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Taxation of international funds

Dhirendra Kumar talks about the taxation of international funds and how in certain cases, it can be superior to the taxation of Indian equity funds.

How are the returns from international funds taxed?
- Anurag Sethi

It's pretty straightforward. I think for long-term investors, international funds can translate into superior tax treatment or lower taxes as compared to Indian equity funds. The reason is that in Indian equity funds, your gains are taxed at a flat rate of 10 per cent for long-term gains and 15 per cent for short-term gains. International funds are treated as a fixed income fund or a capital asset so to say for tax purposes. So if you hold it for three years, it will be indexed and the index gain will be taxed at 20 per cent. Thus, if your fund does well, then depending on the local inflation, your gains shall be adjusted for indexation and you will be liable for paying 20 per cent tax, which can, on many occasions, translate into lower than 10 per cent tax applicable for Indian equity funds, for a holding period of three years and more.

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