Exciting News for NRI: No Capital Gains Tax in India on Mutual Fund Redemptions, Rules ITAT
NRIs Rejoice: No Capital Gains Tax in India on Mutual Fund Redemptions, Rules ITAT
In a landmark judgment, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has ruled that Non-Resident Indians (NRIs) are not liable to pay capital gains tax in India on the redemption of mutual fund units if they reside in countries with favorable Double Taxation Avoidance Agreements (DTAAs) with India. This offers a significant tax-saving opportunity for NRIs who invest in Indian mutual funds from countries like Singapore, UAE, and Mauritius.
Case Summary: NRI Investor with ₹1.35 Crore in Mutual Fund Gains
The case involved a Singapore-based NRI, Ms. A. Shah, who earned ₹1.35 crore in short-term capital gains in the financial year 2021–22 through redemptions of Indian mutual funds, including:
₹88.75 lakh from debt mutual funds
₹46.91 lakh from equity mutual funds
She claimed tax exemption in India under the India–Singapore DTAA, specifically under the residual clause of Article 13, which states that capital gains—other than those from immovable property or shares—are taxable only in the country of residence, in this case, Singapore.
However, the Indian Income Tax Department attempted to tax the gains in India, arguing that mutual fund units derived substantial value from Indian assets. The dispute went to the ITAT for resolution.
ITAT’s Key Finding: Mutual Fund Units Are Not Shares
The ITAT ruled in favor of the NRI investor with the following key observations:
Mutual fund units are not shares; they are issued by trusts, not companies.
Therefore, they do not fall under the “capital gains on shares” clause of the tax treaty.
Such capital gains come under the residual clause, which assigns taxing rights only to the country of residence.
As a result, no tax was payable in India on the mutual fund gains.
Which NRIs Can Claim This Benefit?
This benefit is not limited to Singapore-based NRIs. Several countries have similar DTAA provisions with India that allow exclusive taxing rights to the country of residence for capital gains on mutual funds and other movable assets.
Countries with similar benefits include:
UAE
Mauritius
Spain
Netherlands
Portugal
And others with favorable DTAAs
NRIs residing in these countries may also be able to redeem Indian mutual funds tax-free in India, provided proper documentation and compliance are followed.
Compliance Checklist for NRIs Claiming DTAA Relief
To legally and successfully claim this exemption, NRIs must:
Maintain a valid Tax Residency Certificate (TRC) from their country of residence
File an Income Tax Return (ITR) in India disclosing capital gains and claiming DTAA relief
Quote the correct DTAA article and provide treaty references in the return
Obtain a CA certificate in Form 15CB and submit Form 15CA, especially for repatriation of funds
Keep documentation such as fund statements, redemption records, and computation of gains
Failure to meet these compliance requirements can lead to unnecessary litigation and denial of benefits.
Why This Matters for NRIs
This ITAT ruling brings clarity to an area of tax law that has long caused confusion. It affirms that capital gains on mutual fund units are not taxable in India for NRIs residing in countries with suitable DTAA protections. As more NRIs diversify their wealth through Indian mutual funds, this ruling ensures they can benefit from treaty relief if structured properly.
Expert Help for NRIs: Claim Your Tax Treaty Benefits
At India for NRI, we specialize in helping NRIs navigate the complexities of cross-border taxation and treaty relief. Whether you are in Singapore, UAE, USA, Canada, UK, or elsewhere, our experts can assist with:
Claiming capital gains exemptions under applicable DTAAs
Filing Indian income tax returns with appropriate disclosures
Obtaining TRCs, Form 15CA/CB, and documentation support
Repatriating mutual fund proceeds without tax leakage
Resolving NRI tax notices or litigation in India
Our team includes experienced Chartered Accountants, CPAs, and ex–Big 4 professionals with over 34 years of experience in NRI taxation and global compliance.
Our Blogs
Exciting News for NRI: No Capital Gains Tax in India on Mutual Fund Redemptions, Rules ITAT
Read MoreIncome Tax Return for NRIs: Who Needs to File and How?
Read MoreWhat is the law regarding declaration of foreign Assets by the NRI, who have returned to India?
Read MoreWhen does one become an "NRI" as per indian laws?
