Why Financial Planning?

Planning is bringing the future into the present so that you can do something about it NOW.

As an NRI, you can invest in mutual fund schemes in India but you have to pay taxes.

You have to pay tax on mutual funds in India based on certain criteria, Keep in mind that tax implications are different for NRIs as compared to Resident Indians.

In this post we are talking about the NRI mutual funds taxation that you have to pay in India – you should remember that you may also have to pay tax in the country where you are staying right now.

NRI Mutual Fund Taxation

LIST – Best Mutual Fund for NRI

NRI Mutual Fund Taxation in India 2021

You Can Check in this post

  • NRI Equity Mutual Fund Tax
  • NRI Debt Mutual Fund Taxation
  • TDS for NRIs on Mutual Funds in India
  • Provisions of Set-Off for NRIs
  • Few more important points for NRIs

Let us look at the different types of MF schemes and the tax liability of NRI investors on those –

NRI Equity Mutual Fund Taxation in India

These are funds that have at least 65% invested in equity assets. You can make either short-term gains or long-term gains.  If the holding period is more than one year, then the gains you make are long-term gains. If the holding period is less than one year, then gains are considered as short-term gains.

Tax on Short-Term Gains 15% of the gains is payable.
Tax on Long-Term Gains Gains up to Rs. 1,00,000 per year are exempt from tax. Gains over and above that are subject to 10% tax. (without Indexation)

Must Check –Passport Renewal NRI

NRI Debt taxation in mutual funds in India

Non-Equity Funds (Debt Funds, Gold Funds, International Funds (including equity), Fund of Funds)

The majority of the portfolio of non-equity funds are invested in assets other than equity-like Government Bonds, deposits, gold, etc.  If the holding period is more than three years, then the gains you make are long-term gains. If the holding period is less than three years, then gains are considered as short-term gains.

Tax on Short-Term Gains Based on your tax slab (TDS 30%)
Tax on Long-Term Gains Listed Mutual Funds – 20% applicable (with indexation)

Unlisted Mutual Funds – 10% applicable (without indexation)

Read – Best Investment Options for NRIs

NRI – Taxation on Fixed Maturity Plans (FMPs)

FMPs are closed-end debt funds & they are listed on the stock exchange. They have a fixed maturity period – if you want to exit before maturity you have to sell on the stock exchange. They are not available for subscription on a continuous basis.

FMPs typically invest in debt instruments like Corporate Bonds, Certificates of deposits (CDs), money market instruments, and other commercial papers.

The fund manager allocates money in instruments that typically match the duration of the scheme.

Tax on Short-Term Gains If the FMP matures in less than 3 years, tax is applicable as per the income tax slab of the individual.
Tax on Long-Term Gains 20% with indexation

Indexation – The purchase cost is adjusted for inflation and then deducted from the sale price to arrive at the gains. The tax will, therefore, be less.

Must Read –FCNR Deposit with Forward Cover

Other Charges Applicable

Health and Education Cess @ 4% will be applicable on the aggregate of tax.

Securities Transaction Tax of 0.001% is applicable to purchasers and sellers of Equity Mutual Funds.

tax on mutual fund in india

Must Read – Mutual Funds in India for NRI

TDS for NRI in Mutual Fund

TDS is applicable for NRIs on Mutual Fund Redemption. The rate depends on the type of scheme and the holding period.

TDS On Short-Term Gains Equity MFs – 15%

Non-Equity MFs – 30%

TDS On Long-Term Gains Equity MFs – 10%

Non-Equity MFs (Listed)  – 20% with Indexation

Non-Equity MFs (Unlisted)  – 10% without Indexation

The TDS is charged at the highest applicable rate. If the NRI falls in a lower tax slab, he is eligible for a refund when he files his returns.

