Thanks for sharing.
Would you happen to know if there is no question from Tax authorities because of some sort an agreement between Switzerland and India to exempt Indian mutual funds from dividend taxation?
No idea.
If they ever ask, I’ll send them the annual reports of the funds and let them compute dividend income, and if gets complicated I’ll sell them to avoid future problems.
As I understand it, you only actually pay tax on income from accruing funds when you receive the money (e.g. when you sell your fund shares). However, you still have to declare them in your Swiss tax returns. I would recommend giving an estimate of dividends.
P.s. One reason that I use paper tax returns is because not all my assets are listed on e-tax software.
That‘s not true, you have to pay taxes on dividends even if they are accumulated and you have to declare them. If not, that‘s tax evasion.
Exception that may apply seem to be the topic of this thread.
2 Likes
That is the main challenge. India does not tax those dividends and hence funds are designed this way. CH wants to tax those dividends (even if hypothetical) but Indian funds do not report into FTA.
I will stick to FLIN for now.
Can you confirm that the taxes are levied before the dividends are actually paid out to your account? I am aware that you have to declare the dividends in the year that they are distributed/accrued. But to my understanding, you are only taxed when the dividends are actually paid out. I may be wrong though.
I dont know what you are trying to say here, but you are definitely wrong.
You simply have to pay the exact same amount of taxes, wether the dividends stay in your fund or are distributed to you. No difference.
1 Like
Daniel
Tax in Switzerland is charged on dividends given by underlying companies to the fund. It is not dependent on the fact if fund give it to you (distributing) or reinvest them (accumulating)
For CH domicile funds, this process most likely happens already via Withholding taxes and you will need to file income tax return to get credit for those.
For funds domiciled in IE, you will not get any withholding tax but you still need to declare “hypothetical dividends” in your return and pay taxes on them.
For all practical purposes the main advantage of accumulating fund vs distributing funds (from Swiss tax perspective) is reduced cost of reinvesting dividends. No difference in amount OR timing of tax on dividends
4 Likes
Hi to everyone, I am wondering whether the new Free Trade Agreement between Switzerland and India will have a big impact in the Indian economy / stocks, is anyone aware of willing to speculate a bit about the implications of this?
In the past Free Trade Agreements has been a game changer for many countries/business, so I am wondering what would be the impact here.
I think it would help both countries for business relationships. Ease of investments etc. I would see this as a good thing for India-Switzerland relationship in longer term.
But having a big impact on Indian economy might be a bit of stretch, India GDP is 4X the GDP of Switzerland.
Just an update. I contacted ICTax team and they told me that they can add the funds on ICTax if i can send them the annual reports and if they are in English (which they are). I will do so if i eventually manage to invest. The process is a bit tedious as i need to do a KYC for mutual funds which is central database (client profile) in India for Mutual fund investments.
P.S - I have to say annual reports from Indian funds are all bundled together and can be hundreds of pages. But ICICI Prudential seem to have one report per fund.
2 Likes
I’m interested in adding Indian ETF or Indian stocks to my portfolio (for around 5% of my stocks portfolio) as I think India will outperform the market partially and is more investment friendly than China. I was looking at some of the standard ETF’s and saw that there is quite a difference between the indexes.
Do you have any recommendations or do you only have active funds?
As Indian or Non-resident Indian investors, there are many options for funds domiciled in India. Index and active both . Mutual funds and ETFs both are popular. I don’t know for sure if foreign nationals can buy Indian mutual funds.
