Are NRIs required to pay advance tax?

—Sandeep Shukla

There are no separate provisions for NRIs to deposit advance tax. Under the income-tax law, advance tax is payable by every person whose estimated tax liability for the financial year is 10,000 or more. To compute estimated income tax liability, deduction is allowed for any income tax withheld at source (i.e. TDS/TCS).

For example, if the estimated total income tax payable on total income for the relevant financial year is 15,000, but after claiming credit for TDS of 6,000, the balance tax payable is 9,000, there is no requirement to deposit advance tax.

Also, an individual qualifying as a resident senior citizen (aged 60 years or more during the relevant financial year) who does not have any income from business or profession is not liable to pay advance tax.

Advance tax needs to be deposited in four instalments (15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March). In case of any default, interest at the rate of 1% per month is payable for the period of default of each instalment.

Typically, an individual qualifying as non-resident in India is taxable in India on the following: a. Any income received or deemed to be received in India; and b. Any income accruing or arising in India or deemed to accrue or arise in India.

Whether resident or non-resident, if the individual has taxable income in India and the estimated income tax liability (after claiming credit of TDS/TCS) on the above income is 10,000 or more, there is a requirement to deposit advance tax.

I am a registered NRI MF investor. Recently, I switched my UTI Equity Fund from dividend to growth option in the same scheme. This involved no income in my account. Despite this, the fund deducted TDS on the amount as per (according to UTI fund) Sections 2(47) and 47 of the Income-tax Act. No other MF company has done TDS for a similar transfer. Please guide.

—U.B. Shah

Under the income-tax law, transfer or switch from dividend to growth option is considered as “transfer" of a capital asset. It is akin to redemption of a mutual fund and transferring the funds to another mutual fund. The redemption of mutual fund is taxable as capital gain, either short-term or long–term, depending on the period of holding.

As you qualify as an NRI and assuming that all conditions under the newly introduced Section 112A effective 1 April 2018 are satisfied (taxability of long-term capital gain on sale of equity-oriented mutual funds), UTI fund has deducted TDS on the taxable value of the capital gains.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries and views at mintmoney@livemint.com

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