The Provisional TDS amount blocked entry appears on your ledger when you have a Non-PIS account, and Zerodha temporarily blocks funds for Tax Deducted at Source (TDS) calculation.
When you trade in the stock markets with a Non-PIS account, you are subject to long-term and short-term capital gains tax. Zerodha is responsible for deducting TDS from your account.
How provisional TDS works for Short-term Capital Gains (STCG)
You pay STCG of 20% on profits made from stocks sold within 365 days.
When you sell shares from your Non-PIS account, here's what happens:
- End of trading day: Zerodha posts a provisional TDS entry on your ledger at 20% + cess on the amount you received from the shares sold.
- Next working day (T+1): The provisional TDS is released at the end of the next working day (T+1 end of the day) and becomes available for trading from the following working day (T+2).
To learn how to read the ledger, see How to interpret the ledger statement for an NRI Zerodha account?
Example of provisional TDS process
- You sell shares worth ₹15,844.77, and Zerodha blocks ₹3,790.07 as provisional TDS (about 23.92%) at the end of the day.
- On the next day, this TDS is released.
- If you made a profit, the actual TDS is deducted after releasing the blocked TDS amount.
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If you sold shares at a loss, TDS will not be deducted. Your losses will be carried forward and set off against future profits.
Long-term Capital Gains (LTCG)
You pay LTCG of 12.50% on profits above ₹1,25,000 if you hold shares for more than 365 days. Brokers cannot provide an exemption as NRIs can have multiple capital gains through mutual funds, accounts with other brokers etc.
If you do not accrue any LTCG, you can claim TDS while filing tax returns. For tax-specific queries, contact a tax consultant or Chartered Accountant (CA).
Things to keep in mind
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If you transfer shares from another broker, update the buy prices for the transferred stocks before selling them. If you do not update buy prices, TDS will be deducted from the amount you received from the sale of shares.
- The rate of LTCG is 12.50%, and STCG is 20% before the surcharge and cess are levied.
- The Income Tax Department (ITD) has inactivated PANs that are not linked to Aadhaar from July 1st, 2023. PANs of NRIs and Persons of Indian Origin (PIO) were exempted but have now been deactivated as the status was not updated to NRI. As per the circular (WEB), a higher TDS is applicable if the residential status is not updated with the ITD.