the damage, but on four lakh of short-term gain the difference between no surcharge and the capped fifteen percent is 83,200 against 95,680 leaving the account.
Cost of acquisition is whatever the deductor holds on file. The largest of the four and the least discussed. Shares bought while resident and carried across the status change, transferred in from another depository participant, or allotted in a public or rights issue and never reported into the route may carry no recorded cost. On a sale of 4,00,000 where the real cost was 3,00,000 and the real gain 1,00,000, a computation that cannot see the cost deducts 83,200 against a true liability of 20,800.
| Element | At the deduction | In the return |
|---|---|---|
| Losses elsewhere in the year | Not visible | Set off within the rules |
| The 1,25,000 long-term threshold | Often not applied | Applied once, across every account |
| Surcharge | On the deductor's estimate | On actual total income |
| Cost of acquisition | Whatever is on file | The real cost, with evidence |
| Brought forward losses | Not visible | Set off if filed in time |
| Unused basic exemption | Never available to a non-resident | |
One year, one set of trades, two cash positions
Five closed positions in listed equity across one year, all delivery. Two gains, three losses. The figures are illustrative and the arithmetic is the point.
| Sale | Result | Deducted from a non-resident | What a resident does |
|---|---|---|---|
| August, short-term | Gain 4,00,000 | 83,200, within days | Enters the September instalment |
| November, short-term | Loss 1,60,000 | Nothing deducted, nothing returned | Reduces the December instalment |
| January, short-term | Loss 90,000 | Nothing deducted, nothing returned | Reduces the March instalment |
| February, long-term | Gain 3,00,000 | 39,000, within days | Enters the March instalment on the net |
| March, long-term | Loss 1,20,000 | Nothing deducted, nothing returned | Trued up at filing |
| Taken during the year | 1,22,200 | Broadly the liability, on the net | |
| Liability on the return | 1,50,000 short-term, 55,000 long-term | 38,350 | 38,350 |
| Carried into the next year | 83,850 waiting on a refund | Nothing |
The two liabilities are identical. The deduction is more than three times it. Nobody was penalised, no rate was higher, and nobody broke a rule. The base the deduction ran on had not finished forming when the deduction was taken.
Put the dates on it. The August deduction reaches the government within weeks, the tax year closes on 31 March, the return is filed months later, and the refund follows processing. A rupee deducted early in a tax year is out of reach for well over a year, and its owner is compliant throughout.
Push one variable and it worsens. If the deductor applies the capped surcharge, the two deductions become 95,680 and 44,850, a total of 1,40,530 against the same 38,350.
The certificate is the fix, and it only works before the sale
The Act anticipates this. A non-resident can apply to the assessing officer, on the prescribed form through the deductions portal, for a certificate authorising deduction at a lower rate or at nothing. There is a parallel route for the payer to have the chargeable proportion of a payment determined, and one for the payee.
Two properties decide its worth. It is prospective, so it does nothing about deductions already made. And it is handed to the deductor, so what matters is not when the officer issues it but when the intermediary has it on file.
The case is strongest where the deduction will dominate: losses expected against a gain already taken, a threshold genuinely available, a holding whose cost the intermediary cannot evidence. Against a small and steadily profitable book it adds administration for little, because there the deduction approximates the liability.
Repatriation, and where a refund actually lands
The external account and its interest repatriate without a ceiling. The ordinary account repatriates up to one million United States dollars in a financial year, against a declaration from the remitter and a chartered accountant's certificate stating the nature of the remittance, whether it is taxable, and that Indian tax on it is discharged.
Two consequences are rarely joined up. What reaches the account after a sale is already net of the deduction, so an over-deduction shrinks what there is to remit that year. And the refund arrives into the ordinary account rather than a foreign one, where it queues for the annual window like any other balance. An over-deduction can push part of somebody's own capital into a later year's allowance, a second cost that appears in no rate comparison.
The certificate is also where the chain gets checked, because the accountant certifying the remittance must be satisfied that tax on the underlying income was dealt with correctly.
Two methods of treaty relief, and only one touches the deduction
Double taxation relief comes in two shapes. Under the exemption method an item of income is taxed in one country and left alone by the other. Under the credit method both may tax it and the country of residence allows a credit for the tax paid in the country of source.
| Exemption method | Credit method | |
|---|---|---|
| Where relief is given | In India | In the country of residence |
| Effect on the Indian deduction | Reduces or removes it | None, it happens in full |
| Typical application | Some rates on interest and dividends | Gains on shares in an Indian company |
| What must be produced | Residency certificate and declaration, before deduction | Evidence of Indian tax paid |
| Cash effect | Immediate | Delayed to that country's filing cycle |
For capital gains on Indian shares most treaties leave India the taxing right as the country of source, so relief is a credit abroad rather than an exemption here. A treaty prevents the same gain being taxed twice. It does not prevent the deduction and it does not shorten the wait.
It introduces a mismatch of its own. The Indian year ends on 31 March and many countries run to 31 December, so one Indian year straddles two foreign ones. A credit claimed abroad for Indian tax deducted, followed by an Indian refund of part of it, leaves a foreign return that was correct when filed and is not correct now.