Check – Portfolio Investment Scheme NRI

NRI Capital Gains Tax On Mutual Fund in India – Example

Let us look at some examples to understand the taxation structure better –

Transaction Details Purchase Price Sale Price  Type of Gain Capital Gains Tax Payable
Equity Fund purchased in January 2018 and sold in August 2018 Rs. 2,00,000 Rs. 2,07,000 Short Term

 

Rs. 7,000 15.6% of Rs. 7,000 = Rs. 1,092
 

Equity Fund purchased in January 2015 and sold in August 2018

Rs. 2,00,000 Rs. 2,35,000 Long Term Rs. 35,000 10.4% of Rs. 35,000 = Rs. 3,640
Debt Fund purchased in January 2018 and sold in August 2018 Rs. 2,00,000 Rs. 2,05,000 Short Term Rs. 5,000 30% of Rs. 5,000 = Rs. 1500

(assuming investor is in the highest tax bracket)

Debt Fund purchased in January 2015 and sold in August 2018 Rs. 2,00,000 Rs. 2,20,000 Long Term Rs. 20,000 20% of Rs. 20,000 = Rs. 4000

(assuming investor is in the highest tax bracket)

FMP subscribed to in January 2015 and maturity  is in July 2018

(CII of 2015-16 =  254

(CII of 2018-19 = 280

Rs. 2,00,000 Rs. 2,25,000 Long Term Rs. 25,000

 

Indexed Gains = 4530 (Rs. 225,000-Rs. 2,20,470)

20% of Rs. 4530 = Rs. 906

 

(Savings of Rs. 4094 (5000-906))

 

Check – NRI tax in India New Rule

Provisions of Set-Off for NRIs

  • Short-term capital losses can be set off against short-term loss or against the long-term loss
  • Long-term losses against only long-term gains to reduce tax liability.
  • NRIs can carry forward losses for 8 years but for this, they have to file the tax return.
  • Set off of Mutual Fund capital gain against basic tax exemption limit of Rs 2.5 Lakh
    • Equity Mutual Funds
      • Short-Term – Not Available to NRIs
      • Long Term – Only 1 Lakh exemption limit is Available
    • Debt Mutual Funds
      • Short-Term – PERMITTED to NRIs
      • Long-Term – Not Available to NRIs
  • Sec 80 C Deduction – Only in the case of Short-term Gains in debt mutual funds – you can also reduce your tax liability by investing in PPF, ELSS, etc.

NRIs income tax liability may not be over by paying tax in India. You may have to pay the additional tax in your country of residence. You may get credit for taxes paid in India based on DTAA. wiseNRI

Read – Tax Rates for NRIs on Indian Income

Important Points to Note for NRIs

  • You can get the capital Gains statement from the Mutual Fund or from either Registrar and Transfer (R&T) agents – Karvy or Computer Age Management Services.
  • You have to show the short-term and long-term gains in Schedule Capital Gain in the Income Tax Return.
  • The units that are purchased first are assumed to be sold first. (FIFO)

Do not be under the impression that you do not have to file returns if you are an NRI. You will be liable for the penalty. File your returns considering your capital gains. Ensure that you get your refund in case you have paid more than required.

Check – Best time to send money to India

Note – Please talk to your CA or Financial Planner before taking any action based on this post. The individual circumstance of NRI can play a big role in the actual taxes that he needs to pay.

If you have any questions on NRI Mutual Fund Taxations 2021 for NRIs in India or if you would like to share your experience – feel free to add them in the comment section.

NRI Mutual Fund Taxation
Published on September 12, 2018

Hemant Beniwal


Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning". 

  • I am an NRI and I have rental income of 2.5 Lakhs from India and I had a loss of 2.1 Lakhs from Futures & Options trading (which can be classified as business loss). Can I set-off the loss to the rental income?

  • my banker has been telling me to invest in SIPs with lock up for 5 years to not have to pay tax as a NRI, please advice if there is such a benefit ? also if I invest without 5 year lock up will my LTCG tax be just 10.4% above 1Lac ?

  • Dear Mr. Beniwal,
    Some 20 years ago I had invested in the Franklin Templeton Blue Chip India mutual fund with the option of dividend reinvestments. The source of that investment was an NRE account and the mutual fund is still linked to the NRE account. The investment company is deducting TDS of 28.5% from my dividend reinvestments. I have two questions: (1) Is it the law to deduct TDS from NRE investment income in mutual funds? (2) Is the TDS rate of 28.5% correct? Your article states 10%.
    Thank you,
    Anita

  • I am NRI and the TDS dedcution for me for equity mutual fund should be 10% but when i got the statememt 20.8% had een deducted. Can you please tell me why has there been a dedcution of 20.8%?

