Question 1

What are the capital gains tax rates for NRIs on equity mutual funds after Budget 2024?

Accepted Answer

LTCG (holding more than 12 months): 12.5% on gains above Rs 1.25 lakh. STCG (holding of 12 months or less): 20%. Dividends: 20% TDS. Add 4% health and education cess to each of those rates. These rates apply to equity mutual funds and direct equity investments. No indexation benefit is available. Surcharge may apply on top at higher income levels.

Question 2

How are debt and hybrid funds taxed for NRIs?

Accepted Answer

It depends on what the fund holds and when you bought the units. Units of a specified mutual fund - one investing more than 65% of its proceeds in debt and money market instruments - acquired on or after 1 April 2023 are covered by Section 50AA: the gain is deemed short-term and taxed at your slab rate no matter how long you hold. Units of the same fund acquired before 1 April 2023 become long-term after 24 months and are taxed at 12.5% without indexation. A hybrid fund holding 65% or more in equity is taxed as equity. A hybrid holding between 35% and 65% in equity is an ordinary non-equity asset: long-term after 24 months at 12.5%, with no Rs 1.25 lakh shelter, because that shelter belongs to Section 112A and reaches equity only.

Question 3

Do NRIs get the Rs 1.25 lakh LTCG exemption on equity mutual funds?

Accepted Answer

Yes, NRIs get the same Rs 1.25 lakh exemption on LTCG from equity mutual funds as resident Indians. This exemption applies per financial year. Any gains above Rs 1.25 lakh are taxed at 12.5%.

Question 4

How is TDS deducted on mutual fund dividends for NRIs?

Accepted Answer

Mutual fund companies deduct 20% TDS on dividends paid to NRIs. That TDS can be reduced to the beneficial treaty rate if you submit a Tax Residency Certificate (TRC) and Form 10F to the AMC. Treaty rates on dividends vary by country, so check the dividend article of India's treaty with your country of residence. You can claim any excess TDS as a refund when filing your ITR.

Question 5

Can NRIs invest in mutual funds through NRE or NRO accounts?

Accepted Answer

NRIs can invest in mutual funds using both NRE and NRO accounts. Investments from an NRE account are fully repatriable (gains plus principal). Investments from an NRO account have limited repatriation (up to USD 1 million per year).

Question 6

Does the Chapter XII-A regime for NRIs change these numbers?

Accepted Answer

Usually not, for mutual funds. Chapter XII-A (Sections 115C to 115I) is a special regime for a non-resident Indian holding a foreign exchange asset - a specified asset acquired in convertible foreign exchange. Section 115C(f) lists specified assets exhaustively: shares in an Indian company; debentures issued by an Indian company that is not a private company; deposits with such a company; securities of the Central Government; and such other assets as the Central Government may notify. Units of a mutual fund are not named, so the Chapter will usually not reach them, though the notification limb leaves the point open. Where it does apply, Section 115E taxes long-term capital gains on the asset at 12.5% for transfers on or after 23 July 2024, and Section 115F can exempt the gain if the net consideration is reinvested in another specified asset within six months. This calculator computes under the ordinary provisions. If you funded the investment from abroad, get the position confirmed by a professional.

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