Your Queries: NRIs can’t adjust TDS on capital gains against basic exemption limit

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Published: April 21, 2020 12:15 AM

You may avoid double taxation on your income by claiming tax relief if India has signed the Double Taxation Avoidance Treaty (DTAA) with the country of your residence.

Long-term gains are subject to a TDS of 10% for equity-oriented investments, and of 20% post indexation for other than equity-oriented investments.Long-term gains are subject to a TDS of 10% for equity-oriented investments, and of 20% post indexation for other than equity-oriented investments.

I am a NRI and invest in Indian mutual funds online. There is a huge TDS deduction on funds’ capital gain. How can I get the TDS back as my income in India is less than the minimum tax slab of Rs 2.5 lakh? —Suman Chakraborty
Resident investors in stocks and mutual funds are not subjected to TDS, but NRIs are. Short-term capital gains from equity-oriented investments are subject to a TDS of 15% (excluding cess), while non-equity oriented investments (such as debt funds) are subject to TDS of 30%. Long-term gains are subject to a TDS of 10% for equity-oriented investments, and of 20% post indexation for other than equity-oriented investments. NRIs, unlike resident individuals, do not have the option to adjust their capital gains (either long-term or short term) against the basic exemption limit of Rs 2.5 lakh. Hence, you cannot claim the TDS back.

You may avoid double taxation on your income by claiming tax relief if India has signed the Double Taxation Avoidance Treaty (DTAA) with the country of your residence. Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method. Under exemption method, NRIs are taxed in only one country and exempted in another. Under tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence. Consult your tax advisor for specific tax advice based on your individual situation.

My investment in banks, FDs and central government schemes are due for renewal , but cut in interest rates will reduce my income. What strategy should I adopt as a retired person? —Dipak Chakraborty
Assuming a conservative risk profile given your age and withdrawal needs, you can go for portfolio mix of 15% in equities (large caps) and 85% in fixed income with a high credit quality. Equity exposure will lend growth to portfolio. A portion (30-40%) of fixed income port-folio can be invested in tax free bonds of PSUs, annuities, senior citizen FDs/ PO deposits, which offer fixed interest rates for longer periods of time. Assuming 5% inflation rate, maintaining current life-style may deplete your corpus after 13 years. For a 20-year lifespan, you need to restrict your monthly withdrawals to Rs 30,000 per month.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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