The ITAT has ruled that capital gains arising from the sale of mutual fund units by Non-Resident Indians (NRIs) are not subject to taxation in India.
Instead, these gains are only taxable in the NRIs’ country of residence. A special provision under the India DTAA allows NRIS to forego capital gains tax on Indian Mutual Funds, Debt
Funds, Listed Bonds and Debentures and Gold. Capital assets like real estate, listed equities and PMS will be taxed in India (Country of Taxation).
This provision is often overlooked by NRIs investing in India: capital gains from the sale of mutual fund units are taxable solely in the country of residence, not in India.
The benefit of capital gains from the sale of mutual fund units not being taxable in India applies to tax treaties with other countries that have similar provisions, such as UAE, Oman, Saudi Arabia, Qatar, Singapore, etc.
To qualify, the NRI must be an NRI as per IT laws which means his stay in India should not be for more than 182 days during the relevant financial year. He must get a Tax Residency Certificate (TRC) authorized by the country of residence (UAE, Saudi Arabia, Oman, Qatar), get Form 10F from India Tax Portal and submit at the time of filing his annual IT return.
CA Naseer from Dubai states: “To get an immigration report the applicant should be a natural person and show source of income. The source of income is the folio statement itself. If the applicant is retired, provide a letter addressed to the FTA stating that they are using their own savings, bonds, or investments. Additionally, provide an official supporting document. If the applicant is sponsored by their husband or wife, provide a salary certificate, Marriage certificate or proof of income of the sponsor.”
“In my fraternity, I have not seen any professional taking the benefit of DTAA for capital gains earned in India. If you claim benefit, automatically, TDS deducted on sale of mutual funds is to be claimed as refund. Appeal is required to fight against the demand converted at office level. Only if the quantum of gain is huge one can consider the option,” says CA
Jyothi Reddy from Hyderabad. She suggests paying the taxes, which are less than the costs that will be incurred against the claim.
CA Karishma a practicing says, “If we opt for tax benefit it will be converted to demands by the ITO. The assessee must go for an appeal by depositing a certain amount of tax. The appellants charge a high fee.”
It is believed that some AMCs are not deducting TDS provided with the Tax residency certificate and the Form 10F is filed by the investor.
Why Tax Residence Certificate?
A Tax Residency Certificate (TRC) is an official document issued by the tax authorities of a country to certify that an individual is a tax resident of that country for a specific financial year. This certificate is crucial in claiming tax relief under DTAAs between two countries to avoid double taxation.
Form10F and FATCA give details like name, address, country of residence and Tax Identification Number (TIN) which qualify for tax benefits under the DTTA rules. Residency Card issued by the country of residence should suffice the right to use the DTAA. Obtaining a Tax Residency Certificate is an expensive proposition.
Obtaining a Tax Residency Certificate is an expensive proposition. There are challenges in getting a certificate and these challenges differ from country to country.
M A Wasay, an IT professional from Qatar complains of OMR 100 charge to be paid (https://dhareeba.gov.qa) for obtaining a TRC. In UAE it may charge about AED 1000. The validity of the TRC is for a period unlike the Resident Card which is valid for the period of actual stay in the country.
Form10F and FATCA give details like name, address, country of residence and Tax Identification Number (TIN) which qualify for tax benefits under the DTTA rules. Residency Card issued by the country of residence should suffice the right to use the DTAA.
It is believed that some AMCs are not deducting TDS provided with the Tax residency certificate and the Form 10F is filed by the investor. “The liability for deducting TDS is the liability of the specific mutual fund. Hence this decision will have to be taken by individual AMC themselves” opines Harsh Roongta. A fee-based Advisor from Mumbai.
1. AMCs should take an opinion from IT Department and categorize the status as “TDS Exempt” on submission of Form 10F by NRIs from countries that have a DTTA with India. This helps investors to get the total capital gains without going through the hassles of filing returns and claiming refunds.
2. Non-Resident status as per KYC records and submission of FATCA declaration should suffice as proof of Non-Resident. The onus of verification for physical stay in India for more than 182 days during the FY is already accepted by the IT Dept.
(M Shabbir)
Founder & CEO of SenSage Financial Services Pvt Ltd, Hyderabad)
