As conversations surrounding the removal of the long-term capital gains (LTCG) tax and the securities transaction tax (STT) are doing the rounds, Union Finance Minister Nirmala Sitharaman has hinted at a discussion to get investors’ views on the matter.
The finance minister says that there is a lot of discussion on the issue among Indian as well as foreign investors, and that it is healthy to have such a debate.
Particularly following the SBI research suggesting the scrapping of the LTCG tax, investors are highlighting the need to reduce the burden while registering gains on shares and eligible equity-oriented mutual funds.
Meanwhile, STT is also said to be coupled with LTCG to increase the burden on investors, which, as they suggest, may hinder returns and hurt market competitiveness.
Indians living abroad are also liable to pay taxes based on their tax residency. Non-Resident Indians may have to pay LTCG tax if they have property or any other applicable asset in the country and qualify for tax residency in India.
Let’s understand who qualifies for taxation while living overseas.
Non-Resident Indians are subject to Indian income tax solely on the income earned or accrued in India. No income earned in the foreign country of residence is subject to Indian taxation.
However, Section 115G of the Income Tax Act, 1961, specifies that an NRI is exempt from filing income tax returns if the total income earned in India consists only of investment income or long-term capital gains, subject to TDS. The Income Tax Act, 2025, retains the conditions concerning tax residency, liability, and other requirements.
Being subject to Indian income tax depends on a person’s tax residency status, which depends on factors including the period of stay in India and total income. Two major situations under Section 6 and 6(1) of the Income-tax Act, 2025, determine the status of one’s residency:
— A 182-day stay in India during a financial year
— A 60-day stay in India during a financial year, along with a stay of at least 365 days during the preceding four financial years
There is a distinction for employees leaving India for employment purposes or as part of the crew of an Indian merchant ship: the test of residency is a 182-day period of stay in India. For them, the latter condition for tax residency does not apply.
The conditions applicable to Indian citizens and Persons of Indian Origin (PIO) are different. They are tax residents in India if they stay in the country for a period exceeding 182 days.
Also, if such citizens earn more than Rs 15 lakh in a financial year, other than foreign income, the 60-day requirement is replaced by a 120-day requirement, on the condition that such a citizen has stayed in India for 365 days during the preceding four years.
There is another condition that applies to people who earn more than Rs 15 lakh during a financial year, excluding foreign income, and are not liable to pay tax in any other country. Such people would be deemed resident in India and are classified as residents but not ordinarily resident (RNOR).
