Personal Finance

Tax Query: How will spouse of NRI be taxed on stock trading gain funded by joint bank account in India?

Sudhakar Sethuraman | Updated on May 16, 2021

I am an NRI and I have an NRE trading account and savings account with one of the private banks of India. I have a regular resident bank account, jointly with my spouse. Can I open a stock trading account in my spouse's name (an income tax payer, working in state government) and start paying for the trades from the resident joint savings bank account? If so, how will my spouse be taxed on the gains in such transactions?

S Nagarajan

Our response below is based on Income Tax Act, 1961 and doesn’t include the applicability of FEMA regulations relating to investment in equity scrips by NRIs in India.

Under the Income Tax Act 1961 (Act), characterisation of income earned from sale of shares shall depend up on the motive behind the investment in such shares and accordingly taxed either under the head ‘Profit and Gains from Business’ (BI) or ‘Capital Gain’ (CG). Thus, sale proceeds from shares held as stock in trade (trading) shall be taxable as business income (BI) while the proceeds from shares held as investment (capital asset) shall be taxable as capital gains (CG) under the Act.

Assuming that the shares would be held as investment, Long term CG in excess of ₹1 lakh from sale of listed shares are chargeable to tax at the rate of 10 per cent. Short term CG (STT paid) shall be taxable at the rate of 15 per cent. Besides, surcharge (if applicable) and health & education cess at 4 per cent shall apply.

It may be noted that effective from FY 2020-21 (1 April 2020 to 31 March 2021) dividend distribution tax has been abolished, consequently, dividend income from shares are taxable in the hands of the shareholders at the applicable tax slab rates. As per Section 64 of the Act, any income from investment made or assets purchased in the name of close relatives (spouse, minor child or daughter-in-law) is clubbed with the income of the person making the investment and taxed accordingly. This applies to all types of investments such as shares, fixed deposits, etc.

Accordingly, the income earned from investment in shares shall be clubbed in your total income and taxed at the applicable rates as discussed above.

The writer is Partner, Deloitte India.

Send your queries to taxtalk@thehindu.co.in

Published on May 16, 2021

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