TDS on Income from Mutual Fund for NRI

TDS
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1

Many of us live abroad with an NRI status, for various reasons such as jobs or having a business, etc. Such NRIs sitting abroad also do certain long-term and short-term investments like mutual funds and debt funds. However, the returns earned on such investments are liable to tax in India.

Section 195 of the income tax act mandates deducting taxes at source (TDS) for anyone making payments to NRIs from India.

Any person (be it an individual, HUF, company, etc.) making any payments to the NRI in terms of returns on any investments is responsible to deduct tax (TDS). The payer can deduct TDS either at the time of credit of such Income to the account or at the time of payment made to the NRI.

Can NRI invest in Mutual Funds?

Yes, an NRI can make investments in mutual funds in India, under FEMA regulation by RBI. The reason under FEMA is that an NRI cannot invest in a savings account in a bank and can’t invest in foreign currency as well, it has to be in Indian rupees only.

Before investing in Mutual Funds, an NRI must fulfill two major requirements. 1. An NRI Mutual Fund KYC should be completed. 2. A rupee-denominated NRE/NRO Bank Account should be opened.

TDS on Investments by NRI on Mutual Funds

Taxation on Mutual funds is almost the same for NRIs as for Resident Individuals. The returns are taxable in both cases, just the TDS gets deducted in the case of NRIs.

NRIs can make investments in listed stocks, ETFs, Debt Funds, NCDs, etc.

  • For long-term capital gains (LTCG) on listed equity shares or equity-oriented mutual funds - TDS is deducted at 10% same as LTCG is taxed.
  • In the case of LTCG, non-equity-oriented funds include debt funds, gold funds, international funds, etc. TDS is applicable at 20% for NRI income from investments. However, the unit holders can claim indexation benefits while filing ITR.
  • Short-term capital gains (STCG) on equity-oriented mutual funds (STT paid) are taxed at 15%, and so is the TDS for NRI on income on investments.
  • In the case of non-equity fund TDS rate on short-term capital gain is 30%. Surcharges and cess are also levied wherever applicable.
Particulars TDS on Long-Term Capital Gains TDS on Short-term Capital Gains
Equity 10% 15%
Non-Equity 20% 30%

Read more about the TDS under section 195 of Income Tax Act - Learn by Quicko

If any queries, ask them out!

2

I didn’t change the status of my NRE bank account after returning back to India. I have Investment Account as well linked with the NRE bank account. I had purchased Mutual Fund through the investment Account. Recently I have redeemed my holdings of Mutual Fund and I have observed in the redemption statement that 10% TDS has been deducted as LTCG. In the statement it is also mentioned that the Tax Status as NRI-Repatriable (NRE). Now I am resident Indian and do my income tax filing accordingly every year after returning back in the year 2016 from abroad. In this situation can I refund back my TDS amount already deducted during redemption of my Mutual Fund? If yes, please let me know the procedure.

3

Hello @Bikash,

You can claim the credit of TDS deducted while filing the income tax return. Also, you can update the status in the bank as you are a resident now to avoid further TDS deduction on LTCG.

Hope this helps!

4

Hi

if a Seafarer NRI is investing in mutual fund SIP / Lumpsum, what all tax implications would be involved. Is there any difference between taxation related to Mutual fund for NRI & Resident Individual.
Secondly any tax liability on both end if NRI regularly send money through NRE account to his family members ( Indian resident having regular saving account) .

5

Hey @Musarrat,

The taxation rates remain the same for both residents and NRI in the case of mutual funds. However, for an NRI, the basic exemption limit of ₹2.5L is not applicable and the capital gains will be taxed at slab rat

6

Any tax liability on both end if NRI regularly send money through NRE account to his family members ( Indian resident having regular saving account

7

Hey @Musarrat

Transferring money from your NRE (Non-Resident External) account to your family members does not incur taxation.

Hope this helps!

8

Do we (NRI) have to pay both TDS and LTCG tax on redeeming mutual funds? Is TDS get deducted in addition to the LTCG tax?

9

Hey @Mustesin_Ali_Khan,

LTCG from equity mutual funds is taxed at 10% and TDS is also applicable at the same rate. You will not have to pay an additional 10% tax as you can claim the TDS as tax credits when you file the ITR.

10

Hey @Surbhi_Pal

Thank you so much for the clarification. I really appreciate your prompt response.