  • As an NRI residing in USA, can I invest money in stocks and mutual funds?……. But I will not sell anything and take profits until I return to India in probably 10 years time. (By then I will no longer be an NRI, will my taxation change at that point)?

    • Hi Murali,

      As per my Knowledge, Taxation will depend on Your Residential Status at the time of Selling the Mutual Fund.
      When you come back to India you need to Change the Status in MFs.

  • I moved to usa in 2020 march,i have soem mutual funds in India , so do I need to pay any taxes for them or how to keep on investing in same?

    • Hi Kirti,

      As per my Knowledge, Firstly you need to Change your Status in MF holdings as NRI and if the Changed Status allowed you to Invest, You can Invest Continuously.

  • i have invested money in mutual fund with my NRI account for long term when i completed some amount is deducted as TDS how can i get my TDS amount

  • i have not filed ITR for previous 10 FYs ..i can claim capital gain losses that i had incurred by filing ITR for FY2020-21

  • TDS ON SALE OF MUTUAL FUND. Do NRIs have the option to claim a refund against the basic exemption limit of ₹2.5 lakh

  • TDS on Mutual Fund Dividend. I am NRI. Indian income is less than 2.5 L/yr. TDS abt 10K. Can I get a Refund of this by filing Return?

    • Hi Sajeev,

      As per my knowledge, NRI can claim TDS on Debt Mutual Funds if their Indian Income is less than the basic exemption limit.

  • I am an NRI residing in UAE. invested in mutual funds 6 months back in an equity fund. if I withdraw the money now how much tax will be deducted and am I eligible to get a refund of the deducted tax amount on my profit.

    • Hi Aju,

      As per my understanding, You will be Charged 15% on your equity gains as short-term capital gain tax. No, you can’t get a TDS refund on this gain.

  • Hi, I am an OCI citizen having an investment in mutual funds in India. I had invested in a 3 year Axis Emerging Opportunities fund. I found that after maturity a sum of 3300 INR has been deducted as TDS. Why is this so?

      • Thanks, Vinay. Then there will be no point if one pays tax in India as well as well as the country of residence. I think the govt. does not want to make thing transparent as long as they have customers like Nirav Modi and Vijay Mallah. So, sad.

  • If we redeem equity investments of NRI, why is the full amount not getting credited to the bank account. Why is the deduction?

  • I am an NRI and I sold Equity MF’s in FY 2019-20 that I had purchased before 2017. If the MF company, hasn’t deducted tax before redemption, does it mean that there are no capital gains?

    • Hi Kvs,

      If you sell equity MF before 1 year then MF comapnies deduct 15% TDS. & after 1 year if your gain is more than Rs 1 lakh then you have to pay 10% tax.

    • Hi Geesal,

      for equity there will be no tax if the gain is less than Rs 1 lakh. for debt funds holding period is 3 year for calculation long term captial gain. If you have STCG in debt funds it will be taxable as per income clab.(30% TDS)

    • Hi Anuj,
      taxation will be same for equity funds. and for debt funds short term gain will be added in your income and LTCG will be taxed @ 20%

      • HI Mate
        if taxation is same for Equity for above question , will there be any TDS for NRI who became RI later if claiming after one year after return to India?

  • I am investing mutual fund through NRE account so, What is the TDS % for redemption within one year and after one year for Equity ?

  • i am nri i have short term capital gain in mutual fund equity fund scheme what is my chargeable section under income tax act?

  • I have old MF investments in India when I was resident now I want to redeem those investments. Now I am NRI. Should I get my money back in domestic account or NRO account?

  • Hi,

    I recently became an NRI and opened a new NRE and NRO account. Can I convert my existing SIP mutual fund accounts to my NRE account rather than NRO?
    1. If I can link my NRE account to MF, will TDS still be applicable during redemption?
    2. Given that NRE accounts can’t accept Indian currency, how will the maturity amount in INR be credited to my NRE account?

