# NRI Mutual Fund Tax 2026: TDS, DTAA and Zero-Tax Rules How Indian mutual funds are taxed for NRIs: TDS rates, refunds, the ITAT treaty rulings for UAE and Singapore, and the US, UK, Australia and Canada rules. By Nikhil Varghese, CA · 18 April 2026 · https://finniki.com/blog/nri-mutual-fund-tax **Quick answer:** When an NRI redeems an Indian mutual fund, the fund house deducts **TDS** first: **20%** on short-term equity gains, **12.5%** on long-term equity gains above **₹1.25 lakh** a year, and up to **30%** on debt funds bought from April 2023, plus surcharge and cess. That TDS is not your final tax. Tribunal rulings say gains on mutual fund units can be taxable only in your country of residence under some tax treaties, so a genuine UAE or Singapore tax resident may pay **zero** tax in India, but only by claiming it with a Tax Residency Certificate, Form 41 (formerly Form 10F) and an Indian tax return. Invest foreign income through an **NRE** account, keep your KYC **Validated**, and apply for a lower-deduction certificate before you redeem. *Updated October 2026. India's Income-tax Act 2025 took effect on 1 April 2026: the rates are unchanged, but the forms are renumbered (Form 13 is now Form 128, Form 10F is Form 41, and Forms 15CA and 15CB are Forms 145 and 146) and the deduction on payments to non-residents moves from section 195 to section 393. The treaty rulings described below are still tribunal decisions; we found no High Court ruling on the point as of October 2026.* [Watch the episode: NRI tax on mutual funds, how to legally pay zero tax (2026)](https://youtu.be/3dGwl3tYVO4) ## Why do NRIs lose money on Indian mutual funds? Not usually in the market, but in the plumbing underneath. NRIs in the UAE, Singapore, the US, the UK, Australia and Canada lose significant parts of their returns to TDS they did not expect, tax treaties they never claimed and repatriation rules nobody explained when they invested. Every one of those losses is preventable, once you know how the investment should be held, redeemed and reported. ## Should an NRI invest in mutual funds through an NRE or NRO account? Use **NRE** for money you earn abroad and **NRO** for income earned in India. The choice decides how easily the money comes back out. - **NRE (Non-Resident External):** foreign income converted to rupees, such as a salary from Dubai, London or New York. Principal and returns are **fully repatriable**, with no forms and no limit, and NRE interest is tax-free in India. - **NRO (Non-Resident Ordinary):** income generated in India, such as rent, dividends or a pension. NRO interest is taxable, and repatriating capital (principal, sale proceeds, redemptions) is capped at **US$1 million per financial year** across all your NRO accounts. Current income such as rent, dividends and interest can be repatriated separately, after tax, outside that cap. You cannot invest in Indian mutual funds in foreign currency, except through GIFT City: everything is converted to rupees through one of these two accounts first. ## What forms do you need to send mutual fund money abroad from an NRO account? **Form 145 and Form 146** (formerly Form 15CA and 15CB), in a fixed order. Below **₹5 lakh** of NRO remittances in a financial year, you usually file only Form 145 Part A, with no CA certificate. Once your remittances for the year cross ₹5 lakh, counted across the whole year and not per transfer, a chartered accountant first issues **Form 146**, then you file **Form 145 Part C** online, then you go to your bank. The sequence cannot be reversed, and banks reject transfers that skip it. Build in time: the CA certificate takes a few working days and bank processing and SWIFT add about another week, so a first NRO repatriation realistically takes one to two weeks. None of this applies to an NRE account: there is no Form 145, no Form 146 and no cap, just a transfer request. More detail in [NRI repatriation](https://finniki.com/blog/nri-repatriation). ## What KYC status does an NRI need to invest in mutual funds? **KYC Validated.** Your KYC can show as Validated, Registered or On Hold: - **Registered:** some fund houses will ask you to redo the whole process before accepting your money. - **On Hold or Rejected:** new investments are blocked, and you usually find out only when a transaction fails. - **Validated:** works smoothly across fund houses. Check yours on the CAMS or KFintech website with your PAN, and fix it before you invest. You also need current **FATCA and CRS declarations** on file, or your investments can be frozen during routine compliance checks. If you live in the **US or Canada**, many large Indian fund houses do not accept investments from those countries because of FATCA, so confirm with the fund house before you start. ## How much TDS is deducted when an NRI redeems a mutual fund? The fund house deducts TDS automatically before the money reaches you. The rates for the 2026-27 tax year, before surcharge and cess: - **Equity funds, held 12 months or less:** **20%**. - **Equity funds, held more than 12 months:** **12.5%** on gains above **₹1.25 lakh** a year. The ₹1.25 lakh exemption is one annual limit across all your listed shares, equity funds and ETFs, not per fund. - **Debt funds bought on or after 1 April 2023:** every gain is taxed at your slab rate, so for NRIs TDS is usually deducted at **30%**. - **Debt funds bought