Capital gains tax for NRI on mutual funds

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pkkapoor (Querist)
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02 July 2025 I have received a message recently on a ITAT order that there will be ‘nil’ capital gains tax in case of mutual fund investments by NRIs staying in a country with which India has signed DTAA and NRI person has stayed outside India for more than 182 days in that FY.

As we know in singapore, as per their tax laws, capital gains tax is nil but in India resident assesse is required to pay capital gains tax on mutual funds investments on any gain.
Considering this please state how far it is correct that subject to such conditions, capital gains tax in India will be nil. Please make a reference to ITAT order in this regard. If it is correct and there exists a ITAT order, please state whether any notification has been issued by the Income Tax deptt. on this issue.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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12 August 2025 You're correct in noting that the India-Singapore Double Taxation Avoidance Agreement (DTAA) provides significant tax relief to Non-Resident Indians (NRIs) on capital gains from mutual fund investments. Here's a detailed explanation:
🏛️ ITAT Ruling: Capital Gains on Mutual Funds Not Taxable in India
In a landmark decision dated March 26, 2025, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) ruled in favor of Anushka Sanjay Shah, a Singapore tax resident. The case involved short-term capital gains of approximately ₹1.35 crore from the sale of equity and debt mutual fund units during the assessment year 2022–23.
The Tribunal held that:

Mutual fund units are not equivalent to shares under Indian law.
Article 13(5) of the India-Singapore DTAA applies, which states that capital gains from the sale of property other than immovable property or shares are taxable only in the country of residence—in this case, Singapore.
Therefore, the capital gains were not taxable in India.
This ruling aligns with the residual clause in the DTAA, which assigns taxing rights to the country of residence for gains not explicitly covered under other provisions.
🌍 Applicability to Other Countries with Similar DTAAs
This exemption is not limited to Singapore. NRIs residing in countries with similar DTAA provisions with India, such as:
United Arab Emirates (UAE)
Mauritius
Netherlands
Spain
Portugal
may also benefit from this tax relief, provided their country of residence has a residual clause in the DTAA with India.
📌 Conditions for Claiming Exemption
To claim this exemption, NRIs should:
Maintain a valid Tax Residency Certificate (TRC) from their country of residence.
File an Income Tax Return (ITR) in India, disclosing the capital gains.
Quote the relevant DTAA article (e.g., Article 13(5) for Singapore) in the ITR.
Obtain a Chartered Accountant's certificate (Form 15CB) for remittances, if applicable.
⚠️ Important Considerations
Taxability in Country of Residence: While the gains may be exempt in India, they could be taxable in the country of residence. For instance, Singapore does not levy capital gains tax, but other countries may have different tax treatments.
Remittance Conditions: Some DTAAs, like that of Singapore, may require the capital gains to be remitted to a bank account in the country of residence to qualify for exemption.
✅ Conclusion
The ITAT ruling provides a significant tax advantage for NRIs investing in Indian mutual funds, allowing them to potentially avoid capital gains tax in India under favorable DTAAs. However, it's crucial to ensure compliance with both Indian tax laws and the tax regulations of the country of residence.

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