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Investments made by NRIs in India with Indian funds taxable

It is irrespective of your residential status in India.

Q. I am a non-resident Indian (NRI) now. I made some INVESTMENTS when I used to live in India. My investments are approaching their dates of maturity. What will be the tax treatment for these investments?

Expert Comment: Income on investments made in India with your Indian FUNDSwould be liable to tax in India in accordance with the relevant provisions of the Income-tax Act. This is irrespective of your residential status in India.

It is assumed that the investments are of two kinds. One, that give a fixed/regular return such as fixed deposits with banks/companies/INVESTMENT in bonds/national savings certificates, among others. Two, investments in closed-end schemes/fixed maturity plans (FMPs) with mutual FUNDS (MFs) where the return on investments is not fixed.

In the case of INVESTMENT giving a fixed return, you would normally be liable to tax on the interest income earned from year to year on accrual. However, if the investment is on cumulative basis and you have been consistently following the cash system, you would be liable to tax on maturity in respect of the income earned on the investment.

In respect of investment in closed-end schemes/FMPs under the growth scheme, the difference between your cost and the value realised on maturity will be liable to tax as long-term or short-term capital gains, depending on the holding period. In case of MFs, holding period exceeding 12 months makes it a long-term capital asset.

If the INVESTMENT is in an equity-oriented scheme, which is held for more than 12 months and securities transaction tax is chargeable, the capital gains arising on its transfer are exempt. However, if the equity scheme is held for less than 12 months, the capital gains are taxable at 15.45%.

If the INVESTMENT is in a debt scheme held for more than 12 months, the capital gains arising on its transfer are taxable at 20.6%. If it is held for less than 12 months, the capital gains are taxable at 30.9%

If the INVESTMENT in closed-end schemes/FMPs is under the dividend reinvestment schemes, tax would be payable only in respect of the difference between the amount realised as reduced by the cost and the amount of dividend declared and reinvested.

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