Cap gains of NRIs on mutual fund units can’t be taxed in India: ITAT

Apr 13, 2025

Synopsis
The Mumbai ITAT ruled that an NRI from Singapore is not liable to pay tax in India on ₹1.35 crore short-term capital gains from mutual fund redemptions, under the India-Singapore tax treaty. The tribunal clarified that mutual fund units aren't shares and fall under the treaty's 'residual clause', making gains taxable only in the investor’s country of residence.

In a major relief for a Non-Resident Indian (NRI) investor, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has ruled that short-term capital gains worth ₹1.35 crore from redeeming mutual fund units are not taxable in India, as per the provisions of the India-Singapore tax treaty.

"This ruling brings out one aspect of the India-Singapore tax treaty (and other similar tax treaties) that many NRIs investing in India are not aware of. By virtue of the tax treaty, capital gains on sale of mutual fund units is taxable only in the country of residence, and not in India," Gautam Nayak, tax partner at CNK & Associates, told TOI.

"This benefit of capital gains on sale of units not being taxable in India will equally apply to tax treaties with other countries having similar provisions — such as those with UAE, Mauritius, Netherlands, Spain and Portugal, to name a few. In these tax treaties, assets other than immovable property and shares of a company fall under ‘the residual clause'. This clause provides that the gains are taxable only in the country of residence of the seller," explained Nayak.

[The Economic Times]