Taxation of Shares and Mutual Funds for NRIs in India

NRIs investing in Indian shares and mutual funds need to consider not only investment returns but also capital gains tax, TDS, dividend taxation, residential status, repatriation rules and Double Taxation Avoidance Agreement (DTAA) benefits.

The tax treatment can vary significantly depending on whether the investment is in listed equity shares, unlisted shares, equity-oriented mutual funds, debt mutual funds, gold funds, international funds or other investment products.

Under the current tax framework, qualifying short-term capital gains on listed equity shares and equity-oriented mutual funds are generally taxable at 20%, while qualifying long-term capital gains are generally taxable at 12.5% on aggregate gains exceeding ₹1.25 lakh, subject to the prescribed Securities Transaction Tax conditions.

Debt-oriented mutual funds require special attention because specified mutual funds acquired on or after 1 April 2023 can be treated as short-term capital assets irrespective of the actual holding period.

NRIs having capital gains, dividends or excess TDS in India can also refer to our NRI Income Tax Return Filing Services for tax computation, DTAA review and refund claims.

Why NRI Investment Taxation Needs Special Attention

NRI Taxation Depends on the Type of Investment

There is no single tax rate applicable to all investments made by an NRI.

The tax treatment depends upon factors such as:

• whether the investment is a share or mutual fund;
• whether the security is listed or unlisted;
• whether the mutual fund is equity-oriented or debt-oriented;
• the period of holding;
• whether Securities Transaction Tax (STT) is applicable;
• the residential status of the investor; and
• whether DTAA relief is available.

Accordingly, the investment should first be correctly classified before calculating the tax.

TDS Is Not Necessarily the Final Tax Liability

NRIs frequently face TDS at the time of receiving dividends or redeeming investments.

However, TDS is only tax collected in advance and may not represent the investor’s final Indian income-tax liability.

Where excess tax has been deducted, the NRI may generally claim a refund through the Indian income-tax return, subject to applicable provisions.

Can NRIs Invest in Indian Shares and Mutual Funds?

Investment in Indian Shares

NRIs and eligible OCI investors may invest in shares of Indian companies subject to FEMA, RBI and SEBI regulations.

The route, banking arrangement and repatriability can differ depending upon whether the investment is made on a repatriation or non-repatriation basis.

The RBI framework governing investment by NRIs and OCIs can be reviewed through its Foreign Exchange Management regulations.

Investment in Indian Mutual Funds

NRIs can generally invest in schemes of Indian mutual funds subject to applicable FEMA, SEBI, KYC, FATCA/CRS and individual asset-management-company requirements.

SEBI also confirms that NRIs can invest in Indian mutual funds subject to the applicable scheme and regulatory requirements.

Investors should ensure that their residential status and overseas address are correctly updated with the mutual fund and KYC registration agency.

Repatriation and Non-Repatriation Basis

An NRI may make certain Indian investments on either a repatriation or non-repatriation basis.

For mutual fund investments on a repatriation basis, funds are generally remitted from overseas or paid through permitted NRE/FCNR(B) sources.

On a non-repatriation basis, eligible investments may also be funded through permitted NRO balances.

Sale or redemption proceeds are then dealt with according to the applicable FEMA route.

For an overview of NRE and NRO accounts, see our guide on NRI Bank Accounts in India.

Residential Status and Taxability of Investment Income

Indian-Source Investment Income of an NRI

A non-resident is generally taxable in India on income received or deemed to be received in India and income accruing, arising or deemed to accrue or arise in India.

Accordingly, capital gains from Indian investments and dividends from Indian companies or mutual funds can be taxable in India even where the investor permanently resides overseas.

Our NRI Taxation Services in India cover residential-status determination and taxation of Indian-source income.

Country of Residence May Also Tax the Income

The NRI’s country of tax residence may also require reporting of Indian investment income.

This can potentially create taxation in both India and the country of residence.

An applicable DTAA may provide relief through restricted tax rates, allocation of taxing rights or foreign tax credit.

Taxation of Listed Equity Shares for NRIs

Holding Period for Listed Equity Shares

For transfers under the current framework, listed equity shares are generally treated as long-term capital assets if held for more than 12 months.

Therefore:

Held for 12 months or less → Short-Term Capital Gain

Held for more than 12 months → Long-Term Capital Gain

The Income Tax Department provides detailed official guidance on taxation of sale of shares.

Short-Term Capital Gains Tax – 20%

Where listed equity shares are sold and the prescribed STT conditions are satisfied, short-term capital gains are generally taxable at 20%, plus applicable surcharge and Health and Education Cess.

Under the Income-tax Act, 2025, this treatment is contained in Section 196, corresponding broadly to earlier Section 111A.

The current provision can be reviewed under Section 196 of the Income-tax Act, 2025.

