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Interest income from FDs held in NRO account is taxed at 30%

LTCG from units of equity-oriented MFs subject to STT is exempt from tax

Q. How are non-resident ordinary (NRO) fixed deposits taxed? What is the tax on capital gain on mutual FUND (MF) bought by foreign exchange from an NRO account?

Expert Comment: The interest income from a fixed deposit held in an NRO account is taxable in India at the rate of 30%. Long-term capital gains (LTCG) arising from units of equity-oriented MFs which are subject to securities transaction tax (STT) is exempt from tax. LTCG from other units are typically taxable at 20%.

Where the capital gains are computed without giving effect to the benefit of indexation, LTCG would be taxable at the rate of 10%. Short-term capital gains (STCG) on equity-oriented MFs subject to STT would be taxable at 15%.

Any other STCG would be taxable at the rate of 30%. All these rates will have to be increased by the applicable surcharge and cess. Assuming that you are a non-resident for tax purposes, you will have to examine the provisions of the applicable double taxation avoidance agreement (DTAA) as well. To avail benefits (if any) under the DTAA, you would have to furnish a valid tax residency certificate (TRC). Where the TRC fails to provide all the prescribed details, you will have to provide the necessary information in Form 10F.

Q. In this FINANCIAL year, I made two visits to two different countries—China and Mauritius. Both of these were business trips and I stayed there from 10 June to 16 June (China) and 8 July to 13 July (Mauritius). Then I left to Mauritius for employment on 22 September 2013. So, while calculating the “out of 182 days” for residency purposes, can I say that before 22 September 2013, I was outside India for a total of 13 days as well? Thus, can I come in the third week of March 2014 and still claim non-residency status by excluding 13 days?

Expert Comment: Since you have left for the purpose of employment outside India, you will be considered to be a non-resident if you have stayed in India for less than 182 days in FY2013–14.

I am assuming that you have not been outside India on any dates other than those mentioned in your query. On that basis, your stay in India for FY2013–14 aggregates to 162 days before March.

Assuming that you come back and stay in India for all the days in the third and fourth week of March, your stay will increase to 178 days. As your stay in India would still continue to be less than 182 days you will be a non-resident for FY2013-14.

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