NRI Investing in India

Treaty relief on capital gains applies to mutual fund units because units are not "shares". Direct stocks — and PMS, which holds shares directly in your demat — stay taxable in India under the treaty's shares clause: see the Stocks / PMS tab for the contrast.

AIF taxation differs by category: Category I/II are pass-through to investors under Section 115UB, while Category III is taxed at the fund level.

Why mutual fund units differ from shares

India's DTAAs allocate taxing rights on capital gains asset by asset. The shares clause (Article 13(4) in the India–UAE and India–Singapore treaties) lets India tax gains on shares of Indian companies. Indian mutual funds, however, are constituted as trusts under the SEBI (Mutual Funds) Regulations, 1996 — units are not shares of a company. Gains on units therefore fall to the residual clause (Article 13(5), "any other property"), which assigns taxing rights only to the country of residence. Where that country levies no personal capital-gains tax (e.g. UAE), the gain is effectively untaxed.

Tribunal rulings

Saket Kanoi v. DCIT, ITA No. 3243/Del/2023, [2024] 168 taxmann.com 418 (ITAT Delhi, 23 October 2024) — held that gains of a UAE tax resident on Indian mutual fund units fall under Article 13(5) of the India–UAE DTAA and are taxable only in the UAE; actual payment of tax in the UAE is not a precondition for treaty relief. Official order: itat.gov.in (PDF).

Anushka Sanjay Shah v. ITO, ITA No. 174/Mum/2025 (ITAT Mumbai, 26 March 2025) — held that mutual fund units are not equivalent to shares, so the residual clause of the India–Singapore DTAA applies and the gains were taxable only in Singapore. Earlier decisions to the same effect include ITO v. Satish Beharilal Raheja (ITAT Mumbai, 2013) and DCIT v. K.E. Faizal (ITAT Cochin, 2019).

Status: these are Tribunal (ITAT) decisions, fact-specific and under appeal by the Income Tax Department. They are persuasive, not settled law from the High Courts or Supreme Court.

Income-tax Act provisions

Section 90(2) — where India has a DTAA, the taxpayer may apply whichever of the Act or the treaty is more beneficial. Section 90(4) — treaty relief requires a valid Tax Residency Certificate (TRC) from the residence country, supplemented by Form 10F (Rule 21AB), filed electronically on the income-tax e-filing portal. Domestic rates applied by this calculator: Section 112A (equity LTCG, ₹1.25 lakh exemption), Section 111A (equity STCG), Section 50AA (specified debt funds, slab rates), Section 196A (TDS on MF income paid to non-residents).

Official sources

Treaty texts: Income Tax Department — DTAA texts · Tribunal orders: itat.gov.in · Form 10F e-filing: incometax.gov.in. For information only — positions can change on appeal or by treaty amendment; consult a qualified tax professional before acting.