The over-deduction is structural, not accidental
The Act contains a concessional regime for non-resident Indians investing through convertible foreign exchange, at sections 115C to 115I. Investment income from specified assets is taxed at a flat twenty percent. Long-term gains on those assets carry twelve and a half percent for transfers on or after 23 July 2024, having been ten percent before. Reinvesting the net consideration in specified assets within six months can exempt the gain.
One provision in that chapter explains this whole page. Where a non-resident's Indian income is only such investment income and long-term gains on those assets, and tax has been deducted on it, no return need be filed. The intent is plain: the deduction is meant to be the final tax and the return is the exception.
That is why the over-deduction is structural rather than a defect. A system built on the assumption that deduction equals liability has no reason to give the deductor sight of losses, thresholds or costs it does not hold. The moment somebody has losses, uses the threshold, or holds shares acquired before the status change, the assumption breaks and the only repair is the one the system treats as optional.
What the gap is actually for
Treat the difference between the deduction and the liability as a financing cost with a known cause, not as unfairness. It has a size, can be estimated before the year starts, and has two levers. Apply for the certificate before the large sale rather than after it. And make sure the intermediary holds acquisition records for everything in the account, because the largest over-deduction in practice is not a rate at all, it is a cost the computation could not see.
The rest is ordinary discipline. Know the status before the year starts rather than counting days in March. Keep the acquisition trail for holdings that crossed the residence change. File even where the chapter says no return is required, because a refund cannot arrive without one.
Frequently asked questions
Does an NRI pay more tax than a resident on Indian shares?
Not on the rate. Listed equity sold on an exchange carries the same twenty percent on a short-term gain and twelve and a half percent on a long-term gain above 1,25,000 in the year. Two differences remain. A non-resident cannot set unused basic exemption against those gains, because that relief is written for a resident individual or Hindu undivided family. And the tax is deducted at source rather than settled at filing, which is usually the larger of the two.
How is my residential status decided?
By counting days of physical presence in India during the tax year. One hundred and eighty-two days or more makes you resident, and so does sixty days combined with three hundred and sixty-five across the four preceding years. For a citizen or person of Indian origin visiting India that sixty reads as one hundred and eighty-two, cut to one hundred and twenty where Indian income exceeds fifteen lakh. Citizenship is not a test at any point.
Why is the deduction larger than the tax I owe?
Because it is computed on one sale at a time from the deductor's own records. It cannot see a loss you book two months later, does not know how much of the 1,25,000 threshold you have used elsewhere, may apply surcharge on an estimate of your income, and can only use a cost it holds on file. Every one of those pushes the deduction up and none pushes it down.
Can losses be set off before tax is deducted?
No. Set off is a return level operation. A losing sale generates no deduction and returns nothing taken on an earlier winning one. That is the mechanical reason a non-resident can end a year with a net loss, owe nothing at all, and still have had tax taken out during it.
When is the lower deduction certificate worth applying for?
Whenever the expected deduction across the year is materially larger than the expected liability: losses against a gain already taken, a book that will use the long-term threshold, or a holding whose cost the intermediary cannot evidence. It works only prospectively and only once the deductor holds it, so one obtained in January does nothing about a deduction made in August.
How long does the excess take to come back?
The deduction reaches the government within weeks of the sale. Recovery needs the return for that tax year, which cannot be filed before the year ends on 31 March, and then processing and issue of the refund. A deduction on a gain taken early in the year is out of reach for well over a year.
Does the deduction reduce what I can repatriate?
In two ways. What reaches the account is net of the deduction, so that is what there is to remit. And the refund, when it comes, lands in the ordinary account and joins the annual window afresh, needing the declaration and the accountant's certificate like any other remittance.
Does a tax treaty stop the deduction?
Usually not for gains on Indian shares. Most treaties leave India the taxing right as the country of source, so relief is a credit in your country of residence rather than an exemption here. Where a treaty does give a lower rate, most often on dividends or interest, it applies at the deduction stage only if the deductor holds a tax residency certificate and the prescribed declaration first.
I only trade delivery equity. Can that be treated as a business?
On the equity side the question barely arises, because a non-resident takes delivery and cannot square off intraday or sell short. With no intraday there is no speculative business to characterise, and shares under the designated route are capital assets producing capital gains. Derivatives are the exception, on the non-repatriable side, and that book is non-speculative business income.
Did the Income-tax Act 2025 change any of this?
The mechanism is intact. The previous year and assessment year pair became a single tax year, the day-count tests and the deemed residency rule were carried across, and deduction at source on payments to a non-resident survives with the lower deduction certificate route. What changed comprehensively is the numbering of sections and forms. Confirm the current number before quoting a section.
Statutory transition. The Income-tax Act 1961 was replaced by the Income-tax Act 2025 with effect from 1 April 2026, and almost all section numbers changed. Provisions in this guide are identified by name and by their long-established 1961 numbering, which is how they are still indexed in most practice material and case law. The corresponding number under the 2025 Act will differ. Confirm both the current section number and the provision itself for the year you are dealing with before relying on anything here, and take advice on your own facts.
Position stated as at 19 September 2026. Rates, thresholds and the residence tests move with each Finance Act, and the surcharge a deductor applies depends on its own estimate of the payee's income, so the effective figures above are ceilings rather than certainties. Worked figures are illustrative. Confirm the provision, its current number and your residential status for the year in question, and take advice on your own facts.
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