India is a rapidly growing country and a great place to invest. It is convenient to invest from any part of the world as funds can be managed online from anywhere. NRIs can invest in mutual funds in India, as long as they comply with the rules of the Foreign Exchange Management Act (FEMA). Mutual funds are particularly popular because they allow access to more complicated financial markets, diversification, professional management and liquidity. NRIs can start with equity funds, debt funds or hybrid funds depending on their goal and appetite for risk. Knowledge about Indian tax rules is essential to getting the complete perspective to Investments in India. The following are the details of taxation for NRI mutual fund investors.
Equity Mutual Funds Taxation for NRI
Redeeming funds with 65% equity within one year or buying has a short-term capital gains tax of 15%.
Debt Mutual Fund Taxation for NRI
Debt and non-equity funds require a 3+ years hold on investments in order to become eligible for long term capital gains (LTCG) rates.
- LTCG for listed funds are taxed 20% (with indexation benefit)
- Unlisted funds are taxed ar 10% (with indexation benefit)
Listed Debt Funds
- LTCG for listed funds are taxed 20% (with indexation benefit)
- Unlisted funds are taxed 10% (without indexation benefit)
Surcharges & Cess
If the income is above Rs.50 Lakh annually in India, surcharge rates are within 10%-37%. If the income is below Rs.50 Lakh there is no surcharge.
There is a health and education cess of 4% on income tax and surcharge.
Double Taxation for NRIs
There is no double taxation if the investor lives in one of the 90 countries with a DTAA (Double Tax Avoidance Treaty ) with India.
If there is a treaty, tax is to be paid at the rate under the Income Tax Act, 1961 or rate in agreement.
TDS
A TDS certificate (Form 16A) is provided with the name of the investor. It contains the transaction details and the amount of tax that has been paid.
The mutual fund sends digitally signed TDS certificates, quarterly, to the investor.
No Wealth Taxation for NRI
There is no wealth tax on mutual fund units supplied to NRIs. These are not counted as “assets” as defined in the Wealth – Tax act, 1957 and therefore have no wealth tax.
SBNRI is an authorised Mutual Fund Distributor platform & registered with Association of Mutual Funds in India (AMFI). ARN No. 246671
Also Read: Now NRIs can also Own a Share in MS Dhoni-Led CSK
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FAQs
NRIs are allowed to invest in mutual funds in India, as long as they adhere to the rules of the Foreign Exchange Management Act (FEMA).
For equity mutual funds, the investments made for 1 year or less will be taxed at 15% as per the short-term capital gains taxation rules. For long-term investments, the mutual funds are taxed at a rate of 10% as per the long-term capital gains taxation rules.
A capital gains distribution is a payment by a mutual fund or an exchange-traded fund (ETF) of a portion of the proceeds from the fund’s sales of stocks and other assets from within its portfolio. It is the investor’s pro-rata share of the proceeds from the fund’s transactions.
How do you explain indexation ?
Indexation means adjusting a price, wage, or other value based on the changes in another price or composite indicator of prices. Indexation can be done to adjust for the effects of inflation, cost of living, or input prices over time, or to adjust for different prices and costs in different geographic areas.