    • Hi Aravind,
      Really appreciate that you have done these changes – I know lots of NRIs who even after 8-10 years continue with the same SB a/c & Mutual Fund in resident status.
      Answer to your questions – 1) TDS will be deducted whether you have linked NRE or NRO account. 2) Don’t worry about that redemptions will reach your NRE account without any issues.

  • I am a UAE based NRI. I had invested in equity MF in India for more than 2 years. when I redeemed my MF, they had deducted tax from my amount even my capital gain is not even 50,000 Rs

      • Hi Anil, When i approached them, they informed me that 20% TDS will be deducted from capital gain for NRI and advised me to file IT returns to get that amount.. Do you have any idea about it?

  • My question in brief then – if an US NRI (Indian passport holder) inherits some Indian mutual fund shares in INR as nominee, how will he pay taxes on capital gains in India as of sept 2020?

  • Im an US NRI. I want to invest some money in INR accumulated on an old FD account in India. options like GROWW/Zerodah/ICICI/Axis were of no help as Im in US. Most of the fund houses claimed in the internet do not accept US NRI’s for mutual funds anymore.
    So, I plan to move this INR amount to a family member in India as gift + stay as nominee and request him/her to invest in X/Y/Z fund. When, in the future, I eventually legally own the money, I know i cannot do SIP or transact online – but will I still have to pay taxes annually in India based on the yearly INR capital gains? What are my options to keep the money then in INR/USD? Even Indian tax consultants cannot answer this question – can you please help?

  • My son is an NRI. He wants to invest Rs 1 lac in sundaram NFO bluechip mutual fund . Wants to stay there for 15 more years without redeeming. Is he comes under tax paynent

    • The tax will be applicable only when he sells the fund. the tax will be 10% of the profit if sold after one year. if he sell after return to india then tax wont be deducted at source. but if it is above the tax slab he has to file return.

    • Hi Simhan

      30% TDS will be deducted from gains and rest will be paid to you.
      Suppose, A person bought a unit of Debt MF at 100 and within 1 year he sold it at 150. The Mutual Fund company will deduct 30% i.e. 50(150-100)*30%=15 from the redemption value and rest will be paid to you.

  • I am an NRI having invesment in equities as per new regulations of tax deductions of equity holder account whereas I being NRI residing in UAE having benefit of Double Tax Treaty, understand is available between two countries. what are the document IT need to have to approve on one off basis instead each equity can it be possibe to have on approval on my DEMAT ID?

    • Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. The long-term capital gains tax rate is 0%, 15%, or 20% depending on your taxable income and filing status.

    • Interest earned on NRE accounts and FCNR accounts is tax-free in India. Hence, there would be no TDS. However, interest earned on the NRO is taxable and will be subject to a TDS of 30 percent.

  • For NRI you are saying to become NRI, one has to stay for 245 days or more outside India. But if a person is coming back to india having a resident permit, does he has to follow the above especially in case of Covid 19 situations when the flights are not available.

    • Hi Rameshwar,
      As per my Opinion,
      Until and unless the authorities will not give the notice we can’t comment. For the period being, we have to follow the standard rule.

  • On my short term capital gain on non equity fund they deducted tds 30%. Now in return i can claim refund of that 30%.

  • Hello Hemant –

    Thanks for the helpful blog.

    I have invested in the same equity mutual fund (same scheme) in 2 different folios (one from NRO account i.e. non-repatriable basis and one from NRE i.e. repatriable).

    If I sell some of the units from NRE, then, to compute the capital gains, should I consider first acquisition in the NRE folio only or first acquisition overall?

    Thank you in advance

  • I am a nre holder i want put some money for mutal fund but this money at any time with in 3 days i want to withdraw, how much interest i can get it?

  • Hi , I have MFs worth 50 Lacs which i want to redeem. Ican you please advise who can do the tax calcuations and ITR filings.

    I tried a guy from cleartax.in, was not very helpful.

  • Regarding the TDS for MF equity fund, I could see TWO answers in your blog;
    1) TDS of 10.4%
    2) TDS of 10.4% with 100,000 exemption limit.

    Kindly tell me, which one is correct?

