How-to Section 195 NRI TDS

How to handle Section 195 TDS on NRI mutual fund redemptions

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Section 195 TDS on NRI MF is the primary tax collection mechanism. AMCs deduct TDS at default rates (or DTAA-reduced if proof submitted). NRI investor claims TDS credit in ITR; refund or balance pay depends on total tax liability.

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Step-by-step procedure

See the procedure infobox above.

Section 195 default TDS rates (FY 2024-25)

IncomeRate
Equity MF LTCG12.5% (above Rs 1.25 lakh per AMC per FY)
Equity MF STCG20%
Debt MF gains (post FA 2023)30% (maximum marginal rate; reduced for slab-rate residents)
MF dividend (IDCW)20% (or DTAA-adjusted)
Other MF income30% (default)

DTAA framework

DTAA (Double Taxation Avoidance Agreement) between India and ~95 countries.

Common DTAA-favourable scenarios:

CountryIndia DTAA capital gains rule
USIndia can tax; US gives credit; effective India rate often applies
UKPer treaty; some equity LTCG taxable only in country of residence
SingaporeCapital gains often only in country of residence
UAEDTAA provides specific rates
MauritiusCapital gains may be exempt in India for certain assets

DTAA rate vs default Section 195 rate: choose lower (with conditions). Submit TRC + Form 10F to AMC.

Tax Residency Certificate (TRC)

Required for DTAA benefit:

  • Issued by tax authority of country of residence.
  • Confirms residency for tax purposes.
  • Valid for the FY (or specific period).
  • Submitted to AMC alongside redemption.

Without TRC: AMC deducts default Section 195 rate.

Form 10F

Self-declaration form by NRI:

  • Name, PAN, foreign address.
  • Country of residence + DTAA-eligible.
  • TRC reference.
  • Period for which DTAA benefit claimed.

Submitted to AMC; also included with ITR.

Worked example

NRI in UK:

  • Redeems equity MF: LTCG Rs 5 lakh.
  • Default Section 195 TDS: 12.5% × (5L - 1.25L) = Rs 47,000.
  • UK DTAA on equity LTCG: India can tax (no preferential rate for individual NRI on equity LTCG).
  • Effective TDS: Rs 47,000.

NRI in Singapore (DTAA exempts capital gains for individuals):

  • Same LTCG Rs 5 lakh.
  • DTAA: India cannot tax; TDS should be 0 (subject to TRC).
  • Actual: AMC may deduct default unless DTAA proof submitted upfront.
  • If deducted: refund via ITR claim.

ITR-2 Schedule TDS

FieldSource
Section195
TANAMC’s TAN
Amount of incomeCapital gain or dividend
TDS deductedPer AMC’s TDS rate applied
TDS claimedSame

See also

External references

References

  1. Income Tax Act, 1961, Section 195.
  2. Income Tax Act, 1961, Section 90 (DTAA).
  3. CBDT DTAA notifications.
  4. AMFI Best Practice Guidelines on NRI TDS.

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