Capital gains for equity MFs held for over a year tax exempt

For Indian citizens, 60 days is extended to 182 days in the FY if the person is a crew member of an Indian ship, or leaving India for the purpose of employment outside India


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I am working in the merchant navy on foreign ships. The company is Denmark-based and we have a crewing office in India. As per the tax code, the requirements for being considered as a resident are:

A) Need to be in India for 182 days, or

B) Need to be in India for a total of 365 days in the preceding four years.

The code also says that part B is not applicable if you are working on an Indian ship or if you are leaving the country for employment outside India. In that case, should I consider myself to be leaving the country for employment outside India?

—Nefton Vaz

Residential status is determined on the basis of physical presence of an individual in India during a financial year (1 April to 31 March). You will qualify as a resident if you satisfy any one of the following basic conditions:

 Stay in India during the financial year (FY) is 182 days or more, or

 Stay in India during the FY is 60 days or more and in the four years immediately preceding the FY, it is 365 days or more.

For Indian citizens, 60 days is extended to 182 days in the FY if the person is a crew member of an Indian ship, or leaving India for the purpose of employment outside India.

Since you work for a Danish company, the first exception does not apply. It is possible to consider that you leave India for employment and if your total physical presence in India is up to 181 days, then you would be considered as s ‘non-resident’ in India as per Income Tax Act, 1961.

What is the tax implication in India and the US when an Indian origin US citizen invests in a diversified mutual fund in India from NRE account? It is repatriated money. Is there any double tax avoidance treaty between the US and India, this investment has to be shown in the US?

—Palaash

Capital gains arising from sale of listed units of an equity oriented mutual fund (MF) held for 12 months or more are exempt from income tax. Short-term capital gains arising from sale of units of equity oriented mutual fund held for less than 12 months is taxable at the rate of 15%. Dividends from these MFs are also exempt from tax. Investment in these specified funds also enjoys a deduction under section 80C. Since you are a US citizen, the gains may be taxable in the US also. In case of double taxation, benefit under the Double Taxation Avoidance Agreement with the US may be explored.

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