How are NRIs taxed on Indian mutual funds?

NRIs are taxed on Indian mutual funds much like residents, but with one key difference: tax is deducted at source when you redeem. For AY 2026-27, equity fund gains face TDS at 12.5% long-term and 20% short-term, and specified debt fund gains are taxed at the highest slab. A tax treaty may reduce this if you submit the right documents.

Key facts

For NRIs, TDS is deducted at source on redemption gains, unlike for resident investors.
Equity fund gains face TDS at 12.5% long-term and 20% short-term, plus surcharge and cess.
Specified debt fund gains are taxed at slab rates, with TDS deducted accordingly.
DTAA relief may lower the rate if you give the AMC a Tax Residency Certificate and Form 10F.

The same rates, collected differently

An NRI investing in Indian mutual funds faces broadly the same capital gains rates as a resident. The difference is collection. For an NRI, the AMC deducts tax at source when you redeem, rather than leaving you to pay it at filing.

For equity funds, TDS is deducted at 12.5% on long-term gains and 20% on short-term gains, plus surcharge where applicable and a 4% cess. Specified debt fund gains are taxed at slab rates, with TDS deducted accordingly, typically at the highest rate.

Please verify: the exact NRI TDS rate on debt and specified fund gains, and the applicable surcharge, should be confirmed against the current Finance Act and the relevant scheme's process before relying on a figure.

Using a tax treaty

If India has a Double Taxation Avoidance Agreement with your country of residence, you may be able to reduce the Indian tax or claim credit at home. To have the AMC apply a treaty rate, you generally provide a valid Tax Residency Certificate and Form 10F before redemption. Without them, the standard rate is deducted, and you would claim any excess back when you file.

Get specialist help

NRI taxation depends on your residential status, your country's treaty, and rules that change. This page is a map, not the territory. Before you act, a qualified cross-border tax professional is well worth it, and for the mutual fund mechanics you are welcome to talk to us.

Frequently asked questions

Do NRIs pay TDS on mutual fund redemptions?

Yes. Unlike resident investors, NRIs have tax deducted at source by the AMC when they redeem. For equity funds this is 12.5% on long-term and 20% on short-term gains, plus surcharge and cess. Debt fund gains are taxed at slab rates.

Can a tax treaty reduce the tax?

It can. A Double Taxation Avoidance Agreement between India and your country of residence may lower the rate or give credit. To claim it, you generally submit a valid Tax Residency Certificate and Form 10F to the AMC before redemption.

Can NRIs invest in Indian mutual funds at all?

Yes, NRIs can invest in most Indian mutual funds, subject to each fund house's process and KYC. Some restrictions apply for investors in certain countries. The tax and TDS rules described here then apply on redemption.

This is general information, not a recommendation for your situation. If it would help to talk it through, we are happy to. Talk to Nico Wealth.

The information on this website is general and educational. It is not financial, tax, or legal advice, and not a recommendation for your situation. We try to keep it accurate and up to date, but it may contain errors or become outdated. Please verify important details from official sources, and consider your own circumstances, before acting.

Sources

Last verified: 2026-08-11

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