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NRIs will be liable to pay capital gains tax for the redemption of mutual fund units in FY 2024-25, depending on the date of sale or transfer.
NRIs are liable to pay tax on gains from mutual fund investments in India.
Changes made in the capital gains tax system for the financial year 2024-25 (AY 2025-26) will also have a significant impact on Non-Resident Indians (NRIs), who have invested in mutual funds in India. If you are an NRI filing ITR for the financial year, the date of sale or redemption of the mutual fund units needs to be taken into account carefully. Both the old and new capital gains rules will apply to NRIs, depending on the exact timeline of sale and transfer of the mutual fund units.
Here is what you need to understand about the TDS rules implemented for taxation on mutual fund investments made by NRIs.
Firstly, when an NRI withdraws money from any mutual fund scheme they have invested in India, the government levies tax on the amount they redeem. The proceeds outlined as the gross redemption amount minus TDS are then credited to the NRI’s bank account. The government receives the TDS submission against the PAN details of the NRI investor.
“TDS on mutual fund redemption is applicable for NRI investors only. No tax is deducted on mutual fund redemptions made by resident individuals. The TDS rate will depend on the category of mutual funds from which the money is withdrawn,” said Naveen Wadhwa, Vice President of Research and Advisory at Taxmann.com, in an interview with ET Wealth Online.
TDS on Equity and Non-Equity Mutual Fund Investments By NRIs
According to Wadhwa, for the financial year 2024-25, the deducted TDS on mutual fund redemption will depend on the date of sale. “If the redemption happened on or before July 22, 2024, TDS on STCG(short-term capital gains) will be deducted at 15 per cent and LTCG at 10 per cent. On the other hand, if the redemption happened on or after July 23, 2024, TDS on STCG will be deducted at 20 per cent and LTCG at 12.5 per cent,” Wadhwa said.
The TDS on LTCG will be applicable only if an investor’s long-term capital gains surpass Rs 1.25 lakh in the financial year. According to the regulations for FY 2025-26, TDS on equity mutual fund redemption will be deducted at the rate of 20 per cent for STCG and 12.5 per cent for LTCG.
TDS on redemption will also apply to debt mutual funds and hybrid mutual funds. The TDS for these assets in a mutual fund scheme will be deducted at 30 per cent in FY 2024-25. However, the rules will be different for FY26.
“This will happen due to a change in the definition of specified mutual funds,” Wadhwa explained.
“As per the TDS rules applicable from April 1, 2025, TDS will be deducted at 30 per cent for redemptions made from debt mutual funds. For redemptions done from international mutual funds, hybrid funds and others, TDS will be deducted at 12.5 per cent for LTCG and at 30 per cent for STCG. However, if the redemption is done on or before July 22, 2025, TDS will be deducted at 20 per cent for LTCG and at 30 per cent for STCG,” he said.
For NRIs, a tax of 20 per cent is also levied on the dividends received on mutual fund investments in the country. As an investor, you can choose Growth or Distributed income under the dividend option. Upon selecting the dividend option, the dividend is credited to an NRI’s bank account post TDS deduction.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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