TDS on Mutual Funds

TDS 6395 views 8 replies

prabhatvidyarthi

retired

43 Points Joined July 2009

My son is NRI as per income tax act 1961.He invested in Mutual fund from NRE account.On redemption TDS was deducted.In return income on which TDS was deducted was shown under exempt income and refund was claimed of TDS amount as his other income from investment in India was not taxable.ITO raised a point that income on which TDS was deducted was not shown under head of income.It was explained that income from Mutual fund was exempted from tax hence income was shown under heading Exempt income.He raised point if income was exempted then why TDS was deducted.

My questions iare

was Mutual fund correct in deducting TDS.Which provisions of Income tax applies

Was I wrong in showing such income under heading of Exempt income

Did ITO raised non maintainable question

Please advise correct situation and ruling of Income Tax Act on TDS on income from Mutual Funds if investment is of NRI from his NRE account.when redemption amount was remitted in NRE account

Thanks

Replies (8)

praveen

Chartered Accountant

6971 Points Joined September 2007

Are u speaking about mutual funds or asset management companies.

I have seen AMC's use your money to invest in some companies which give interest and TDS will be deducted.

If you have got dividend then it exempt under income tax u/s 10(32)

Please speak to your MF company for further clarity.

prabhatvidyarthi

retired

43 Points Joined July 2009

Hello Praveen,

It was Mutual Fund and TDS was deducted when units were redeemed

Thanks

praveen

Chartered Accountant

6971 Points Joined September 2007

i have never seen such a thing happen in my practice.

May be because the assessee was a NRI they have deducted.

I am not sure..........

Anyone???

Ankit Chandrakant Trivedi

student

63 Points Joined February 2009

its not section 10 (32) its section 10(35) Mr. praveen.

praveen

Chartered Accountant

6971 Points Joined September 2007

oops !!! sorry

typing error

Juzer Sadikot

CA - innovative solutions for Imports an

1309 Points Joined November 2008

Dear Prabhatji,

Taxability of Gains on redeemption of units of Mutual funds depends on type of mutual fund i.e. Equity Oriented and Debt Oriented.

If long term gains are derrived from Equity Oriented Mutual Funds and charged to STT then it is exempted under section 10(38). However in case Long term gains are derivied from Mutual fund otherwise than equity oriented units then the tax shall be leviable as per section 112 and deductible under section 195 which shall be 22.66% of gain value and this provisions (Tax deduction) are only applicable for NRIs.

In case your Mutual fund is debt oriented other wise than daily dividend plan, you son is require to pay tax on it. Further, tax amount computation is to be done in following manner;

LTCG xxxx

A. Tax at the rate of 10% (without giving indexation benefit)

B. Tax at the rate of 20% (after giving indexation benefit)

Actual tax lower of A or B

You may consider above points while representing ur AO

Regards

Juzer

Varun Malik

Analyst

22 Points Joined February 2010

Hi,

Tax Deducted by income tax department is not claimable coz long term capital gain in respect of holding for more than 12 months is chargeable under section 112 of the income Tax Act 1961 at a concessional rate of 20%.

If u have two option either you want to pay 10% on capital gain using inflation adjusted cost ( with Indexation) or 20 % without indexation.

Please let me know if u want to me to give u more understanding on it

Thanks

Varun Malik

CFA