For small caps and mid-caps , normally active funds are preferred by most people because not much information is available for those companies. For large caps - index and active more or less perform like western world where beating market is difficult
Typical indexes are following and you can find index funds for all of these
Nifty 50 -: very large caps
Nifty next 50 -: the next 50 companies
NIFTY 150 -: mid cap
NIFTY 250 -: small cap
NIFTY 500 -: all caps
However for people who cannot buy Indian funds , the options are limited. I think following are few index ETFs. Just be aware of tax inefficiencies and the fact that most index funds mentioned below would find it tough to track exactly their benchmarks. Reason being the capital gains tax that might arise from balancing. Domiciled in IE or US. I personally own FLIN but I am thinking of buying an Indian fund too (I am Non resident Indian)
- FLXI or FLIN (following FTSE India)
- INDA (following MSCI india)
- INDY ( following NIFTY 50)
- others are active funds
With regards to stocks - it’s possible for everyone to buy but foreign nationals have a regulatory process to register at SEBI. Stock picking comes with same risks as any other country
1 Like
This is super interesting, thanks for sharing. I’m in the same boat but actively considering putting money in mutual funds (active managers have performed well in India so far) however I’m not sure if I won’t have to pay capital gains on selling. Are you using an NRE account in the setup process?
Yes . I am using NRE account to fund the mutual funds. Actually not yet using but plan to use.
With respect to capital gains, it seems that sales of Mutual fund proceeds should only be taxed (based on DTAA) in Switzerland and not in India. This is what I learnt after watching some videos but I don’t know for sure as I have never done this before. So I will do this first only for smaller amounts and test the theory. Link below.
I also found a court ruling by Mumbai tribunal for a case (ITO vs Swiss resident). https://www.casemine.com/judgement/in/641af14d373b3673b358a1f3
And additional ruling for UAE resident where the Swiss ruling was used as precedent
YouTube video that explains a bit on taxation for NRIs for mutual funds is at link below
However please be aware of following
-
You will need to finish CKYC process first. Maybe you already know this but Mutual funds in India have central registry and this process is needed once before investing in MFs. I am still waiting for this to be finished because of some confusion on how I started the process. In CKYC, your tax status should be “non resident”
-
If you pick an actively managed fund from India, make sure you figure out the way to find annual reports and check with ICTAX folks if they can add those funds on the list. Otherwise there could be problem in tax side. If you do so, please let us know here so that we know which fund becomes an option
-
#2 is valid for growth funds. For IDCW funds, normally if there is a regular (and reasonable) dividend paid and reported, then you should be fine. But I noticed that IDCW funds are not good for individuals from taxation perspective anyways because everything is reported as income (dividend and capital gains from rebalancing)
Folks
Just an update
I worked with the ICTax team and following fund is now listed on ICTAX. I was a bit surprised that income calculated as per tax team for this accumulating plan was 0. They have some sort of calculation method which takes into account dividend , interest and some sort of expenses.
INF109K012M7 (ICICI prudential Nifty 50 index fund direct growth plan)
The process is following
- I would need to send them annual report (when published at end of Indian Financial year) and also NAV report at the end of calendar year.
- before you decide on a fund, it’s best to check that you can find proper annual reports for the funds. Or else it would be complicated for ICtax team to establish the calculations
- They will do the calculations and enter the info in the database.
- This process will need to be repeated annually.
- as they have lot of work, no data would be published unless I send them the reports
If you are interested in Indian funds other than the one listed above then please feel free to discuss with ICTAX. If you do so, then please update this thread so that people don’t ask ICTax team for same thing.
I have to say - it’s very pleasant to work with Ictax team.
4 Likes
Did you send 2 annual reports - 2022-23 and 2023-24? Given that the Indian fiscal year is not same as calendar year?
Very likely they calculated the dividend per unit of mutual fund and it was probably few rappens and got rounded to 0.
Actually I don’t know. But they said there is some sort of formula they use.
Because I don’t think it’s rounding error. For example it could be that for one share , the income is less than 1 cent but for 1000 shares that won’t be the case.
I just sent only 2022-2023
I will also send 2023-2024 when it’s released but I think it won’t impact 2023 tax calculations.
I noticed that they put the income date on 31 March
The dividend is calculated and converted to CHF per share (or unit). Then multiplied by the number of shares (or units)