UAE NRIs Hope for Lower Tax on Indian Shares: What a Cut Could Save
India's finance minister says she will hear investors on STT and capital gains tax. Nothing is decided, but here is what UAE NRIs pay now and what a cut could save.
By Vadim Kouznetsov, published
UAE-based Indians who invest in Indian shares could keep more of their profits if New Delhi lowers investment taxes, after Finance Minister Nirmala Sitharaman said she was willing to hear investors' concerns, Gulf News reported. She has not promised to cut or scrap either securities transaction tax (STT) or long-term capital gains tax, but her remarks raised hopes of a tax review ahead of India's February Budget.
"It's healthy to have this debate, and I will be keenly hearing them," she said at the Bloomberg New Economy Forum in New Delhi. The Nifty 50 closed 1.6% higher after her remarks, but a rally is not a tax cut.
The two taxes NRIs pay on Indian shares
- STT: charged on the value of a trade. For ordinary purchases of listed shares into your demat account, it is 0.1% of the purchase value, and another 0.1% when you sell. You pay it even if you sell at a loss.
- Capital gains tax: charged on the taxable profit when you sell or redeem.
For qualifying listed shares and equity mutual funds, profit on an investment held for more than 12 months is generally long-term. Short-term profits currently face a 20% base rate. Long-term profits face 12.5% on the amount above Rs125,000 in a tax year, and that allowance covers all your eligible long-term gains combined. A 4% health and education cess, plus any surcharge, is added on top.
"This dual taxation has been a concern for investors," Nilesh Shah, managing director of Kotak Mahindra Asset Management Co., said in a Bloomberg report.
What you pay now: a worked example
In Gulf News' example, you buy shares for Rs1,000,000 and sell them for Rs1,500,000 after more than 12 months, and the Rs500,000 profit is your only long-term gain that year.
| Item | Amount |
|---|---|
| STT on purchase | Rs1,000 |
| STT on sale | Rs1,500 |
| Taxable gain after Rs125,000 allowance | Rs375,000 |
| Base tax at 12.5% | Rs46,875 |
| Tax including 4% cess (no surcharge) | Rs48,750 |
That is Rs48,750 in gains tax plus Rs2,500 in STT, before brokerage and other costs.
What a tax cut could save
SBI Research has proposed scrapping tax on long-term equity profits for investors who hold for two or three years. That is a recommendation, not government policy.
Using the same example:
- If STT were removed before you sell, you would save Rs1,500 on the sale. Capital gains tax would still apply.
- If long-term capital gains tax went, the Rs48,750 bill would disappear, but STT would remain unless that also changed.
Neither change would refund tax already paid. There is no announced retrospective relief, and existing rules apply until the law changes.
The rupee-to-dirham rate also affects what you end up with, as we covered in Indian Rupee Hits Historic Low vs UAE Dirham: What You Need to Know.
Mutual funds, SIPs and the NRI rules
Equity mutual fund purchases do not attract the 0.1% STT. Selling or redeeming units generally attracts 0.001%, which is Rs15 on a Rs1,500,000 redemption.
With a systematic investment plan, each instalment has its own purchase date, so one withdrawal can mix short-term and long-term gains.
Living in the UAE does not automatically exempt your Indian investment profits from Indian tax. Non-residents can use the Rs125,000 allowance, but cannot claim the extra adjustment against an unused basic exemption that some residents can.
If you hold older shares bought before February 1, 2018, keep your records: the January 31, 2018 market value is used to work out the purchase cost. Planning who inherits your Indian holdings? See Dubai NRI Wills: How to Draft for Property in India 2025.
Key takeaway
India's finance minister is open to a debate on STT and capital gains tax, but nothing has been agreed. UAE NRIs should plan under current rules, keep purchase records and wait for Budget detail.
FAQ
Has India cut tax on share investments for NRIs?
No. Sitharaman said she would hear investors' concerns but promised no cut. Current rules apply until the law changes.
Do UAE residents pay Indian tax on Indian share profits?
Not automatically. Your Indian tax residency and the rules for the investment decide the position.
What is the long-term capital gains tax rate in India?
For qualifying listed shares and equity funds, it is 12.5% on long-term gains above Rs125,000 a year, plus a 4% cess and any surcharge.
Would a tax cut apply to shares I already own?
Possibly, if new rules cover their eventual sale. Tax already paid would not be refunded.
Further reading
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