    Many Thanks,

  • Hi Hemanthji,
    Greetings to you
    I read your articles and they give very valuable information to us.
    I have a query on PTI schedule of ITR -2 Ay 2020-21.
    I am NRI and live in USA. I made an investment in AIF cat II fund from through my NRE account couple of years back.. Consequent to the provision made in Budget 2019 , these Cat 1 & 2 funds are permitted to
    PASS THTOUGH losses made by the Fund to its unit holders and also the cumulative losses made by the fund till 31 March 2019 are deemed to be losses of unit holder and these capital losses ( on sale of shares) can be carried forward and be set off with the capital gain incomes
    of the investor from 1 st April 2020 on wards.This is a welcome benefit .I am stuck with on how to claim this benefit in ITR of Fy 2019-20 as
    the FUND communicated me capital gain income as Pass through income of Fy 2019-20 and also communicated cumulative short term capital losses as on 31 st march 2019 ( loss pertains to FY 2017-18.)

    Now where do I have to show the cumulative losses of earlier years to take benefit of set off with taxable capital gain income of Fy 201-20, in
    the ITR as PTI schedule have column to show the losses of current year and not for the previous losses.

    I can not now include the earlier losses in CFL schedule as I have not shown these losses in filed ITR of Fy 2017-18.

    I can not now revise the ITR of 2017-18 as the PASS THROUGH loss benefit was approved for Fy 2019-20 as the amendment was done in BUDGET 2019 on Sec 115UB and not valid for Fy 2017-18.

    Please advise whether any of my assumptions are wrong or ITR for Fy 2019-20 need to be changed suitably for reflecting PASS THROUGH LOSSES OF EARLIER YEARS, in PTI schedule.
    How the benefit contemplated by the Government can be availed by me ( any investor of this fund)
    Sorry for my long note.

    Regards

    Ravi Jupudy

    • Dear Ravi,
      Sorry for replying late as I discussed this with a few friends.
      Unfortunately, you will not be able to file tax for earlier years to adjust losses. But still, I suggest you consult a good CA or tax consultant.

  • I wants to understand TDS actually I take sbi life pension plan in 2010 now this plan maturing on 28th July 2020. I ask sbi to surrender my policy and give full amount which is nearly 1565000.00 my investment through my nri account is 999,000.00 . Capital gain against my investment is 566,000.00 . Please let me know how much TDS apply on my capital gain?

    • Hi Sandeep

      Maturity Proceeding from the Life Insurance is exempt under section 10 (10)(D). Therefore no TDS will be deducted.

  • Franklin Templeton debt fund deduct thirty percent TDS from the redemption of units. is it right? I think tax is to be deducted from short term/long term gains

  • Hello Hemant,

    Thanks for the fantastic article. I am an NRI with negligible income in India (only interest from savings back accounts). It seems to me that it is financially beneficial to sell my Debt Mutual Funds within Short Term as long as I can keep the gains below the basic tax exemption limit of Rs. 2.5L. I can buy back the same volume immediately and hold it for another block of <3 years. Can you please comment if this is the right approach? It sounds very weird since the government is supposed to encourage longer term investment. What do you think is the economic rationale of not permitting the set off against basic exemption limit for long term gains in debt funds? Even with the indexation benefit, I will pay some taxes in the Long Term while it is possible for me to avoid taxation entirely in the Short Term.

    Regards,
    Prit

  • If I have multiple Mutual Funds from different AMCs (mutual fund houses) to redeem, How TDS will be deducted …. each fund house will deduct 10% straightaway for LTCG or there is a centralized mechanism which will count overall gain losses from different MFs and deduct TDS accordingly along with consideration of Rs 1 Lakh capital gain exemption?

  • If I will invest in MF through NRO account then want to know the complete process after redemption of MF units. Will the redemption amount directly get credit into my NRO account and how tax is implied on it?

    • Hi Tejas

      Yes, after the redemption whole amount will credited to your NRO account. As per Tax point it will depend on whether it is short term or long term (Gain/Loss).

  • I am an NRI and doing investment in the Equity market and STCG is being deducted on profit. My India income is less than Rs. 2.5 lakh and I do file a tax return. Can I claim for a refund for this deducted STCG?

