NRI Taxation

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 Lock-in Time Period
(In Years)
for Sec 80C Benefits
% Return (CAGR) Tax
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