As a non-resident, what is the tax liability on exiting Indian MF investments?

I have been investing in mutual funds for the past four years. Last year, I moved to Dubai and am currently a non-resident Indian (NRI). Say, if I exit all my mutual fund investments now, would I have zero tax liability?

—Name withheld on request.

I am assuming that you qualify as a non-resident (‘NR’) in India, as per the relevant income tax provisions, and also that you do not qualify as a deemed resident of India under the relevant income tax provisions.

Units of mutual fund qualify as capital assets, and any gain or loss arising on account of transfer of such mutual fund units qualifies as a capital gain or loss for tax purposes. As the situs of these capital assets is in India, any such capital gains will be considered as having accrued or arisen in India and are hence taxable in the country under the domestic tax laws, even if you qualify as an NR in India.

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However, you may wish to examine and apply the provisions of Article 13 of the India-UAE double taxation avoidance agreement (DTAA), if more beneficial, which may exclude such capital gains from sale of Indian mutual funds from Indian taxation, if you qualify as a resident of the UAE as per the provisions of the DTAA and on satisfaction of the other underlying conditions.

However, please note that any DTAA exemption would be required to be appropriately reported by filing of India tax return and relevant forms. Also, a valid UAE tax residency certificate for the relevant period would be required to claim the DTAA benefit. Any DTAA benefit claimed may be subject to detailed examination by the tax authorities, based on facts of the case and interpretation of the specific provisions.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.

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