before 1 April 2023 and held more than 24 months:** still treated as long-term, at **12.5%** without indexation. Many NRIs with older debt folios do not know they still have this. - **Dividends:** **20%** TDS. With the 4% cess, 20% becomes about **20.8%** and 12.5% about **13%**, and surcharge adds more on larger incomes. Fund houses often deduct at a conservative rate under the non-resident provision (section 393, formerly section 195), so your statement may show more than these rates. ![Equity fund TDS for NRIs: 20% if held 12 months or less, and 12.5% if held longer, on gains above ₹1.25 lakh a year.](https://finniki.com/blog/media/80cb068786d630e4a9c196d2.jpg) ## Can an NRI get TDS on mutual funds refunded? Yes, but only by filing an Indian income tax return. TDS is an advance collection, not your final bill. If more was deducted than you owe, which is common when a tax treaty applies, you claim the excess as a refund in your return. **Skip the return and the TDS stays with the government**: it does not come back automatically. The smarter move is to stop the excess deduction in the first place. If you know your actual Indian tax will be lower, apply for a **lower-deduction certificate** on **Form 128** (formerly Form 13) before you redeem, and give it to the fund house. It then deducts at the reduced rate from the start. Most NRIs never do this. ## Can NRIs pay zero tax on mutual funds under a tax treaty? Possibly, if you live in the right country and claim it properly. India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries, which decide which country may tax which income. On 26 March 2025, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) ruled in **Anushka Sanjay Shah v. ITO**. She was a Singapore resident with about **₹1.35 crore** of short-term gains from Indian mutual funds, roughly ₹89 lakh from debt funds and ₹47 lakh from equity funds. The tax department wanted to tax them in India; the tribunal disagreed. Its reasoning: - Indian mutual fund units are issued by **trusts, not companies**, so they are not "shares". - Gains on them therefore fall under the **residual clause** of Article 13 of the India–Singapore treaty, which lets only the seller's country of residence tax them. - The reasoning covers **both equity and debt** fund units. An earlier Delhi ITAT ruling, **Saket Kanoi v. DCIT** (2024), reached the same view under the India–UAE treaty. Whether a treaty helps you depends on its exact wording, so check yours rather than assuming. To claim treaty relief you need three things, every year you have gains: 1. A **Tax Residency Certificate (TRC)** from your country's tax authority. 2. **Form 41** (formerly Form 10F) filed on the Indian income-tax portal. 3. An **Indian income tax return** for that year. The benefit is never automatic: TDS is deducted first and you claim it back. Our guide to [NRI tax notices](https://finniki.com/blog/nri-income-tax-notice) covers the treaty paperwork the department checks. ![To claim treaty relief on mutual fund gains: a Tax Residency Certificate, Form 41 (formerly 10F) and an Indian tax return.](https://finniki.com/blog/media/0b8cba44d29c3f1f34ac4522.jpg) ## How are Indian mutual funds taxed for NRIs in the UAE and Singapore? They can be tax-free in both countries, if you are a genuine tax resident and file. - **UAE:** the Saket Kanoi ruling held that mutual fund gains are not taxable in India under Article 13 of the India–UAE treaty, and the UAE has no personal income tax. Take Vikram: his fund house deducts TDS on his long-term equity gains; he has a valid UAE TRC, files Form 41 and his Indian return, claims the treaty exemption and gets the full TDS refunded. Net tax: zero, but only because he filed. - **Singapore:** under the Anushka Shah ruling, gains on both equity and debt fund units are taxable only in Singapore, which does not tax individuals' capital gains. You need a TRC from IRAS, Form 41 and your Indian return. In both cases these are **tribunal decisions, not settled law**. The tax department can challenge the view in other cases and take it to the High Courts. Keep your documentation complete every year and work with a cross-border adviser. ![A genuine UAE or Singapore tax resident may pay zero tax on Indian mutual fund gains, by claiming treaty relief.](https://finniki.com/blog/media/3b1d44b627c4d31c813588f0.jpg) ## How are Indian mutual funds taxed for NRIs in the US? Harshly, unless you plan carefully. Under US tax law, almost every Indian mutual fund is a **PFIC** (Passive Foreign Investment Company). The default PFIC rules tax gains at the highest ordinary income rates plus an interest charge, and you must file **Form 8621** for every Indian fund, every year. - Many practitioners use a **mark-to-market election**, which taxes each year's rise in NAV as ordinary income instead of the punitive default. Whether it is technically available for Indian funds is debated, so use a CPA who knows PFIC rules. - The alternative is to skip Indian mutual funds and use **US-listed India ETFs** for similar exposure without PFIC problems. - If you already hold Indian funds with large gains, **do not rush to sell**. Indian tax on redemption plus US PFIC tax in the same year can be worse than holding and managing compliance; a phased exit over two to three years often works better. Model the full exit cost first. Many Indian fund houses do not