What are tax implications of Investing and returns from start ups under AIF Cat1 for individual under both Resident , NRE & NRO accounts.

Ans: Any income earned by a SEBI registered category I and II AIF, is exempt from tax in the hands of AIF under section 10 (23FBA) of the Act. Such income shall be taxable directly in the hands of investors of the AIF under section 115UB of the Act.

• Any income distributed by fund is not liable of DDT
• Any income distributed by fund, TDS of 10% has to be deducted by fund u/s 194 LBB
• In case of losses, loss will be not be allowed to pass through investor but would be carried forward at AIF level to be set off against income of future years
• No expense setting off is available

Ans: Investing for long term goals is always advantageous.
Investing through NRE account is advisable.

Ans: Your NRI status depends on the number of days spent in India. If you stay between 120 and 183 days, you typically remain an NRI, especially if your income in India exceeds Rs 15 lakh. As an NRI, your global income is not taxable in India, but your investments in equity, mutual funds, and AIFs are subject to Indian taxes.

For equity, LTCG over Rs 1.25 lakh is taxed at 12.5%, and STCG at 25%. Debt mutual funds' CG is taxed as per your slab rate. AIFs' taxation depends on their category.

Monitor your days in India to maintain NRI status and avoid becoming a Resident, which would increase your tax liability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Tax Implications on ETFs and Swing Trading: As an NRI, any income earned from securities transactions in India, including ETFs and swing trading, is subject to taxation. Short-term capital gains (STCG) from equity investments held for less than one year are taxed at 15% plus applicable surcharge and cess. However, if you become a resident Indian again, you'll be taxed as per the resident Indian tax laws, which include LTCG tax of 10% on equity investments held for over one year. It's essential to consult with a tax advisor to understand the specific implications of swing trading on your tax liability as an NRI.

NRE FDs vs. Small Finance Banks FDs: NRE fixed deposits offer the advantage of tax-free interest income and full repatriation of funds, making them an attractive option for NRIs. However, you rightly pointed out that if your residential status changes to resident Indian within 1-2 years, the interest rate and taxation will be recalculated based on resident rates. In such cases, investing in FDs of small finance banks with higher interest rates can be a viable alternative. While the interest earned above ?40,000 is subject to a 10% TDS, it's essential to consider factors like liquidity, safety, and the bank's credit rating before investing. Evaluate the interest rate differential and potential tax implications to make an informed decision based on your financial goals and risk tolerance.

Considering your investment horizon and financial objectives, it's advisable to consult with a financial advisor or tax consultant who can provide personalized guidance based on your specific situation and help optimize your investment strategy.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in