Tax rules for Non-Resident Indians (NRIs) are slightly different from those for residents. NRIs can invest in Indian shares or mutual funds.
Many NRIs also send money to their family members in India, often from their NRO (Non-Resident Ordinary) account.
A common question is whether these money transfers need to be reported in the Income Tax Return (ITR). If so, what are the rules? Tax expert Balwant Jain shared his insights.
Short-term capital gains tax rules for NRIs
According to Jain, if an NRI earns short-term capital gains, they must file ITR-2. NRIs are not allowed to adjust these gains against the basic exemption limit of ₹2.5 lakh.
This means that if no tax was deducted earlier, the NRI must pay 15% tax on the entire short-term capital gain.
Normally, brokerage firms deduct TDS (Tax Deducted at Source) on capital gains for NRIs. However, Jain added that for short-term capital gains earned after July 23, 2024, the tax rate has increased to 20%.
Transferring money to wife’s account – what the tax law says
Jain clarified that if an NRI transfers money from his NRO account to his wife’s bank account, it does not affect his tax status.
According to income tax laws, if someone receives gifts worth more than ₹50,000 in a financial year, it is treated as taxable income.
But gifts to certain close relatives—including a spouse—are tax-free, regardless of the amount.
Clubbing of income rules
Jain further explained that when an NRI gives money to his wife, it may be treated as either a gift or a loan.
If it’s considered a gift, then any income earned from that gift will be added to the NRI’s income under the clubbing provisions of the tax law.
This clubbing rule also applies if the gifted amount is used to buy another asset.
However, it’s important to note that clubbing applies only to income earned from the gifted amount, not from income earned on top of that income (i.e., income from reinvestments of the already clubbed income).
