NRI Tax provisions

[quote=3666]hello everyone
My father is an NRI and he wants to invest in Mutual funds and i am having some doughts
-is the return we get from those mutual fund investments is taxable in the hands of an NRI
if its is taxable is it advisable to invest in the name of my mother who is an resident indian or any better option will be avaible to avoid tax on returns (which will be in the form of dividents) from those invetments in mutual funds

Answers would be greatly appreciated[/quote]

One important aspect to consider is the tax treatment of capital gains and investment in the mother's name.

For equity-oriented mutual funds, short-term capital gains (holding up to 12 months) are taxable at 20%, while long-term gains are taxable at 12.5% on eligible aggregate gains exceeding ₹1.25 lakh under Section 198 of the Income-tax Act, 2025, subject to STT and other conditions.

Under Section 76, gains from specified mutual funds acquired on or after 1 April 2023 are treated as short-term capital gains, irrespective of the holding period. This generally covers funds investing more than 65% in debt and money-market instruments, subject to the statutory definition.

Under the Growth option, tax generally arises on redemption as capital gains, whereas IDCW distributions are taxable as income.

For NRIs, redemption-related TDS is governed by Section 393(2), Table Sl. No. 17, and IDCW withholding by Table Sl. No. 10 of the 2025 Act, subject to applicable rates and treaty relief.

Importantly, if the father gifts money to his wife, clubbing provisions generally apply. Investment from the mother's independent funds is treated differently. DTAA relief requires treaty eligibility and supporting documentation, including a TRC.