Is Mutual Fund Tax-Free for NRI
SBNRI Team
answered on 07/09/2023
The taxation on Mutual funds depends on the kind of mutual fund, i.e. debt or equity, and the holding period of the said mutual fund.
Taxation for Equity Mutual Funds: In the case of equity mutual funds, any holding of less than one year will be termed as short-term, and selling of such investment will carry a short-term capital gain (STCG) of 15%. Similarly, for mutual fund investments held for more than a year, long-term capital gains (LTCG) will be levied at 10% if the capital gains are more than 1 lakh during the said year.
Taxation on Debt Mutual Funds: The debt mutual fund tax has been changed with effect from April 1, 2023, after the Budget 2023 brought certain amendments. Debt mutual funds will no longer be allowed to avail of indexation benefits from FY 23-24. Any gains made on debt mutual funds investment will now attract taxation on applicable slab rates of the investor’s income bracket.
Also read: NRI Mutual Fund Taxation in India 2024 Explained
How does new taxation on Debt Mutual Funds work?
Let’s take the following example for clarification and compare the old taxation vis-à-vis new taxation. Example: Mr Raghav invested Rs 15,00,000 in FY 2017-18 in debt mutual funds. He sold the same after holding it for three years in FY 22-23. Here’s a comparison of his taxation pre-amendment and new rules.
| Sale Price | 25,00,000 |
| Investment Amount | 15,00,000 |
| Indexed cost of Investment (Investment*331/272) | 18,25,368 (rounded off) |
| Long-term capital gain (Sale Price – Indexed Cost of Investment) Note: CII for 2017-18 was 272 and CII for 2022-23 was 331 | 6,74,632 |
| LTCG payable @20% | 1,34,927 |
Now let’s take a present-day case for comparison: Example: Mr Raghav invested Rs 25,00,000 in debt mutual funds in FY 23-24 and sold the same in FY 27-28 for Rs 37,00,000. Basis new mutual fund taxation 2023, here’s how it will taxed:
| Sale Price | 37,00,000 |
| Investment Amount | 25,00,000 |
| Capital gain (Sale Price – Cost of Investment) | 12,00,000 |
Note: Your capital gains will be part of your income for the said FY when you sell the debt mutual fund and accumulate the capital gains. This will then be taxed as per your income slab rates for the year.
Contact SBNRI
Due to amendments in debt mutual funds taxation, understanding tax laws can be confusing and NRIs may find difficulty in calculating the accurate capital gains for taxation.
At SBNRI, we have tax experts to resolve any queries that NRIs may have related to NRI income tax. You can download SBNRI App to connect with our NRI Income Tax Experts and get end-to-end assistance related to NRI tax filing.
You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.
Related Questions
SBNRI Team
answered on 05/03/2021
Non residents having income from salary in India are generally required to file their return in ITR Form 2. However, we need to thoroughly check all the different sources of income and then can decide which ITR form will be applicable. You can connect with our taxation expert directly on WhatsApp using the button […]
SBNRI Team
answered on 10/09/2020
Taxation on Mutual Funds for NRI: Different types of Mutual Funds are taxed differently *(Equity Funds: An equity fund is a mutual fund that invests principally in stocks) *(Debt Funds: A debt fund is a mutual fund that invests in fixed-interest generating securities such as corporate bonds, government securities) Nature of Profits […]
SBNRI Team
answered on 16/11/2020
The STCG on debt funds are deducted at 30% TDS but the tax liable is as per your tax slab. Therefore, you are entitled to a refund as per your tax slab. For LTCG, 20% TDS is deducted and the tax liable on LTCG is also 20% along with indexation benefits. Therefore, in this […]
SBNRI Team
answered on 09/02/2021
Gift from an NRI Relative to a Resident Indian is exempt from tax in India for both giver and receiver. Therefore, you don’t have any tax liability in India.
