Tax implication on Mutual Fund investments by NRI's

#1
Tax implication on Mutual Fund investments by NRI's

Long-term capital gains can arise at the time of redemption of their equity oriented mutual funds held for more than 12 months. They are now exempt from paying any long term capital gains tax. This is, however, applicable only in such cases where NRIs have bought equity funds from October 2004 onwards. Hence, in such cases, all remittances made by mutual funds to NRIs to their NRE/NRO accounts have to be made by the respective funds without any tax deduction in case of equity schemes. Mutual fund schemes invest at least 65% of their funds in shares are considered to be equity schemes for this purpose.

However, in the case of equity funds bought by NRIs since October 2004, the short-term capital gains arising to NRIs out of equity funds attract a flat 10% tax. This is against the earlier methodology of clubbing such short term capital gains arising to NRIs out of equity funds with other tax liabilities and taxing the same at applicable tax rates for the aggregate income.

In case of capital gains arising to NRIs out of debt funds or schemes other than equity funds, purchased during or after October 2004, the long term capital gains arising to NRIs are now subject to a flat rate of tax of 10%. This is against 20% at which such long term gains were taxable in case of NRIs earlier. However, in case of capital gains arising to NRIs out of non-equity funds, short-term tax capital gains are subject to a tax rate of 20%. The same was also taxed at a higher rate earlier. All loads applicable to such schemes have to be borne by the NRI too.

In case of dividend, however, the situation is much simpler. The mutual fund makes no distinction of NRI/resident. In both of these cases, the dividend distribution from funds is tax-free in the hands of the receiver. Thus, for NRIs, there is no tax deduction at source in equity funds or non-equity funds.

Mutual fund is a favoured avenue for investment for NRIs since entry and exit is possible at a quick notice unlike property
Long-term capital gains can arise at the time of redemption of equityoriented mutual funds held for over 12 months

In the case of equity funds bought since Oct 04, the short-term capital gains arising out of equity funds attract a flat 10% tax

In case of capital gains arising to NRIs from non-equity funds, shortterm tax capital gains are subject to a tax rate of 20%
 
#3
Consider the following:

1) Long term capital gains with STT (fully exempted, equity oriented
mutual funds)
2) Long term capital gains without STT (debt oriented mutual funds)
3) Short term capital gains with STT (equity oriented mutual funds)
4) Short term capital gains without STT (debt oriented mutual funds)

If sum of the total of 2, 3 and 4 is much less than the basic
exemption limit (Rs 150,000:), no tax is to paid (the practice we have observed earlier).

Does section 111A and 112 stop the benefit of basic exemption for
income from any of the above three sources (2, 3 and 4) for *NRIs*?

Could you please enlighten me which of the above (out of 2, 3 and 4)
can not be clubbed with the normal income for the basic exemption
limit for NRIs?
 
#4
gabbar.singh,

I have same query.did u find ans?if yes,let me know too..
I want to know nri has exemption under section 111A for short term captial gain..

thanks
 

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