NRI · Tax Guide
NRI Taxation
Tax rules, TDS, and refund process for Non-Resident Indian investors in mutual funds.
Who Qualifies as an NRI?
A Non-Resident Indian (NRI) is an Indian citizen who resides outside India for purposes of employment, business, or any other purpose indicating their intention to stay outside India for an uncertain duration.
Tax Residency Test (Income Tax Act)
You are considered a Non-Resident for tax purposes if you have been in India for:
Note
Your residential status can change from year to year based on your physical presence in India. Always determine your status for each financial year separately.
Prerequisites for NRI Mutual Fund Investment
Required Documents
Bank Account Requirements
NRE Account
Non-Resident External — for income earned abroad
NRO Account
Non-Resident Ordinary — for income earned in India
You can invest using either NRE or NRO accounts, but repatriation rules differ.
Tax Rates for NRIs on Mutual Funds
Important
NRIs are taxed at the same capital gains tax rates as resident Indians. However, TDS (Tax Deducted at Source) is applicable on capital gains for NRIs.
Equity Mutual Funds
Short-Term (≤ 12 months)
20%
TDS: 20% + surcharge + cess
Long-Term (> 12 months)
12.5%
On gains exceeding ₹1.25 lakh
TDS: 12.5% + surcharge + cess
Debt Mutual Funds & Other Schemes
Taxed at Income Tax Slab Rate
Debt funds, hybrid funds with <65% equity, and international FoFs.
TDS Rate: 30%
Unlike resident Indians, TDS is deducted at a flat rate of 30% (plus surcharge and cess) on capital gains for NRIs from debt mutual funds.
Tax Deducted at Source (TDS)
When you redeem your mutual fund units and make a capital gain, the AMC deducts TDS before crediting the redemption amount to your account.
TDS Rates Summary for NRIs
DTAA Benefits
India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. If you are a resident of a DTAA country, you may be eligible for lower TDS rates.
To claim DTAA benefits:
How to Claim TDS Refund
Good to know
If the TDS deducted is more than your actual tax liability, you can claim a refund by filing an Income Tax Return (ITR) in India.
When you can claim a refund
No Other India Income
If you have no other income in India besides capital gains, and your total income is below the taxable limit
Excess TDS
TDS was deducted at a higher rate (e.g., 30%) but your actual tax liability is lower based on your income slab
DTAA Benefits
You qualify for lower TDS rates under DTAA but higher TDS was deducted
Step-by-step refund process
Gather Documents
Form 26AS (Tax Credit Statement), Form 16A (TDS Certificate), capital gains statement from mutual fund, bank account details for refund.
File Income Tax Return
File ITR-2 (for capital gains) on the Income Tax e-filing portal at www.incometax.gov.in. The system will automatically calculate refund.
Verify Your ITR
Within 30 days of filing, verify using Aadhaar OTP, Net Banking, or by sending a signed physical copy to CPC Bangalore.
Receive Refund
After successful verification, the refund will be credited to your bank account within 30–90 days.
Important Deadline
You must file your ITR within the due date (usually July 31st) to claim a refund. For FY 2024–25 (ending March 31, 2025), file by July 31, 2025.
Example Scenario
NRI with only capital gains income
LTCG from Equity Funds
₹2,00,000
TDS Deducted (12.5%)
₹25,000
Tax Calculation
Refund Eligible: ₹15,625
TDS Deducted ₹25,000 − Actual Tax ₹9,375 = ₹15,625
Additional Tips for NRI Investors