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.