TDS on Income from Mutual Fund for NRI

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

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