TDS and Actual Tax Rates


Applicable tax rate is a major confusion in the mind of the NRIs as the portfolio managersthrough whom they transact with are supposed to charge TDS at the highest rate applicable even though the tax rate liability is less. There is a difference between applicable tax rate to an NRI and the TDS rate charged by the portfolio managers. NRIs need to file tax returns so that right amount of tax is paid to the tax authorities. When NRIs get a tax deducted amount at the time you sell your investment in Indian mutual funds; you will have to file for a refund of your additional tax.

The table below is the comparison between actual tax rate applicable and the corresponding tax deducted at source (TDS) rate applied to NRIS for their investment in theMutual funds:

Applicable Tax Rates for NRI for F.Y.2018-19
Category of Units Tax Rates under the Act TDS Rates under the Act
Short Term Capital Gain
Units of Non-equity Oriented Scheme Taxable at normal rates of taxes applicable to the assessee 30% for Non-Resident Individuals
Units of an Equity Oriented Scheme 15% on redemption of units where STT is payable on redemption (u/s 111 A) 15.6%
Long Term Capital Gain
Listed Units of a Non-Equity Oriented Scheme  20% with indexation, whichever is lower (u/s 112) 20% for Non-Resident Individuals (u/s 195)
Unlisted Units of a Non-Equity Oriented Scheme 10% with no indexation 10% for Non-Resident Individuals (u/s 115E/112)
Units of an Equity Oriented Scheme* Exempt in case of redemption of units where STT is payable on redemption. exempt upto Rs.100,000/-. Gain in excess of Rs.100,000 will be taxable @10%  10.4% for Non-Resident Individuals (u/s.195)

Note: In case of Units of Equity Oriented Schemes purchased before 31st January 2018, the cost of acquisition for such units of Equity Oriented Schemes shall be calculated as follows:

1) the actual cost of acquisition;

2) at the Fair Market Value as on 31 January 2018 or the actual sale consideration whichever is lower;

3) Final cost of acquisition will be the higher of 1 or 2 above.