Tushar Desai asked on 07/09/2023

Is Mutual Fund Tax-Free for NRI

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SBNRI Team
answered on 07/09/2023

Is Mutual Fund Tax-Free for NRIs

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 Price25,00,000
Investment Amount15,00,000
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 3316,74,632
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 Price37,00,000
Investment Amount25,00,000
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.  

 

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