ITR Filing: Can NRIs claim refund on short-term capital gains tax if income is below the exemption limit?

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A common query among NRIs investing in Indian equities is whether they can seek a refund of tax deducted at source when their total short-term capital gains fall below the basic exemption limit. Today's Ask Wallet-Wise query decodes how resident taxpayers can adjust such shortfalls against capital gains while the rules differ for NRIs. 

Moneycontrol’s Ask Wallet Wise initiative offers expert advice on matters of personal finance and money. You can email your queries to askwalletwise@nw18.com, and we will try and get a top financial expert to address your queries.

I am an NRI. My only income in India comes from investing in equities through a PIS (Portfolio Investment Scheme) account, where tax is deducted at source on all capital gains. My total realized short-term capital gains will be less than Rs 2.5 lakh. Can I claim a refund of the tax deducted by filing an ITR, since my taxable income is below Rs 2.5 lakh?

Expert Advice: Under Indian tax laws, certain incomes are taxed at slab rates (such as salary, business income, and interest), while others are taxed at special rates. For example, long-term capital gains (LTCG) and short-term capital gains (STCG) from listed shares and equity-oriented schemes are taxed at special rates of 12.5% and 20%, respectively.

Resident taxpayers can set off the shortfall in their basic exemption limit against LTCG or STCG from listed shares and equity schemes. For instance, an 85-year-old resident with normal income of Rs 3 lakh and STCG of Rs 5 lakh can adjust the Rs 2 lakh shortfall in their exemption limit (Rs 5 lakh for super seniors) against STCG and pay tax only on the balance Rs 3 lakh.

However, this benefit is not available to NRIs. As an NRI, you must pay the full tax on your STCG—20% on gains realized on or after July 23, 2024, and 15% on gains realized before this date. The bank would have already deducted the applicable tax. Hence, you cannot claim a refund of the tax deducted. Since your total income does not exceed the basic exemption limit, you are also not required to file an Income Tax Return (ITR).

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.