Capital gains tax applies on any redemption

I am a non-resident Indian (NRI) planning to switch from a debt mutual fund to an equity MF within an AMC in India (invested a year ago). How much tax (TDS and capital gains tax) is applicable in the case? I have no taxable income from India and never filed ITR in India. Do I need to file ITR in India once switching or redemption is done? Can I get a refund on the tax if deducted?

—Name withheld on request

Switching within the same AMC from a debt fund to an equity fund is effectively a redemption request. Therefore, even though you have reinvested the funds, you have to pay capital gains tax on the redemption of your debt mutual fund. Gains from the sale of a debt mutual fund which is held for less than three years are taxed as per normal income tax slab rates applicable to the individual. Capital gains of NRIs are subjected to TDS, therefore the AMC will deduct TDS before making a payment to you towards redemption. If your total income is within the exemption limit, you can submit a declaration to the AMC with a certificate from your income tax officer that a lower or nil rate of TDS be applied. Else, you can file an income tax return in India and seek a refund of TDS.

Is dividend on shares for an NRI, which is 20% and deducted by the company granting it, refundable by the I-T department?

—Name withheld on request

Dividend paid by an Indian company is taxable in India in the hands of the shareholders. Where the shareholder is non-resident in India for tax purposes, dividend income is taxable at 20% (additional cess and surcharge as applicable). Therefore, before making a payment to you, a company shall deduct TDS at the rate specified above. In case a double taxation avoidance agreement exists between the country of your residence and India, TDS may be deducted at a lower rate. If your total income in India is below the exemption limit, you may file an income tax return and seek refund of the TDS deducted.

Archit Gupta is founder and chief executive officer, ClearTax.com