    • Hi Anuj

      As per my knowledge, it should be the TDS that need to deduct instead of STCG. You can tax to your broker or adviser for tax and STCG is not get refunded. It can only be set off against any STCL or LTCL

  • hi, i am an NRI from Bahrain. I want to invest in mutual fund. I have NRE account and my wife has resident account in India. Which account is better for mutual funds in terms of taxation for long term investment?. please advise.

    • Hi Suria,
      You should consider NRE account so you don’t have any repatriation issues. If your wise is NRI she should not have a resident account. Even if she is Resident Individual, you should not transfer in her account, there are clubbing provisions in Income Tax & in the long term, you may have issues.

  • Hello Hemant ji,
    i am a NRI and doing investment in Equity market and STCG is being deducted on profit. my India income is less than Rs. 2.5 lakh and i do file tax return. can i file this STCG for refund? will STCG be treated same as TDS?

    • Tax arise from the mutual funds are depend upon the scheme you hold and the time duration you are holding your investment.
      Kindly consult your Tax consultant as he can guide you better.

  • my daughter is in the US she wants to invest in Axis MF when she will be here on vacation what is the procedure?

    • Hi Nishikant

      The procedure is simple, she can approach any nearby AXIS MF office with her documents such as address proof and pan card, they will guide her about the fund in which she wishes to invest or she can go with any financial advisor for guide and investment.

  • if NRI from USA (Houston) invests in India in Direct Equity/ Mutual funds / FDR or Corporate Bonds. Is he liable to declare & pay tax in the USA? And at what rate?

  • I was a US-based NRI about one year back I invested 4000000 in debt mutual fund, about 2 months back I got back to India, and withdraw 1000000 but my TDS 22000 deducted, can I file for TDS return?

    • This 22000 TDS was deducted from your capital gains? in Jan?

      There are No TDS on redemption or capital gains since Feb. 2020.

      “It is hereby clarified that under the proposed section, a mutual fund shall be required to deduct TDS at 10 per cent only on dividend payment and no tax shall be required to be deducted by the mutual fund on income which is in the nature of capital gains,” it said.

  • If you have an NRE repatriable account as KYC. Lets say you invest in liquid funds in a lumpsum. As a NRE Savings account,currently its tax free.. But is the liquid fund investment earnings-tax free? Or is it treated as a ST debt?

    • Hi Chirag,
      Liquid fund earnings will be considered short term capital gain (there will TDS at the time of redemption) but if you don’t have any income in India or less than taxable slabs – you can ask for tax refunds.

  • If an equity mutual fund was purchased in Jan 2015 and sold in Aug 2018, it is required to check grandfathering value as on 31 Jan 2018.
    And most of the equity funds have higher NAV than in Jan 2015. Thus capital gain will be much less , possibly it will be capital loss.

  • Hi
    My query is regarding reducing tax liability from STCG of debt funds. Which of the below is available to me as an NRI?
    1. If STCG TDS is deducted at 30%, can I claim refund for the full TDS amount since my tax slab is at 0%, i.e. I dont have any other income in India, so I am below the 2.5 lacs slab.
    2. If STCG is deducted at 30%, can I claim exemption under Sec 80C deduction by investing the same amount in ELSS funds?

  • Considering Taxes, does it mean that investing in Debt Fund is not a good option, In case I want to park my excess money.

    • Hi Meenakshi,
      Yes NRE FD is a comparatively better option if funds are not able to generate returns more than that. But debt funds can be used for asset allocation & rebalancing – if you don’t have any taxable income in India, you can also claim a tax refund on Short Term gains. So there can’t be a generalized answer – actually it will depend on your situation.

      • TDS on Mutual Funds: I-T Dept clarifies 10% tax at source only on dividends, not on capital gains (Feb. 2020)

        “It is hereby clarified that under the proposed section, a mutual fund shall be required to deduct TDS at 10 per cent only on dividend payment and no tax shall be required to be deducted by the mutual fund on income which is in the nature of capital gains,” it said.

  • if i do sip form my nri account and when i redeem my mutual fund ….on the maturety amount there is any tax deduction on that amount

  • Hello, I am an NRI and have an existing ELSS mutual fund SIP from my NRO account. Will the gains from SIP will be taxable under same rule mentioned in your chart? Also, do we have any benefit if we open the new ELSS from NRE account or shift the existing the NRO linked ELSS to NRE account ELSS? Does NRE account linked ELSS follows the same rules of taxation mentioned in your chart?

