As an NRI, you can invest in mutual fund schemes in India but you have to pay taxes on Mutual Fund.
You have to pay tax on mutual funds in India based on certain criteria, Keep in mind that tax implications are different for NRIs as compared to Resident Indians.
In this post we are talking about the NRI mutual funds tax in India that you have to pay in India – you should remember that you may also have to pay tax in the country where you are staying right now.
Must Read – Mutual Funds in India for NRI
NRI Mutual Fund Tax in India
You Can Check in this post
- NRI Equity Mutual Fund Tax for NRI
- NRI Debt Mutual Fund Taxation
- TDS for NRIs on Mutual Funds in India
- Provisions of Set-Off for NRIs
- Few more important points for NRIs
Let us look at the different types of MF schemes and the tax liability of NRI investors on those –
NRI Equity Mutual Fund Taxation India
These are funds that have at least 65% invested in equity assets. You can make either short-term gains or long-term gains. If the holding period is more than one year, then the gains you make are long-term gains. If the holding period is less than one year, then gains are considered as short-term gains.
|Taxes on Short-Term Gains||15% of the gains is payable.|
|Taxes on Long-Term Gains||Gains up to Rs. 1,00,000 per year are exempt from tax. Gains over and above that are subject to 10% tax. (without Indexation)|
NRI Debt taxation in mutual funds in India
Non-Equity Funds (Debt Funds, Gold Funds, International Funds (including equity), Fund of Funds)
The majority of the portfolio of non-equity funds are invested in assets other than equity-like Government Bonds, deposits, gold, etc. If the holding period is more than three years, then the gains you make are long-term gains. If the holding period is less than three years, then gains are considered as short-term gains.
|Tax on Short-Term Gains||Based on your tax slab (TDS 30%)|
|Tax on Long-Term Gains||Listed Mutual Funds – 20% applicable (with indexation)
Unlisted Mutual Funds – 10% applicable (without indexation)
NRI – Taxation on Fixed Maturity Plans (FMPs)
FMPs are closed-end debt funds & they are listed on the stock exchange. They have a fixed maturity period – if you want to exit before maturity you have to sell on the stock exchange. They are not available for subscription on a continuous basis.
FMPs typically invest in debt instruments like Corporate Bonds, Certificates of deposits (CDs), money market instruments, and other commercial papers.
The fund manager allocates money in instruments that typically match the duration of the scheme.
|Taxes on Short-Term Gains||If the FMP matures in less than 3 years, tax is applicable as per the income tax slab of the individual.|
|Taxes on Long-Term Gains||20% with indexation|
Indexation – The purchase cost adjusted for inflation
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Other Charges Applicable
Health and Education Cess @ 4% will be applicable on the aggregate of tax.
Securities Transaction Tax of 0.001% is applicable to purchasers and sellers of Equity Mutual Funds.
TDS for NRI in Mutual Fund
TDS is applicable for NRIs on Mutual Fund Redemption. The rate depends on the type of scheme and the holding period.
|TDS On Short-Term Gains||Equity MFs – 15%
Non-Equity MFs – 30%
|TDS On Long-Term Gains||Equity MFs – 10%
Non-Equity MFs (Listed) – 20% with Indexation
Non-Equity MFs (Unlisted) – 10% without Indexation
The TDS is charged at the highest applicable rate. If the NRI falls in a lower tax slab, he is eligible for a refund when he files his returns.
NRI Capital Gains Tax On Mutual Fund in India – Example
Let us look at some examples to understand the taxation structure better –
|Transaction Details||Purchase Price||Sale Price||Type of Gain||Capital Gains||Tax Payable|
|Equity Fund was purchased in January 2021 and sold in August 2021||Rs. 2,00,000||Rs. 2,07,000||Short Term
|Rs. 7,000||15.6% of Rs. 7,000 = Rs. 1,092|
Equity Fund was purchased in January 2018 and sold in August 2021
|Rs. 2,00,000||Rs. 2,35,000||Long Term||Zero ( Below Rs 100,000 Capital gains are exempt from Tax)||Rs 0|
|Debt Fund purchased in January 2021 and sold in August 2021||Rs. 2,00,000||Rs. 2,05,000||Short Term||Rs. 5,000||30% of Rs. 5,000 = Rs. 1500
(assuming the investor is in the highest tax bracket)
|Debt Fund purchased in January 2018 and sold in August 2021
(CII of 2020-21 = 317
|Rs. 2,00,000||Rs. 2,50,000||Long Term||Rs. 20,000
|20% of Rs. 17,000 = Rs. 3400
|FMP subscribed to in January 2018 and maturity is in July 2021
(CII of 2017-18 = 272
(CII of 2020-21= 301
|Rs. 2,00,000||Rs. 2,25,000||Long Term||Rs. 25,000
Indexed Gains = 4530 (Rs. 225,000-Rs. 2,20,470)
|20% of Rs. 4530 = Rs. 906
(Savings of Rs. 4094 (5000-906))
Check – NRI tax in India New Rule
Provisions of Set-Off for NRIs
- Short-term capital losses can be set off against short-term loss or against the long-term loss
- Long-term losses against only long-term gains to reduce tax liability.
- NRIs can carry forward losses for 8 years but for this, they have to file the tax return.
- Set off of Mutual Fund capital gain against basic tax exemption limit of Rs 2.5 Lakh
- Equity Mutual Funds
- Short-Term – Not Available to NRIs
- Long Term – Only 1 Lakh exemption limit is Available
- Debt Mutual Funds
- Short-Term – PERMITTED to NRIs
- Long-Term – Not Available to NRIs
- Equity Mutual Funds
- Sec 80 C Deduction – Only in the case of Short-term Gains in debt mutual funds – you can also reduce your tax liability by investing in PPF, ELSS, etc.
NRIs income tax liability may not be over by paying tax in India. You may have to pay the additional tax in your country of residence. You may get credit for taxes paid in India based on DTAA. wiseNRI
Important Points to Note for NRIs
- You can get the capital Gains statement from the Mutual Fund or from either Registrar and Transfer (R&T) agents – Karvy or Computer Age Management Services.
- You have to show the short-term and long-term gains in Schedule Capital Gain in the Income Tax Return.
- The units that are purchased first are assumed to be sold first. (FIFO)
Do not be under the impression that you do not have to file returns if you are an NRI. You will be liable for the penalty. File your returns considering your capital gains. Ensure that you get your refund in case you have paid more than required.
Note – Please talk to your CA or Financial Planner before taking any action based on this post. The individual circumstance of NRI can play a big role in the actual taxes that he needs to pay.
If you have any questions on NRI Mutual Fund Tax in India 2022 for NRIs in India or if you would like to share your experience – feel free to add them in the comment section.