Rule 210: No TDS on UTI units of NRIs bought from NRE funds or remittance
Rule 210 sets the condition under which income from units of the Unit Trust of India paid to a non-resident Indian or a non-resident Hindu undivided family is not subject to TDS. The units must have been acquired from the Unit Trust of India out of funds in a non-resident (External) account with a bank in India, or by remittance of funds in foreign currency, in either case in accordance with the Foreign Exchange Management Act, 1999 and its rules.
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Bare law
Rule 210 - Condition for no deduction of tax at source from income in respect of units of non-residents referred to in section 393(2) [Table: Sl. No. 10] read with section 393(4) [Table: Sl. No. 15]
Income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family, shall not be subject to deduction of tax at source, where such units have been acquired from the Unit Trust of India out of the funds in a non-resident (External) account, maintained with any bank in India or by remittance of funds in foreign currency, in accordance, in either case, with the provisions of the Foreign Exchange Management Act , 1999 (42 of 1999), and the rules made thereunder.
Rule breakdown
What the rule does
Section 393(4) [Table: Sl. No. 15] of the Act provides that tax is not deducted under section 393(2) [Table: Sl. No. 10] on income payable in respect of units of the Unit Trust of India to a non-resident Indian or a non-resident Hindu undivided family, subject to prescribed conditions. Rule 210 prescribes those conditions.
The conditions
The payee is a non-resident Indian or a non-resident Hindu undivided family.
The units were acquired from the Unit Trust of India out of funds in a non-resident (External) account maintained with any bank in India, or by remittance of funds in foreign currency.
In either case, the acquisition was in accordance with the Foreign Exchange Management Act, 1999 and the rules made under it.
Key takeaways
Only UTI units
The rule applies to units of the Unit Trust of India.
Source of funds matters
Funds must come from an NRE account in India or foreign-currency remittance.
FEMA compliance
The acquisition must comply with FEMA and its rules.
Practical checklist
- Keep proof that the units were bought from NRE account funds or a foreign-currency remittance.
- Keep records showing FEMA compliance for the acquisition.
Avoid
- Do not apply the rule to units bought from other sources of funds.
- Do not extend the rule to payees other than non-resident Indians and non-resident HUFs.
FAQs
Does Rule 210 apply to all mutual fund units held by NRIs?
No. It applies to income in respect of units of the Unit Trust of India.
What source of funds qualifies?
Funds in a non-resident (External) account maintained with any bank in India, or remittance of funds in foreign currency.
Who can benefit?
A non-resident Indian or a non-resident Hindu undivided family.
Which Act section does this rule implement?
Section 393(4) [Table: Sl. No. 15], read with section 393(2) [Table: Sl. No. 10].
Glossary
- NRE account
- Non-resident (External) account maintained with a bank in India.
- FEMA
- The Foreign Exchange Management Act, 1999 (42 of 1999).