Read MoreWhat steps are to be taken if Income tax notice is recieved by the NRI?
Read MoreHow is alimony taxed in India ?
Read MoreDo I need to file return even if no income in India?
Read MoreWhat will be the implication in case of NRI returned to india, for declaration of foreign assets in their indian income tax returns?
Read MoreReceived a Income tax notice, here are reasons why many NRIs are getting notices from income tax department
Read MoreExciting News for NRI: No Capital Gains Tax in India on Mutual Fund Redemptions, Rules ITAT
NRIs Rejoice: No Capital Gains Tax in India on Mutual Fund Redemptions, Rules ITAT
In a landmark judgment, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has ruled that Non-Resident Indians (NRIs) are not liable to pay capital gains tax in India on the redemption of mutual fund units if they reside in countries with favorable Double Taxation Avoidance Agreements (DTAAs) with India. This offers a significant tax-saving opportunity for NRIs who invest in Indian mutual funds from countries like Singapore, UAE, and Mauritius.
Case Summary: NRI Investor with ₹1.35 Crore in Mutual Fund Gains
The case involved a Singapore-based NRI, Ms. A. Shah, who earned ₹1.35 crore in short-term capital gains in the financial year 2021–22 through redemptions of Indian mutual funds, including:
₹88.75 lakh from debt mutual funds
₹46.91 lakh from equity mutual funds
She claimed tax exemption in India under the India–Singapore DTAA, specifically under the residual clause of Article 13, which states that capital gains—other than those from immovable property or shares—are taxable only in the country of residence, in this case, Singapore.
However, the Indian Income Tax Department attempted to tax the gains in India, arguing that mutual fund units derived substantial value from Indian assets. The dispute went to the ITAT for resolution.
ITAT’s Key Finding: Mutual Fund Units Are Not Shares
The ITAT ruled in favor of the NRI investor with the following key observations:
Mutual fund units are not shares; they are issued by trusts, not companies.
Therefore, they do not fall under the “capital gains on shares” clause of the tax treaty.
Such capital gains come under the residual clause, which assigns taxing rights only to the country of residence.
As a result, no tax was payable in India on the mutual fund gains.
Which NRIs Can Claim This Benefit?
This benefit is not limited to Singapore-based NRIs. Several countries have similar DTAA provisions with India that allow exclusive taxing rights to the country of residence for capital gains on mutual funds and other movable assets.
Countries with similar benefits include:
UAE
Mauritius
Spain
Netherlands
Portugal
And others with favorable DTAAs
NRIs residing in these countries may also be able to redeem Indian mutual funds tax-free in India, provided proper documentation and compliance are followed.
Compliance Checklist for NRIs Claiming DTAA Relief
To legally and successfully claim this exemption, NRIs must:
Maintain a valid Tax Residency Certificate (TRC) from their country of residence
File an Income Tax Return (ITR) in India disclosing capital gains and claiming DTAA relief
Quote the correct DTAA article and provide treaty references in the return
Obtain a CA certificate in Form 15CB and submit Form 15CA, especially for repatriation of funds
Keep documentation such as fund statements, redemption records, and computation of gains
Failure to meet these compliance requirements can lead to unnecessary litigation and denial of benefits.
Why This Matters for NRIs
This ITAT ruling brings clarity to an area of tax law that has long caused confusion. It affirms that capital gains on mutual fund units are not taxable in India for NRIs residing in countries with suitable DTAA protections. As more NRIs diversify their wealth through Indian mutual funds, this ruling ensures they can benefit from treaty relief if structured properly.
Expert Help for NRIs: Claim Your Tax Treaty Benefits
At India for NRI, we specialize in helping NRIs navigate the complexities of cross-border taxation and treaty relief. Whether you are in Singapore, UAE, USA, Canada, UK, or elsewhere, our experts can assist with:
Claiming capital gains exemptions under applicable DTAAs
Filing Indian income tax returns with appropriate disclosures
Obtaining TRCs, Form 15CA/CB, and documentation support
Repatriating mutual fund proceeds without tax leakage
Resolving NRI tax notices or litigation in India
Our team includes experienced Chartered Accountants, CPAs, and ex–Big 4 professionals with over 34 years of experience in NRI taxation and global compliance.