Can I exercise my employee stock options from an NRO account?

I’m a non-resident Indian (NRI) and work for an IT company abroad. I have been granted employee stock options (Esops) of the parent company in India, which are now vested. The exercise period starts from April 2025 and I plan to pay the exercise price from my Indian non-resident ordinary (NRO) account. Is this allowed, and will the payment be taxable because I am making it from an Indian account?

-Name withheld on request

Under the Foreign Exchange Management Act (FEMA), a non-resident Indian is allowed to make payments towards the exercise price for Esops, either by way of inward remittance or from repatriable sources (such as non-resident external and foreign currency non-resident accounts) or even from a non-repatriable rupee account (NRO account). Thus, you can make the payment from your NRO account.

The tax treatment won't be affected in any manner if you pay the exercise price from your NRO account.

Also read: Need funds but locked in NPS? Here’s how you can make partial withdrawals

I have an architectural design consulting practice in the US. I have been providing services to an Indian consulting LLP (limited liability partnership), from which I earn fees. The LLP does not deduct withholding tax while paying me these fees. Now I have an offer to become a partner there instead. How will my tax position change if I become a partner instead of a consultant?

-Name withheld on request

Consultancy fees received by a non-resident Indian from an Indian entity are typically subject to tax under the Income Tax Act, 1961. However, if the services are provided from outside India and you do not have a fixed place of business in India to render these services, the consultancy fees may not be taxable owing to the India-US Double Taxation Avoidance Agreement (DTAA).

Also read: How can Indians invest in foreign stocks?

On the other hand, if you became a partner in an Indian LLP, you would earn profits rather than consultancy fees. Profits earned from an LLP by a non-resident partner are not taxable under the Income Tax Act. Also, any remuneration that you may receive from the LLP will not be subject to tax in India, so long as you continue to provide services from outside India, as you do currently.

I live in the Netherlands. I recently invested in the Indian stock market and will shortly receive interim dividend income from one of the companies. Is it taxable in India?

-Name withheld on request

Assuming you are a non-resident, dividend income is subject to a 20% tax rate (plus applicable surcharge and cess). However, if you qualify for benefits under the India-Netherlands Double Taxation Avoidance Agreement (DTAA), this tax rate can be reduced to a flat 10%. To avail of this benefit, you may need to provide a declaration to the company paying the dividends, along with supporting documents such as a tax residency certificate and Form 10F.

Also read: Why the US market may no longer be your best global bet

Harshal Bhuta is a partner at P. R. Bhuta & Co. Chartered Accountants.