What is the process and tax obligation for NRI holding Indian passport and wanting to redeem shares /MFs as a nominee and transfer amount to overseas account

Ans: yes, you need to file returns and mention capital gain

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Ans: Tax treatment will depend on type of MF i.e. equity or debt scheme of MF. In case of LTCG from equity based MFs, tax will be Rs.5200 as per Sec 112A and in case LTCG from debt based scheme, tax will be Rs.18200 as per Sec 112.

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

Ans: Tax Implications for Encashing Mutual Funds in India and Canada
When your daughter, a Canadian citizen, decides to encash her mutual fund investments in India, it is crucial to understand the tax implications in both countries. This ensures compliance with tax laws and maximizes the amount she can take back to Canada.

Tax Liability in India
Capital Gains Tax
Short-Term Capital Gains (STCG)

For mutual funds, if the units are sold within three years of investment, the gains are considered short-term. Short-term capital gains are taxed at 15% if the mutual fund is equity-oriented. For non-equity funds, the tax rate is according to the income tax slab applicable to the individual.

Long-Term Capital Gains (LTCG)

If the mutual fund units are held for more than three years, the gains are considered long-term. For equity-oriented funds, long-term capital gains exceeding Rs. 1 lakh are taxed at 10% without the benefit of indexation. For non-equity funds, long-term capital gains are taxed at 20% with the benefit of indexation.

TDS (Tax Deducted at Source)
For Non-Resident Indians (NRIs), the fund house deducts TDS on capital gains. For short-term gains on equity funds, TDS is 15%. For short-term gains on debt funds, TDS is 30%. For long-term gains, TDS is 10% on equity funds and 20% on debt funds.

Repatriation of Funds
Form 15CA and 15CB

To repatriate the proceeds to Canada, your daughter needs to complete Form 15CA and obtain a certificate from a Chartered Accountant in Form 15CB. These forms are necessary for the tax authorities to verify the source of funds and ensure that all taxes have been paid.

NRE Account

Once the tax is settled, the remaining amount can be transferred to her NRE (Non-Resident External) account, from which it can be easily repatriated to Canada.

Tax Liability in Canada
Worldwide Income
Canadian Tax Residency

As a Canadian citizen, your daughter is subject to Canadian taxes on her worldwide income. This includes income and capital gains from investments in India.

Capital Gains Tax
Inclusion Rate

In Canada, 50% of the capital gains are included in the taxable income. The capital gains are added to her other income and taxed at her marginal tax rate.

Double Taxation Avoidance Agreement (DTAA)
Relief Mechanism
India and Canada have a DTAA to avoid double taxation. Your daughter can claim a foreign tax credit in Canada for the taxes paid in India. This ensures that she does not pay tax on the same income twice.

Steps for Claiming Foreign Tax Credit
Documentary Proof

To claim the foreign tax credit in Canada, your daughter must keep proof of taxes paid in India, including the TDS certificates and tax payment receipts.

Filing Canadian Tax Returns

While filing her tax return in Canada, she needs to report the capital gains and the foreign tax paid. She can then claim the foreign tax credit, reducing her Canadian tax liability by the amount of tax paid in India.

Strategic Planning for Tax Efficiency
Timing of Redemption
Optimal Timing

If possible, plan the redemption of mutual funds to align with a lower income year. This can help reduce the overall tax liability, as the capital gains will be taxed at a lower rate.

Diversifying Withdrawals
Staggered Withdrawals

Consider staggering the withdrawals over multiple financial years. This strategy can spread the tax liability and potentially keep her in a lower tax bracket.

Professional Advice
Consult a Certified Financial Planner

Given the complexities of cross-border taxation, it is advisable for your daughter to consult a Certified Financial Planner. This ensures personalized advice and compliance with tax laws in both countries.

Conclusion
Encashing mutual funds and repatriating the funds to Canada involves understanding the tax implications in both India and Canada. By strategically managing the redemption process and utilizing the DTAA, your daughter can minimize her tax liability and efficiently transfer her funds.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in