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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Taxation

An NRI redeems units of an equity-oriented mutual fund through a distributor and the gain is short-term. Which statement about tax deduction at source (TDS) by the mutual fund is correct under current rules?

The mutual fund deducts TDS on the NRI's capital gain at the rate applicable to that gain type, short-term or long-term, with surcharge and cess. It is not on the whole redemption proceeds and is not exempt for NRIs.

  1. ANo TDS is deducted on NRI redemptions
  2. BTDS is deducted on the capital gain at the rate applicable to the nature of the gain, such as short-term or long-termCorrect
  3. CTDS is deducted on the entire redemption amount at 30%
  4. DTDS is deducted only if the NRI holds the units for over 3 years

Explanation

Mutual funds deduct TDS on capital gains of NRIs at rates applicable to the type of gain (short-term or long-term), plus surcharge and cess. It applies on the gain, not the whole redemption value, and does not depend on a 3-year holding. Hence option 2.

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