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How does Zerodha deduct TDS for NRI NON-PIS accounts?

If a Non-PIS account is opened, Zerodha is responsible for deducting Tax Deducted at Source (TDS). Short-term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) are applicable when trading in the stock markets.

The table below explains the taxes:

Segment Capital Gains Period STCG Surcharge Cess
Equity STCG Less than 365 days 15% 15% on STCG 4% of STCG plus surcharge

LTCG More than 365 days 10% 15% on LTCG 4% of LTCG plus surcharge
Non-Equity STCG Less than 3 years 30% 15% on STCG 4% of STCG plus surcharge

LTCG More than 3 years 20% 15% on LTCG 4% of LTCG plus surcharge

Short-term Capital Gains (STCG):

Short-term Capital Gains (STCG) of 17.94% (15% STCG plus 15% surcharge and 4% cess) on profits made applies to stocks sold within 365 days.

When shares are sold from a Non-PIS account, Zerodha posts a provisional TDS entry on the ledger at the end of the day at 15% + cess (applicable on the amount received from the shares sold). At the end of the next working day (T+1), the provisional TDS is reversed, and the actual TDS is debited if there is a capital gain from the sale of shares.

Example scenario

  1. On 1st April 2023, 100 shares of Reliance were bought at ₹1,000 per share. The buy value is  ₹1,00,000 (100 shares * ₹1,000 per share).
  2. On 30th May 2023, they were sold at ₹900 per share. The sale value is ₹90,000 (100 shares *₹900 per share). Incurring a loss of ₹10,000 (₹1,00,000 - ₹90,000).
  3. On 31st May 2023, 100 shares of Reliance were bought again at ₹900 per share. The buy value is ₹90,000 (100 shares * ₹900 per share).
  4. On 30th June 2023, they were sold at ₹1,100 per share. The sale value is ₹1,10,000 (100 shares *₹1,100 per share). Incurring a profit of ₹20,000 (1,10,000 - ₹90,000).

Short-Term Capital Gains (STCG) TDS at a rate of 17.94%, i.e. ₹3588 on the profit of ₹20,000, is charged by Zerodha on 30th June 2023.

Initially, the client lost ₹10,000 and then made a profit of ₹20,000, so the net gains for the financial year are ₹10,000, and the applicable TDS is ₹1,790.

Long-term Capital Gains (LTCG):

There is no Long-Term Capital Gain (LTCG) on profits below ₹1,00,000. For TDS on LTCG, Zerodha does not consider the grandfathered effect. On profits above  ₹1,00,000, an LTCG of 11.96% (10% LTCG plus 15% surcharge and 4% cess) is applicable if the shares are held for more than 365 days. Zerodha cannot provide an exemption of ₹1,00,000, as NRIs can have multiple capital gains through mutual funds, accounts with other brokers etc.

If a client does not accrue any LTCG, TDS can be claimed while filing tax returns. Contact a tax consultant or Chartered Accountant (CA) for tax-specific queries.

The capital gains statement is emailed to the client on the posting day of the actual TDS, i.e. T+1. The statement consists of 3 tables:

  • Summary of Day’s P&L: This table details the booked profits or losses and whether they are long-term or short-term.

  • Summary of TDS Computation: This table summarises the setting-off of losses against the booked profits. Adjusted gains are the net profits for the day after reducing the carry-forward losses on which TDS is calculated based on the applicable rates.

  • Summary of Carry-forward losses: This table consists of the opening balance of the brought forward losses. Based on the profit or loss booked that day, there can be an addition or a deduction from this figure. Losses booked for the day are accumulated, while sett-off losses are reduced from the brought forward losses. The net figures are carried forward for the next day.

  • Short-term losses (STCL) can be set off against STCG & LTCG.
  • Long-term losses (LTCL) can only be set off with LTCG.
  • If shares are transferred from another broker, update the buy prices for the transferred stocks before selling them. If buy prices are not updated, the TDS will be deducted from the amount received from the sale of shares.

Did you know?

  • Losses can be carried forward and set off against future profits within the financial year. For the current year, Zerodha is carrying losses from 1st Oct 2023.
  • 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 as NRI. As per the circular (WEB), a higher TDS is applicable if the residential status is not updated with the ITD. To learn how to update the residential status, see How to update the resident status of PAN for an NRI & PIO account?