Is SIP tax free for NRIs?
SBNRI Team
answered on 30/03/2020
SIP for NRI: SIP is not tax free for NRIs.
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 / Income | Equity Funds* | Debt Funds* |
| Minimum Holding period for Long term capital gains | 1 year | 3 years |
Short term capital gains taxation | 15% + 4% cess* = 15.60% | As per the tax rate of the investor (30% + 4% cess = 31.20% for investors in the highest tax slab) |
| Long term capital gains taxation | 10% + 4% cess = 10.40% (if the long term gain exceeds Rs 1 Lakh) (long term gains up to Rs 1 Lakh is tax-free) | 20% with indexation* |
*(Cess: A cess is a tax on tax that you pay to the government for purposes set by the government. The cess is charged till the objective set by the government is fulfilled. Eg: Krishi Kalyan Cess, Swachh Bharat Cess etc.)
*(Indexation: Indexation refers to the technique of adjusting income payments using a price index to maintain the purchasing power of the public after inflation)
However, you can later claim for a tax refund according to your tax slab.
Income Tax Slab | Tax Rate |
| Up to 2.5 Lakhs | Nil |
2.5 Lakhs to 5 Lakhs | 5% |
| 5 Lakhs to 7.5 Lakhs | 10% |
7.5 Lakhs to 10 Lakhs | 15% |
| 10 Lakhs to 12.5 Lakhs | 20% |
12.5 Lakhs to 15 Lakhs | 25% |
| 15 Lakhs and above | 30% |
Note: NRIs need not pay double taxes. There is a provision called DTAA (Double Taxation Avoidance Treaty). If the DTAA is signed between India and the country of residence of the NRI, the NRI will not be paying double taxes on the same source of income. NRIs will however need to pay differential taxes. (For example: If for a certain investment, taxes are 30% in India and 40% in the USA, NRIs from the USA need to pay the remaining 10% to US.)
India has signed DTAA with more than 85+ countries all around the globe including USA, UK, Saudi Arabia and UAE. You can check the list of the countries and find additional information regarding DTAA here.
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