What are the applicable provisions of Direct Taxes on Mutual Funds and NRI/PIO/FII
As per the taxation laws in force as at the date of updating this document, the tax benefits that are available to the investors investing in the Units of the Scheme(s) are stated herein below.
The tax benefits described in this Document are as available under the present taxation laws and are available subject to relevant conditions. The information given is included only for general purpose and is based on advice received by the AMC regarding the law and practice currently in force in India and the Investors/Investors should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Investor is advised to consult his/ her own professional tax advisor.
(A) To the Mutual Fund
The entire income of the Mutual Fund will be exempt from Income Tax in accordance with the provisions of Section 10(23D) of the Income Tax Act, 1961 ("the Act")
The Mutual Fund will receive all income without any deduction of tax at source under the provisions of Section 196(iv), of the Act. However, on income distribution, if any, made by the Mutual Fund, the Fund will be liable to pay additional income-tax under Section 115R of the Act, at 12.5% (plus surcharge as applicable from time to time) on the amount of income distributed by the Mutual Fund declared under the schemes on or after April 1, 2003
However, these provisions will not be applicable to any income distributed by an open-ended equity oriented fund (where more than 50 percent of total proceeds of the mutual fund are invested in equity shares of domestic companies as defined in Section 115T of the Act) for a period of one year commencing from April 1, 2003.
(B) Non -Resident Assesses:
The following summary outlines the key tax implications applicable to an NRI / PIO / FII based on the relevant provisions under the Income-tax Act, 1961 ('Act'), Wealth-tax Act, 1957 (collectively called 'the relevant provisions'), subsequent to the amendments enacted by the Finance Act 2003.
i) Income other than Capital Gains
As per the provisions of Section 10(35) of the Act, any income received in respect of units of a mutual fund specified under Section 10(23D) of the Act on or after 1.04.2003 is exempt from income tax in the hands of the recipient Investors.
ii) Capital Gains
Units of the scheme which are held as capital asset for a period of more than twelve months preceding the date of transfer, will be treated as a long-term capital asset as per the proviso to sub-section (1) to section 112 of Income tax Act.
Also, sub-section (7) of section 94 of the Act provides that loss, if any, arising from the sale/transfer of units (including redemption) purchased up to 3 months prior to the record date and sold within 3 months after such date, will not be available for set off to the extent of income distribution (excluding redemptions) on such units claimed as tax exempt by the Investors.
ii - (a) Foreign Institutional Investors
Long-term capital gains on sale of Units, would be taxed at the rate of 10% under Section 115AD of the Act. Such gains, would be calculated without indexation of cost of acquisition. Short-term capital gains would be taxed at 30% and without conversion of cost of acquisition and full value of consideration in foreign currency, as the first provison and second proviso to Section 48 do not apply to Foreign Institutional Investors by virtue of Section 115AD(3) of the Income Tax Act.
The said rates would be subject to applicable tax treaty relief. The above tax rates would be increased by applicable surcharge.
No tax would be deductible at source from the capital gains (whether long-term or short-term) arising to an FII on repurchase/redemption of units in view of the provisions of Section 196D(2) of the Act.
ii - (b) NRI s / PIO s
Long-term and short-term capital gains arising to NRI s /PIO s/ from the transfer of units of the Scheme, will be taxable at the following rates:
| Short Term Capital Gains | Rate applicable as per the prescribed slabs in the case of NRI s / PIO s and in the case of at the applicable rates |
| Long Term capital gains | 20 percent with the cost inflation index benefit or 10 percent without the cost inflation index benefit, whichever is lower |
· plus surcharge as may be applicable (Refer Note 1).
Tax Deduction at Source*
| Short Term Capital Gains | As per the provisions of Section 195 of the Act, tax is required to be deducted at source at the rate of 30 percent if the payee is an NRI/PIO. |
| Long Term capital gains | Tax is required to be deducted under Section 195 read with Section 112(c) of the Act at the rate of 20 percent in case of NRI s/PIO s. |
· plus surcharge as may be applicable
iii) Wealth Tax Benefits
Units held under the Schemes are not treated as assets under Section 2(ea) of the Wealth Tax Act, 1957 and are therefore not liable to wealth tax.
Note 1: Surcharge is levied as under
| Assesses | Rate Of Surcharge Applicable |
| NRIS/ PIOS/ Non-Corporate FIIS Where the Taxable Income Is less than Rs 850,000 Per Annum | Nil |
| NRIS/ PIOS/ Non-Corporate FIIS Where The Taxable Income Is In Excess Of Rs 850,000 Per Annum | 10 Percent |
| Corporate FIIS | 2.5 Percent |
Can an NRI fax a request followed by the original documents?
No. Units cannot be redeemed or allotted on the basis of fax applications. A request that lacks a valid signature cannot be processed due to legal restrictions.
Can a Power of Attorney (POA) invest on behalf of the NRI investor?
Yes. Unlike banks where a POA holder cannot open an account on behalf of the NRI, in a mutual fund the POA has the authority to invest on behalf of the investor and sign documents for initial and additional purchases as well as redemptions.
While applying for purchase of units the POA holder needs to submit the original POA or a copy duly notarised should be submitted. The Power of attorney should contain the signature of both the first holder and the POA holder. Only when the POA is registered does the POA holder have the right to transact on behalf of the NRI investor. His signature will be verified for processing any transaction/request.
Can a resident Indian have an NRI as nominee?
Yes. The same rules apply for nominees to resident Indian accounts. An NRI can be a nominee to an account which is in the name of a resident Indian.
