Transfer of Funds from Middle East to NRE on sale of shares held in US companies

Hi Mallikarjuna,

Your query involves capital gains from sale of US shares (RSUs + ESPPs), while you are currently an NRI based in the Middle East, and you want to understand:

Whether you can transfer the proceeds to your Middle East account first, and then to your NRE account in India, and
The Indian tax implications of such a transaction.

Let’s go step by step:

✅ 1. Can You Transfer Sale Proceeds to Middle East First, Then to NRE Account?

Yes, you can:

Sell US-based RSUs/ESPPs.
Receive the sale proceeds into your Middle East bank account (or even directly into your US bank account).
Then remit the funds to your NRE account in India.

This will be considered foreign inward remittance, so no issues in using your NRE account.

However:

Ensure you retain documentation — sale contract, brokerage statements, foreign inward remittance certificates (FIRC), etc.
The funds should come from overseas sources, and not from domestic Indian accounts, to maintain NRE account eligibility.

💰 2. Will These Funds Be Taxable in India?

Yes, capital gains on foreign shares are taxable in India, even for NRIs.

a. Your Residential Status Matters

Since you're an NRI and the shares were originally allotted during your employment in India, the taxation is as follows:

Type of Share	Tax Treatment
RSUs	Taxable at two levels: (1) Perquisite Tax at vesting (when RSUs convert to shares) — likely paid in India at that time, and (2) Capital Gains Tax on sale of shares
ESPPs	Similar: taxed on discount (if any) as salary/perquisite at the time of allotment, and capital gains on sale

b. Capital Gains Tax in India (Post-vesting)

Since these are foreign securities, the gains are long-term if held >24 months; else short-term.

Type of Capital Gain	Tax Rate (India)
Short-Term (≤ 24 months)	As per slab rate (30% for most NRIs)
Long-Term (> 24 months)	20% with indexation (Section 112)

Even though the sale proceeds are routed via the Middle East, the place of receipt doesn’t change your India tax liability if you are ordinarily resident, or if the income was earned during Indian employment.

🧾 3. Are There Taxes in the Middle East?

If you’re in a country like UAE, Saudi Arabia, Qatar, etc. — they don’t tax personal income, including capital gains. So, there’s no tax there.

But India may still tax you on global income if you're considered "Resident and Ordinarily Resident (ROR)"under Indian tax rules. If you're truly an NRI under Section 6 of the Income Tax Act, only Indian-sourced income is taxable.

So, the taxability of your capital gains in India depends on your residential status in that financial year.

✅ 4. Action Steps / Recommendations

Step	Action
1	Check your residential status in India under Sec. 6 (NRI or ROR)
2	If you're NRI, capital gains on foreign shares may not be taxable in India unless shares were linked to your Indian employment
3	Ensure you have proof of vesting dates, acquisition cost, and holding period for computing gains
4	Report any capital gains (even from abroad) in your Indian ITR if required
5	Use Schedule CG (Capital Gains) in ITR-2 and mention details of the shares sold
6	Funds received in Middle East and transferred to NRE account will be treated as foreign source funds – no FEMA violation as long as documentary trail is maintained

🧾 Summary

Question	Answer
Can I transfer sale proceeds to Middle East, then to NRE?	✅ Yes, perfectly allowed
Will there be Indian tax if I’m NRI now?	⚠️ Possibly yes — especially if shares were earned during Indian employment or if you're ROR
Are Middle East taxes applicable?	❌ No (most countries in the region don’t tax capital gains)
Is it better to report in Indian ITR?	✅ Yes — disclose gains, claim DTAA benefit if applicable, and avoid future scrutiny