  • I’m an NRI, currently in UAE. I’m planning to invest in Mutual funds. My question is that do I have to pay T.D.S in india?

  • I am an NRI investing regularly through SIP. Some of them were started when I was a resident. How can I change it to NRI status in the MF records?

    • Hi. Harsha

      First of all, you have to change the status in KYC and then in every folio by submitting required froms and documents to the respective AMCs.

  • Hi,
    I am an Indian Resident and receive regular dividend income from Equity Mutual Funds, which is tax free in my hands. I plan to move to the USA. Will this income remain tax free, or will it be taxed in the USA once I become a USA Tax Resident.

  • Dear Mr. Beniwal,
    Thank you for your post!
    I understand that tax on LTCG on an Equity mutual fund, for a NRI is exempt for the 1st one lakh Rupees. However, I used the online ITR2 Excel Tax preparation utility provided by the Income Tax department and under section 7d of the Schedule CG, “LTCG after threshold limit as per section 112A (7c – Rs 1 lakh)” has been greyed out for me. So, my LTCG of <Rs.3000 is now chargeable income under the head Capital Gains. No benefit of the Rs 1lakh exemption has been allowed. Do you think this is possibly an error from the IT business analyst? Would welcome your response.
    Many thanks,
    Valerie

    • Hi Valerie,
      One of my friends talked to income tax help desk. They said, lot of assessees are facing this issue. It may not show deduction of 100,000 in CG schedule, but at the end in schedule of computation of tax, it will consider this exemption of 100,000.
      He asked to first validate the entire return and then check the tax effect.
      Please try & also update us.

  • my question is that when i uae i invest in india in mutual fund or share but i us short teram capital again it is taxble i know tax that time dissaided when tds cut but tds not cut how to i know it is tx=axble or not it;;s confiused m
    can you tall me when uae invesat in india in mutual funds or share when he us short tearm capital again police it is chargeble

    • Hi Kaniksh
      I think you probably asking for tds deduction for short term capital gain, it would be 30% in debt and 15% in equity

  • Hello Mr. Beniwal,

    Really appreciate enlightening the NRIs.
    While most things are clear, I still have following questions.
    1. I am Tax Resident of Singapore and thus DTAA is applicable. I hear that if I update my Tax Residency in Mutual funds as Singapore Tax Resident using the TRC, then no Tax will be applicable and thus no TDS will be deducted on redemptions. Is this accurate understanding?

    2.If I earn some income on my investments e.g. NRO Savings Account Interest, can I choose not to pay Income Tax in India but pay instead in Singapore as per DTAA? Now as Singapore doesn’t tax people on global income so that Indian Account Interest will save tax here too ( Zero Tax). Hence, is it correct to assume that I will not have to pay tax at all on such income?

    Request you kind opinion on these queries.

    Regards
    Pankaj

    • Dear Pankaj,
      I have taken help from an expert to answer your questions.

      Reply to specific query raised:
      I am a tax resident of Singapore and thus DTAA is applicable. I hear that if I update my Tax Residency in Mutual Funds as Singapore Tax Resident using the TRC, then no tax will be applicable and thus no TDS will be deducted on redemptions. Is this accurate understanding?
      Answer:
      There are different tax treatments on sale / redemptions of equity oriented mutual funds and debt mutual funds under the Indian Income tax Act. As per Article 13 of the India-Singapore DTAA, any gains from alienation of any property, other than immovable property, business property, ships or aircraft or shares in company, will be taxed only in the country in which the person is a resident (i.e. Singapore in your case) and not in the country where the capital asset is situated (i.e. India, in your case).
      Initially, this treaty benefit was available in case of alienation of shares in a company also. However, the India Singapore Treaty has undergone a major amendments where by such benefit is now no more available to shares acquired on or after 1st April, 2017. Further, these amendments are in case of ‘shares’ in a company. Hence, it will be a good case to argue that units of an equity oriented mutual funds are not covered within the term ‘shares’ and thus will be taxed in the country where the person is a resident.
      Under the Indian Income tax Act, a person can claim benefit of DTAA if he can obtain Tax Residency Certificate from the country of his residence. Hence, as correctly pointed out by you, there should be no withholding tax implications in India on redemptions of mutual fund unit.
      It is advisable to check with your mutual fund house as to how practically they intend to deal with it.
      If I earn some income on my investments e.g. NRO Savings Account , can I choose not to pay income tax in India but pay instead in Singapore as per DTAA? Now as Singapore doesn’t tax people on global income so that Indian Account Interest will save tax here too (zero tax). Hence, is it correct to assume that I will not have to pay tax at all on such income?
      As per Article 11 of the India-Singapore treaty, interest will be taxed in the country where it arises (i.e. India in this case). Hence, interest on your NRO savings account will be taxed in India. Later while filing your Singapore tax return, you can claim credit of the tax paid in India subject, ofcourse to the provisions of the laws of Singapore regarding the allowance as a credit.
      A taxpayer cannot as such ‘choose’ to be taxed in one country and not to be taxed in other country.

