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Ventura Wealth Clients
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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:  

  • The applicable KYC compliance norms 
  • A Rupee-denominated NRO/NRE account for facilitating transactions

NRIs aspiring to invest in Indian mutual funds have two important considerations: 

  1. Taxation of mutual funds for NRI
  2. Currency fluctuations 

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 ClassificationEquity exposure (%) in a Mutual Fund SchemeShort-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-oriented35% - 65%As per Income Tax Slab Rate20% after indexation 
Debt-oriented0% - 35%As per Income Tax Slab RateAs 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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