Tax Implications For NRI Investing in Indian Mutual Funds.

It is Important to know about the tax implications for NRI investing in Mutual Funds in India.

For NRI’s Income Earned in India is Taxable

There are two types of taxes

  1. Long Term Capital Gain Tax
  2. Short Term Capital Gain Tax

Long Term Capital Gain tax are applicable if the investment in the mutual funds are held for more than one year

Short Term Capital Gain Tax are applicable if the investment in the mutual funds are held less than a year

Investment Options Available for investing in mutual funds in India.

  1. Growth Option
  2. Dividend Option

Growth Option:In Growth Option there is a TDS ( Tax Deduction at Source).

In case of an NRI the applicable Tax Rate

  1. Equity Funds- Long Term Capital Gain Tax – No TDS.
  2. Equity Funds- Short Term Capital Gain Tax – 15% of Profits.
  3. Debt Funds- Long Term Capital Gain Tax – 20% of Profits.
  4. Debt Funds- Short Term Capital Gain Tax – 30% of Profits.

However the tax applicale depends on the income tax slab of an individual.

Income                              Tax Rate

0-2,00,000                                0%

2,00,001-5,00,000                    10%

5,00,000-10,00,000                   20%

10,00,000 and above                 30%

This Tax Slab is applicable only for the income earned in India. So if one’s tax slab is less than the TDS charged. To get a refund of the excess tax paid through TDS one must file an income tax return and get the excess tax refunded.

Dividend Option: when the units are redeemed or sold by the investor the fund house deduct a Dividend Distribution Tax (DDT) of 25% + 3% education cess on the capital gains for both short term and long term capital gain. And the Dividend Income Received after Deducting the Dividend Distribution Tax (DDT) is Tax Free.


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