Many taxpayers and personal finance experts are discussing this budget’s pros and cons. However, they have conveniently ignored how the government has proposed to lower the tax deducted at source (TDS) on Non-Resident Indians (NRIs) parking their money in mutual funds. However, a lot depends on the tax treaty these NRIs have with the country they live in.
A clear analysis of the proposed norms suggests that the asset management companies (AMCs) in India can charge TDS depending on the tax treaty with NRIs’ host countries or 20 per cent, whichever is lower.
The Finance Bill clearly states, “Section 196A of the Act provides for TDS on payment of certain income to a non-resident (not being a company) or to a foreign company, at the rate of 20%. The income is required to be in respect of units of a Mutual Fund specified under clause (23D) of section 10 of the Act or from the specified company referred to in the Explanation to clause (35) of section 10 of the Act. Representations have been received requesting that the benefit of the tax treaty may be considered at the time of TDS so that if the treaty provides a rate lower than 20%, TDS is made at that lower rate.”
Personal finance experts have their own take on the newly proposed that would be implemented from April 01 this year.
Preeti Zende, Founder, Apana Dhan Financial Services said, “According to the proposed norms, the fund houses can charge TDS depending on the tax treaty or up to 20 per cent, whichever is lower. Currently, AMCs deduct up to 30 per cent TDS from NRIs. This is a welcome move, especially for investors who invest in the fixed-income category where the maximum TDS applicable is 30 per cent. This helps NRIs to invest more in India as it reduces their tax liability. Because of the increased interest rate scenario flow to fixed-income investments is increasing and NRI can now avail these funds along with equity mutual funds with reduced TDS rates.”
The new rule is being described as a welcome change from the earlier norms that mandated fund houses to charge TDS depending on the nature of the investment and holding period. Suresh Sadagopan, Managing Director, Ladder7 Wealth Planners said, “If the TDS is going to be as per tax treaty or 20 per cent whichever is lower, it will be beneficial. However, in the case of debt funds, the burden will now be lower.”
The decision to charge less TDS underscores how the government is inclined to encourage NRIs to invest in Indian mutual fund houses while also allowing them enough scope for savings on the investments made.