About 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?

  1. Dividend Distribution Tax Capital Gains Tax
  2. Tax Deducted At Source (Applicable only to NRI Investors)Tax Benefits u/s 80 C
tax plan, NRI Taxation, WealthhunterIndia
DividendsNRI
Equity schemesTax free
Debt schemesTax free
Dividend Distribution TaxNRI
Equity schemesNil
Debt schemes14.163%
(Tax + Surcharge + Cess)(12.5% + 10% + 3%)
Money market and Liquid schemes28.325%
(Tax + Surcharge + Cess)(25% + 10% + 3%)
Long Term Capital Gains TaxNRI
Equity schemesNil
Debt schemes10% without indexetion or 20% with indexetion whichever is lower
With Indexetion11.33% (10% Tax + 10% Surcharge + 3% Cess)
Without Indexetion22.66% (20% Tax + 10% Surcharge + 3% Cess)
Short Term Capital Gains TaxNRI
Equity schemes17% (15% Tax + 10% Surcharge + 3% Cess)
Debt schemes33.99% (30% Tax + 10% Surcharge + 3% Cess)
Tax Deducted At SourceShort termLong term
Equity11.33%NIL
Debt33.99%22.66%

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