Tax Implications of Mutual Funds on NRIs Full Guide. Before you make your investment in Indian mutual funds, being an NRI, you need to know that the gains that you make on your mutual fund investments are subject to tax. You need to be aware of what tax rate will be applicable on short term as well as long term capitals gains on your investment in equity and non-equity mutual funds?
Here is a table which shows you the actual tax rate applicable and the corresponding TDS rate applied to Non Resident Individuals for their investment in Indian mutual funds.
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Tax Implications of Mutual Funds on NRIs Full
|Applicable Tax Rates for NRI|
|Category of Units||Tax Rates under the Act||TDS Rates under the Act|
|Short Term Capital Gain|
|Units of Non-equity Oriented Scheme||Taxable at normal rates of taxes applicable to the assesse||30% for Non Resident Individuals|
|Units of an Equity Oriented Scheme||15% on redemption of units where STT is payable on redemption (u/s 111 A)||15%|
|Long Term Capital Gain|
|Listed Units of a Non-Equity Oriented Scheme||10% without Indexation OR 20% with indexation, whichever is lower (u/s 112)||20% for Non Resident Individuals (u/s 195)|
|Unlisted Units of a Non-Equity Oriented Scheme||10% with no indexation||10% for Non Resident Individuals (u/s 115E/112)|
|Units of an Equity Oriented Scheme||Exempt in case of redemption of units where STT is payable on redemption (u/s 10(38))||Exempt in case of redemption of units where STT is payable on redemption (u/s 10(38))|
Short term capital gains
Units of Non-equity oriented scheme such as debt and money market mutual funds should be taxed as per your income tax slab, but the TDS is deducted at the highest applicable rate of 30%, irrespective of what tax slab you belong to; while the units of Equity oriented mutual funds are taxed @ 15%.
Long term capital gains
Units of Non-equity oriented scheme if listed are taxed at 10% without indexation or 20% with indexation whichever is lower but the portfolio manager will deduct TDS at flat rate of 20% for NRIs.
Units of a non-equity oriented scheme if unlisted are taxed at 10% without indexation while Long Term capital gains on units of an equity oriented scheme are exempt from tax as Securities Transaction Tax is payable on redemption.
After going through above details, you would have probably got an idea about the impact of tax on your investment plan. I do agree that taxation can be a complicated matter and to get more details you may want to visit your financial advisor or tax consultant before committing a costly tax mistake.
Good luck for your investments.