At a time when domestic individual investors have emerged as a force to be reckoned with, NRIs have also been showing immense faith in the prospects of Indian markets across trading platforms. Indian laws permit Non-Resident Indians (NRIs) to invest in all types of mutual fund schemes—equity, debt and Equity-Linked Savings Schemes (ELSS) among others. However, if you’re looking out for a piece to help you clarify Mutual Fund NRI taxation, here’s a quick read for you.
Prerequisites for NRI investments in mutual funds are:
NRIs aspiring to invest in Indian mutual funds have two important considerations:
Let’s now discuss the taxation of mutual funds for NRI.
First thing to note is that the capital gain application for NRIs is just like that of Resident Individuals. Tax provisions applicable to NRIs are quite straight-forward and don’t differ much from those applicable to individual investors residing in India.
Schedule: Taxation for NRI in Mutual Funds
| Mutual Fund Tax Classification | Equity exposure (%) in a Mutual Fund Scheme | Short-term capital gains (STCG) | Long-term capital gains (LTCG) |
|---|---|---|---|
| Equity-oriented | >65% | 15% | Up to Rs. 1 lac a year is tax-exempt. Any gains above Rs. 1 lac are taxed at 10%. |
| Non Equity-oriented | 35% - 65% | As per Income Tax Slab Rate | 20% after indexation |
| Debt-oriented | 0% - 35% | As per Income Tax Slab Rate | As per Income Tax Slab Rate |
The above tax rate is applied while redeeming the investment amount in the form of TDS by default.
NRIs can claim the benefits pertaining to taxes they paid in India in the country they reside.
Returns for the purpose of taxation are absolute i.e. not currency-adjusted
Conclusion: If you believe in the long term opportunities offered by Indian markets, taxation for NRIs in mutual funds need not be the primary consideration, as far as your Mutual Fund strategy earns attractive tax-adjusted returns.
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