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How will an NRI debt mutual fund investor be taxed?

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Last Updated: Nov 21, 2019, 12.52 PM IST|Original: Nov 21, 2019, 12.52 PM IST
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I have a family member who is an NRI. He left India in 1970 and has been living in the US. He has some debt mutual fund investments in India. He is paying taxes in the US. Does he have to pay taxes on these funds? Will the capital gains tax be applicable only when he redeems his mutual funds or every year?
--Tyna Pariani

Rishabh Parakh, Founder, Money Plant Consultancy, responds:

An NRI is liable to pay taxes in India on income earned from any source in India. Your family member will have to pay the tax whenever he redeems the debt funds. He needs to check about the long-term and short-term gains on the invested amount and will have to pay the tax accordingly.

In debt funds, any investment held for less than three years is considered as short term, and over three years will be long term.

For short-term capital gains, he needs to pay the tax as per his income tax slab along with health and education cess of 4%. A 20% tax, with indexation benefit, is applicable on the long-term capital gains along with a surcharge of 10% or 15%, plus 4% health and education cess.
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