Patel Consulting | Trusted AdvisorsCall us: +91-98765-43210
← Back to Home/Updates

No Tax on Mutual Fund: ITAT confirms India Cannot Tax NRIs on Capital Gains

28 April 2025Saloni Kumari
No Tax on Mutual Fund: ITAT confirms India Cannot Tax NRIs on Capital Gains

No Tax on Mutual Fund: ITAT confirms India Cannot Tax NRIs on Capital Gains

In a big relief step has been taken for a Non-Resident Indian (NRI) investor, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) decided that short-term capital gains of Rs. 1.35 crore, earned by selling mutual fund units, are not taxable in India. This decision was based on the rules of the tax agreement between India and Singapore.

Capital Gain on Equity Mutual Fund

Tax on Long Term Capital Gain: 12.5% Plus Cess (And Surcharge if applicable)

Tax on Short Term Capital Gain: 20% Plus Cess (And Surcharge if applicable)

Double Tax Avoidance Agreement (DTAA)

Under the DTAA, NRIs can claim tax credits in India on the earnings from their mutual fund units, provided India has signed such an agreement with the resident country of the investor.

With the DTAAs in place, it is possible that the realised capital gains on your mutual fund investments would not be taxed in India.

ITAT Judgement

The ITAT asserted that mutual funds in India are created as trusts and not companies under the Securities and Exchange Board of India (SEBI) regulations.

The term “share” is not defined in the DTAA, and mutual funds units are not treated as shares under the Companies Act and hence cannot be taxed, it said. The judgment clearly distinguishes between mutual fund units and shares for tax treatment.
It will not only have an impact on NRIs in Singapore investing in India but could also be positive for other non-residents investing in mutual funds in India where the DTAAs are in place, for example, Mauritius, Hong Kong, UAE, Portugal, Australia, France UK, Germany, and many others.
Tax Residency Certificate (TRC)
Non-Resident should have Tax Residency Certificate (TRC) to avail of the DTAA benefit. The TRC for the domestic law should not be confused with one available for the DTAA benefit.
Who is Non-Resident?
Residential Status Criteria for Individuals

An individual is treated as a resident in India if they satisfy either of these two conditions:

  • Stay in India for 182 days or more during the relevant financial year, OR
  • Stay in India for 60 days or more during the relevant financial year and 365 days or more in the four preceding financial years.

If neither of these conditions is satisfied, the individual is considered a non-resident.

For a person leaving India for a job abroad:

  • If the person leaves India for the purpose of employment outside India (or as a crew member of an Indian ship),
  • Then the 60-day rule is relaxed to 182 days.

Meaning: If they stay in India for less than 182 days during the financial year, they will be treated as a Non-Resident.

← Back to Home