accept US investors, and IRS penalties for missed PFIC reporting are severe: do not do this without professional help. ## How are Indian mutual funds taxed for NRIs in the UK? At income tax rates, not capital gains rates. HMRC generally treats Indian mutual funds as **non-reporting offshore funds**, so your profit on sale is an "offshore income gain" taxed at **20%, 40% or 45%** depending on your band, rather than at the lower capital gains rates. India may take its share and the UK can still add its full rate on top, with credit for Indian tax. Many UK-based NRIs are better served by UK-domiciled India funds or HMRC **reporting funds**, whose gains qualify for capital gains treatment. If you hold Indian funds directly from the UK, ask a UK cross-border adviser about restructuring. ## How are Indian mutual funds taxed for NRIs in Australia? As part of your worldwide income, in Australian dollars. Declare the gain at the exchange rate on the date of redemption, and claim a foreign tax credit for Indian TDS. The **50% CGT discount** needs care. If you bought the units after 8 May 2012 and were a foreign resident for the whole time you held them, you get no discount. If you were an Australian tax resident for part of the holding period, the discount is pro-rated. Only if you were resident for the whole period does the full 50% apply. Many NRIs moved to Australia after already holding Indian funds, so check your residency timeline before assuming the full discount. Keep exchange-rate records for every transaction. ## How are Indian mutual funds taxed for NRIs in Canada? Canada taxes the gains, with a foreign tax credit for Indian TDS, and adds a reporting duty. Indian funds held directly are **specified foreign property**. Once the total **cost**, not market value, of all your foreign property exceeds **CAD 100,000**, you must file **Form T1135** every year. So if you paid CAD 90,000 for Indian funds now worth CAD 150,000, and hold no other foreign property, you do not yet need to file. Missing a required filing brings penalties even if you owe no tax. Rules in every country change, so confirm the local side with a tax adviser where you live. ## What should NRIs check before every mutual fund investment or redemption? Four questions, every time: 1. **Which account am I using?** Foreign income through NRE: no cap, no forms. Indian income through NRO: capital repatriation capped at US$1 million a year, with Forms 145 and 146 above ₹5 lakh. 2. **Is my KYC Validated?** Not Registered, not On Hold. Check on CAMS or KFintech with your PAN. 3. **What TDS will be deducted, and have I reduced it legally?** Know your treaty position; keep your TRC current for the year; file Form 41; consider a Form 128 lower-deduction certificate before redeeming; and plan to file your Indian return to claim any refund. 4. **Have I allowed for the repatriation timeline?** From an NRO account, allow at least a week, more the first time, before the money lands abroad. They take ten minutes. Skipping them can cost lakhs. India's mutual fund industry managed about **₹82.6 lakh crore** at the end of September 2026: the opportunity is real, but it only pays off when the execution matches it. For the wider picture of accounts and tax, read [how NRIs invest in India](https://finniki.com/blog/invest-in-india-as-nri). ## FAQs ### How much TDS is deducted on mutual fund redemption for NRIs? 20% on short-term equity gains, 12.5% on long-term equity gains above ₹1.25 lakh a year, and usually 30% on debt funds bought from April 2023, plus surcharge and cess. ### Can an NRI claim a refund of TDS on mutual funds? Yes, by filing an Indian income tax return. Without a return the excess TDS is not refunded. ### Are mutual fund gains tax-free for NRIs in the UAE? They can be. The Delhi ITAT's Saket Kanoi ruling held that such gains are taxable only in the UAE under the treaty, and the UAE has no personal income tax, but the position is not settled law and must be claimed. ### What did the Anushka Shah ITAT ruling decide? In March 2025 the Mumbai ITAT held that a Singapore resident's gains on Indian mutual fund units, both equity and debt, are taxable only in Singapore, because units are not shares under the treaty. ### Which documents does an NRI need to claim treaty relief? A Tax Residency Certificate, Form 41 (formerly Form 10F) and an Indian income tax return for the year of the gains. ### How can an NRI reduce TDS before redeeming mutual funds? Apply for a lower-deduction certificate on Form 128 (formerly Form 13) and give it to the fund house before you redeem. ### Can US-based NRIs invest in Indian mutual funds? Some fund houses accept them, but most Indian funds are PFICs under US law, with heavy reporting on Form 8621 and harsh default tax. Get a PFIC-experienced adviser first. ### How much can an NRI repatriate from mutual fund redemptions in an NRO account? Up to US$1 million per financial year of capital, with Forms 145 and 146 above ₹5 lakh. Redemptions credited to an NRE account have no cap. ## Get the plumbing right before you redeem The right account, a Validated KYC and a treaty claim backed by a current TRC and a filed return can change the outcome completely. [Book a session](https://finniki.com/book) to check your structure and treaty position before your next redemption, or find more episodes on [FinNiki videos](https://finniki.com/videos).