As a resident Indian, there will be no TDS when you sell/redeem your units. You are required to show the income and pay taxes, if any, when you file your returns. However, for a non-resident Indian, while the tax laws remain the same for capital gains, TDS will be deducted, at the applicable rates, at the time of redemption.
Here are the details of Taxation/TDS for NRI’s…
| Equity Funds | STCG < 1 yr | LTCG > 1 Yr | TDS | Refund Claim |
| Tax | 15% | 10% (Above 1lakh profit) & 0% < 1 lakh profit |
STCG – 15% LTCG – 10% |
STCG – No LTCG – Yes |
| Debt Funds | STCG < 3 yr | LTCG > 3 Yr | TDS | Refund Claim |
| Tax | As per individual income slab | 20% (with indexation) | STCG – 30% LTCG – 20% |
STCG – Yes LTCG – Yes |
Remarks/Examples :
Equity Funds – STCG – Its straight 15% tax. If your profit for the year is Rs 2 Lakh, you will have to pay Rs 30K as tax which will be deducted at the source, Your profit after tax here will be 1.7 Lakhs. So if you have got a 14% return, you post tax net return will be 11.9%
Equity Funds – LTCG – In this case, While there is no tax for profits below 1 lakh, For NRI’s the TDS is deducted at 10% for all your profits. You will have to file IT returns and claim refund. E.g. – If your profit for the year is 2 lakhs. The TDS of Rs 20k will be deducted but you can claim refund of Rs 10K and hence your profit after tax here is 1.9 lakhs.
Debt Fund – STCG – The STCG on Debt fund is applicable as per individuals income slab, but for NRI’s ,the TDS is deducted at 30%. In case the investors income is less than 10 lakhs in india, they can file IT returns and claim refund as per the below slab :
| Income Tax Slabs | Tax Rate |
| Income up to Rs 2,50,000* | No tax |
| Income from Rs 2,50,000 – Rs 5,00,000 | 5% |
| Income from Rs 5,00,000 – 10,00,000 | 20% |
| Income more than Rs 10,00,000 | 30% |
Eg. If you don’t have any other income in india and have made a profit of Rs 2 lakhs, your TDS would be 60K which you can claim and get a complete refund. Now, If you have made a profit of 9 Lakhs for the year here is how the tax is computed :
| Income up to Rs 2,50,000 | 0 |
| Income from Rs 2,50,000 – Rs 5,00,000 | 12500 |
| Income from Rs 5,00,000 – 9,00,000 | 80000 |
| Total Tax | 92500 |
Debt Fund – LTCG – The returns or profits in this case are taxed at 20% (with indexation). But for NRI’s the TDS is deducted at full 20% . NRI’s will have to file IT returns and claim Indexation benefits. Indexation is inflation adjusted, so for e.g. if you are getting an 8% return and the inflation is 5%. You will be taxed 20% on 3% (8%-5%), which is 0.6% so your net return after tax is 7.4% but as i mentioned earlier for NRI’s, you will be taxed 20% on full 8%…which is 1.6% and hence your return will be 6.4%, You will then have to file the IT returns and claim refund for the above loss.
This should give you a good idea on mutual fund taxation for NRI’s. I have not included cess & surcharge in calculations to keep it simple. Please consult your investment adviser & tax consultant before making any investment decision.
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