Understanding the NRI Mutual Funds Taxation- G Bajpai & Associates Lucknow

In the last few years, mutual funds have become one of the most sought-after investment options in India. Apart from residents, Indian mutual funds have also become popular among many NRIs.


•NRIs can invest in Indian Mutual Funds. However, an NRI cannot invest with a regular savings account in a bank. 

-NRIs cannot invest in foreign currency as well; they have to invest in Indian Rupees.

•How to invest? 

-For an NRI to make investments in mutual funds in India, the person needs to open an NRE (Non-Resident External) account or an NRO (Non-Resident Ordinary) account, or an FCNR (Foreign Currency Non-Resident) account.

-Once the account is open, the person can start investing with any of the following two methods: 

1. Directly through normal banking channels, or 

2. Via Power of Attorney authorized to a resident Indian.

•How to Redeem?

-Different Asset Management Companies in India follow different procedures for the redemption of Mutual Funds by NRIs. You have to follow the process mentioned by your AMC.

-Upon redemption of the corpus, investments, and gains, the Asset Management Company will credit it in the respective NRE/NRO account after deductions of any applicable taxes. 

-They can also write a cheque to the person.

How are NRI mutual fund investors taxed?

•Capital Gains Tax 

-Your gains from mutual fund investment will be taxed like resident Indians.

-In the case of Equity Mutual Funds, gains of above Rs 1 lakh attract LTCG (Long-Term Capital Gains) tax at 10% without indexation benefit if the investment is redeemed after a year. 

-STCG (Short-Term Capital Gains) tax at 15% is applicable for redemption within 1 year.

-In the case of Non-Equity funds, STCG (Short-Term Capital Gains) are taxed as per the income tax slab applicable to the investor, if the investment is redeemed before 3 years. 

-LTCG tax is applicable at 20% with indexation benefit if the investment is redeemed

•Double Taxation India has DTAA (Double Taxation Avoidance Agreement) with more than 90 countries across the world. 

-If you currently reside in a country with which India has a DTAA, you can protect yourself from double-taxation.

-If not, you may have to pay the tax in both countries.

•Tax Deductions 

-Unlike resident investors, mutual fund investments made by NRIs are subject to TDS deductions in India. 

-If you’ve invested in equity funds, TDS will be deducted from your LTCG at 10%. The same for debit and other non-equity funds is 20%.

-TDS is deducted, assuming that you belong to the highest income tax bracket. In case your tax liabilities are lower, you can claim a tax refund by filing yearly returns.

• Setting off Gains with Capital Losses:

-NRIs are allowed to set off their capital gains made in a financial year with the losses made in the year. 

-However, you can only set off long-term losses with LTCG. STCG and LTCG can be used for setting-off short-term losses.

For more information contact us: +919415912987

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Location: 11th Floor, Wing A, Summit Building, Vibhuti Khand, Gomti Nagar, Lucknow, Uttar Pradesh 226010, India

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