Indian students are treated as NRIs under foreign exchange regulations

A student holding a non-resident ordinary (NRO) bank account in India, may withdraw and repatriate up to $1 million per financial year (FY) from her NRO account.

If a student is studying abroad, would she get a non-resident Indian (NRI) status? If she earns too, what will be the tax implications in India?

—Baney R.

Under the Indian foreign exchange regulations, Indian students going abroad for studies are treated as NRIs and are eligible for facilities available to NRIs. Therefore, educational and other loans availed by students, as residents in India, can be allowed to continue. Also, a student holding a non-resident ordinary (NRO) bank account in India, may withdraw and repatriate up to $1 million per financial year (FY) from her NRO account.

However, the qualification as NRI under the Indian tax laws will be determined on the basis of her residential status, which is dependent on the physical presence of an individual in India during the relevant FY and last 10 FYs.

An individual qualifies as a resident of India if she satisfies any one of the following basic conditions: stay in India during the FY is 182 days or more, or stay in India during the FY is 60 days or more, and in the 4 years immediately preceding the FY is 365 days or more.

Assuming that the student is based outside India during the entire FY and has stayed in India (during his visits to India) for not more than 181 days during the concerned FY, such a student would qualify as a non-resident (NR) for that FY.

Taxability in India depends on: source of income, residential status and place of receipt of income.

An individual qualifying as an NR is taxable in India on her India-sourced income and any income directly received in India. Accordingly, the student would be taxable in India on her India-sourced income and any income that is directly received in India. As the student is earning outside India, such income earned by her would qualify as a foreign-sourced income. Also, assuming that the student directly received such income outside India, such income would not be liable to tax in India. Also, remittance of such income to an Indian bank account is not liable to tax in India.

If an NRI sells stocks of an Indian company, how will it be taxed?

—Rahil Arya

Capital gains from sale of shares of an Indian company are taxable in India. A person whose total taxable income in India does not exceed the maximum amount not chargeable to tax (i.e., Rs2.5 lakh) is not liable to pay tax.

Capital gains on sale of equity shares listed on a recognised stock exchange in India will be classified as long term if held for more than 12 months. Long-term capital gains (LTCG) from sale of listed equity shares are tax exempt, provided securities transaction tax (STT) has been paid. Short-term capital gain (STCG) on sale of listed equity shares are taxable at 15% plus applicable surcharge and education cess, provided securities transaction tax has been paid: an effective tax of 17.77%.

Capital gain on sale of unlisted shares will be classified as long term if held for more than 24 months. LTCG from sale of unlisted shares earned by an NR are taxed at 10% plus applicable surcharge and education cess, without giving the benefit of indexation: an effective tax of 11.85%.

STCG on sale of unlisted equity shares are taxable at slab rates plus surcharge and education cess as applicable.

Tax exemption can be availed if the LTCG is re-invested in specified bonds or a residential house in India.

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