Q. What taxation rules are applicable to investments by NRIs?

NRIs are generally worried that for income earned in India, they will have to pay taxes twice (in their country of residency & India). That is not the case if India has signed a DTAA with your country of residence through which you can claim tax relief in one country if you've paid tax in the other (to avoid double taxation on the same income. 

 

NRIs are subject to same taxation rules like Indian residents except, at the time of redemption, they are subject to TDS (Tax Deducted at Source) on the applicable rate. Below are the tax rules common to Indian & NRI investors -

 

Rule 1 - Mutual funds enjoy the benefit of deferred taxation, that is, income tax becomes payable only in the year of redemption/ when you withdraw money from the fund you’ve invested in.

 

Rule 2 -

Equity Oriented Mutual Fund Schemes

• Long term capital gains tax (LTCG) – if the investment was held for more than a year – Tax rate 10%

• Short term capital gains tax (STCG) – if the investment was held for 1 year or less – Tax rate 15%

• Rs. 1 lakh a year is granted tax-free on equity investments

• If you had invested equity mutual funds or shares before 31 January 2018, gains till that date will be considered as grandfathered and will be exempt from tax

 

Debt Mutual Funds

• Long term capital gains tax (LTCG) – if the investment was held for more than 3 years. Tax rate 20% post indexation. Hence, the investor will be taxed of gains over and above inflation-adjusted investment.

• Short term capital gains tax (STCG) – if investments were held for 3 years or less. Tax rate = slab rate applicable to the investor