What will be TDS implications on sale of listed share by Indian broker on behalf of Non-resident

Hi Urvashi! Here’s the scoop on TDS implications when an Indian broker sells listed shares on behalf of a Non-Resident (NR):

1. Who deducts TDS?

• The Indian broker is responsible for deducting TDS while making payment to the Non-Resident seller.

2. Which section applies?

• Section 195 of the Income Tax Act governs TDS on payments made to Non-Residents, including capital gains from sale of shares.

3. Is TDS applicable on sale of listed shares by NR?

• Generally, capital gains arising from the transfer of listed shares on a recognized stock exchange in India are exempt from capital gains tax for Non-Residents if Securities Transaction Tax (STT) is paid at the time of sale (Section 10(38)).

• However, Section 195 TDS rules still apply on payments to NR unless exempted.

• In practice, since STT is paid on sale, capital gains from sale of listed shares are exempt, so the broker should NOT deduct TDS on the capital gains under section 195.

4. What about the sale proceeds?

• The broker typically deducts TDS on the gross sale proceeds only if the transaction is treated as a capital asset sale without exemption.

• But since STT is paid, capital gains tax is exempted, so no TDS deduction is required on capital gains portion.

• If the shares are sold on the stock exchange and STT is paid, no TDS under section 195 on capital gains for NR.

5. Important Notes:

• If the shares are not listed or sold off-market, then TDS on capital gains is applicable.

• The NR should submit a Tax Residency Certificate (TRC) and lower or nil withholding certificate if applicable.

• NR can claim refund if TDS is deducted wrongly.

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