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NRI Taxation
 

As per the Indian Income-Tax Act, 1961, an annual tax is levied by the Government of India (GoI) on all income earned in India. In other words, all receipts giving rise to income are taxable unless they are specifically exempted from tax under the act.

Generally, NRI Income taxes come into various categories, but specifically he has to pay tax in India only if her/his income/salary/allowance etc. is amassed in/from the Indian Territory. This stands true for non-residents also, but there are exceptions to the general rule. The law may, at times, amount money (income) to have been generated in India if it is:
  • Arising from business connection in India
  • From property in India
  • From asset/source in/from India
  • Salary received for services rendered in India
  • From dividend received from shares in Dmat Account, by an Indian company (irrespective of whether the same has been paid outside as well)
  • Arising from interest payable by the government
  • Royalty payable by the government
  • Fees for technical services payable by government

What are the taxes applicable for income from Mutual Funds for NRIs?
 

Dividends

 

Dividends

NRI

Equity schemes

Tax free

Debt schemes

Tax free

 

 

Dividend Distribution Tax

 

Dividend Distribution Tax

NRI

Equity schemes

Nil

Debt schemes

14.163%

(Tax + Surcharge + Cess)

(12.5% + 10% + 3%)

Money market and Liquid schemes

28.325%

(Tax + Surcharge + Cess)

(25% + 10% + 3%)

 

 

Capital Gains Tax

 

Long Term Capital Gains Tax

NRI

Equity schemes

Nil

Debt schemes

10% without indexetion or 20% with indexetion whichever is lower

With Indexetion

11.33% (10% Tax + 10% Surcharge + 3% Cess)

Without Indexetion

22.66% (20% Tax + 10% Surcharge + 3% Cess)

 

Short Term Capital Gains Tax

NRI

Equity schemes

17% (15% Tax + 10% Surcharge + 3% Cess)

Debt schemes

33.99% (30% Tax + 10% Surcharge + 3% Cess)

 

 

Tax Deducted At Source (Applicable only to NRI Investors)

 

Tax Deducted At Source

Short term

Long term

Equity

11.33%

NIL

Debt

33.99%

22.66%

 

 

Tax Benefits u/s 80 C

 

The introduction of section 80C, in the Union Budget 2005, has allowed investors to save tax by investing in Equity Linked Savings Scheme (ELSS) schemes on investments upto Rs.1 Lac. and at the same time avail the growth potential of equity markets.

The following table draws a comparison of the investment avenues available under Section 80C

 

Investment
Options

Lock-in Time Period
(In Years)

Max
Investment
for Sec 80C Benefits
(Rs.)

% Return (CAGR)

Tax
Treatment
of interest

ELSS (Mutual Fund Schemes under Equity: Tax Planning Category)

3

1,00,000

49.83 *

Dividend and Capital Gains Tax Free

Public Providend Fund (PPF)

15

70,000

8 #

Tax Free

National Savings Certificate (NSC)

6

1,00,000

8 #

Taxable