    • Hi Piyush

      In tax,there is concessional taxation on capital gain arising from STT paid transaction like 15% on STCG and 10% on LTCG on above 100000limit

      In case of persons showing trading income as business income,
      STT paid is allowed as deduction as business expense

  • I sold my mutual funds in Dec 2018 purchased in July 2018. There is ling term capital cost of Rs.1,40,000. More over I have income of Rs.2,60,000 of interest and Dividend. Is M F CApital Gain on MF is tax free for NRI? If not how to calculate the tax or how much I can deduct from LTCG

    • Hi PD,

      As specified above in the article, TDS is appicable to NRIs at the time of Redemption and it is deducted with the highest rate and if you fall in lower tax bracket, you can claim it by filing return
      Your interest income is taxable and Dividend income from MF is tax free in your hands as DDT is applicable
      For proper tax calculation, its better you should hire a good CA

    • Hi. Ankit,

      There is no need to file ITR while investing in MF.
      But you have to file ITR when you are selling those MF units because that attracts Capital gains taxes so you get the refund of TDS according to your Income in India.

  • I am sailor.and not competed my nre neither filed for itr..and i want to invest in mutual funds.is it possible for me to invest in mf

  • Thanks for great article. I born in India, thus citizen by birth. Currently living on h1b visa for 4 years in USA.I feel investing in MF on my name needs lot of paperwork and less options.
    Question is, is it legal (tax free) to transfer USD to my NRE ac and then give that to Mother and invest on her name?

  • Dear Hemantji

    Apperantly there is a mistake below

    ————————————————————————————————————————
    Majority of the portfolio of non-equity funds are invested in assets other than equity – like Government Bonds, deposits, gold etc. If the holding period is more than three years, then the gains you make are long-term gains. If the holding period is less than three years, then gains are considered as short-term gains.

    Tax on Short-Term Gains 30% of the gains is payable.

    _________________________________________________________________________
    Fact is

    For debt funds sold within 3 years the gain shall be added to other income (if any ) and short term tax is charged at rate etc applicable to such income and not at flat 30% to all NRI

    Please comment

    Suresh

    • Dear Suresh Ji,
      Thanks for bringing that to my notice – that was a typo, I have corrected that.
      TDS is 30% but tax is based on the tax slab – which I mentioned in the set-off part in the article.

  • Dear Hemantji

    So far as I know NRI need not file IT return if his income consists of only investment income and TDS is deducted by payee of such investment income

    Please see the section 115G reproduced below from Income tax site
    ———————————————————————————————————–
    Return of income not to be filed in certain cases.

    115G. It shall not be necessary for a non-resident Indian to furnish under sub-section (1) of section 139 a return of his income if—

    (a) his total income in respect of which he is assessable under this Act during the previous year consisted only of investment income or income by way of long-term capital gains or both; and

    (b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.
    ——————————————————————————————————————
    Please comment

    Suresh

    • Yes, you are partially right at your point, But TDS deducted more than your slab rate can only be refunded if you file IT return.

  • Dear Hemant Ji,

    I was told that Set off of Mutual Fund capital gain against basic tax exemption limit is also available on short term equity gains & long term debt gains.Please guide?

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