Long-Term Capital Gains Tax – 12.5%

Qualifying long-term capital gains on listed equity shares are generally taxable at 12.5% on aggregate qualifying LTCG exceeding ₹1.25 lakh during the tax year, subject to the prescribed STT conditions.

Under the Income-tax Act, 2025, this treatment is contained in Section 198, broadly corresponding to earlier Section 112A.

The ₹1.25 lakh threshold applies collectively to qualifying gains covered by this provision, which can include eligible listed equity shares, equity-oriented mutual funds and units of business trusts.

Taxation of Unlisted Shares for NRIs

Holding Period for Unlisted Shares

Unlisted shares are generally treated as long-term capital assets where they are held for more than 24 months.

Where the holding period is 24 months or less, the resulting gain is generally short-term.

This is different from listed equity shares, where the relevant long-term holding period is generally more than 12 months.

Long-Term Capital Gain on Unlisted Shares

Long-term capital gains arising from the sale of unlisted shares are generally taxable at 12.5% under the current capital gains framework, subject to applicable surcharge and cess.

For transfers taking place on or after 23 July 2024, the earlier 10% rate applicable in certain cases was replaced by the 12.5% rate.

Indexation is generally not available under the current regime.

Special Rules for Non-Residents

Special computation provisions may apply where a non-resident acquired shares or debentures of an Indian company using foreign currency.

Broadly, capital gains can be computed by converting the relevant acquisition cost, sale consideration and transfer expenditure into the same foreign currency and then reconverting the resulting gain into Indian rupees according to the prescribed mechanism.

This mechanism is designed to address foreign-currency fluctuations in qualifying cases.

Valuation provisions should also be reviewed where unlisted shares are transferred below prescribed fair-market value.

Taxation of Equity-Oriented Mutual Funds for NRIs

What Is an Equity-Oriented Mutual Fund?

For capital gains purposes, an equity-oriented fund must satisfy the prescribed investment conditions relating principally to investment in equity shares of domestic companies.

The definition is contained in Section 198 of the Income-tax Act, 2025.

The scheme’s tax classification should be confirmed rather than relying merely on the commercial name of the mutual fund.

Holding Period for Equity Mutual Funds

Units of an equity-oriented mutual fund are generally treated as long-term where they are held for more than 12 months.

Accordingly:

12 months or less → Short-Term Capital Gain

More than 12 months → Long-Term Capital Gain

The rule applies to qualifying equity-oriented mutual fund units whether or not the units themselves are individually listed.

STCG and LTCG Rates

Where the applicable STT conditions are satisfied:

Short-Term Capital Gain: 20%
Long-Term Capital Gain: 12.5% on aggregate qualifying gains exceeding ₹1.25 lakh

Applicable surcharge and Health and Education Cess must be added to the base tax.

The tax treatment broadly aligns qualifying equity-oriented mutual funds with listed equity shares.

Taxation of Debt Mutual Funds for NRIs

Specified Debt Mutual Funds Acquired on or After 1 April 2023

Special rules apply to units of a Specified Mutual Fund acquired on or after 1 April 2023.

Under Section 76 of the Income-tax Act, 2025, gains arising from qualifying specified mutual funds are deemed to be short-term capital gains irrespective of how long the units are actually held.

From 1 April 2026, a Specified Mutual Fund broadly includes a mutual fund investing more than 65% of its total proceeds in debt and money-market instruments, as well as specified fund-of-fund structures investing substantially in such funds.

The current provision can be reviewed under Section 76 of the Income-tax Act, 2025.

Tax Rate on Specified Debt Mutual Funds

Because gains from applicable specified debt mutual funds are deemed short-term, they are generally taxed at the normal rates applicable to the NRI rather than the concessional long-term capital gains rate.

Accordingly, holding such a debt mutual fund for several years does not by itself convert the gain into LTCG where Section 76 applies.

NRI investors should therefore check both the date of acquisition and the portfolio classification of the mutual fund before determining tax liability.

Taxation of Gold, International, Hybrid and Other Mutual Funds

Holding Period Depends on Fund Classification and Listing

Not every non-equity mutual fund is necessarily a Specified Mutual Fund under Section 76.

Gold funds, gold ETFs, international funds, hybrid funds and fund-of-funds may require separate classification depending on their portfolio and whether their units are listed.

Under the current general framework, listed securities and qualifying listed units can generally become long-term after more than 12 months, while other assets generally require more than 24 months.

Tax Rate Where the Fund Is Not a Specified Debt Mutual Fund

Where a mutual fund is not covered by the special deemed-short-term rule and qualifies as a long-term capital asset, LTCG is generally taxable at 12.5% without indexation, subject to applicable provisions.

Short-term gains are generally taxed at the normal applicable rates unless a special concessional provision applies.

Because mutual fund classifications can change and products differ significantly, investors should verify the scheme category before calculating the gain.

The AMFI tax regime for mutual funds can also be referred to for general mutual fund tax information.

Dividend and IDCW Taxation for NRIs

Dividend From Indian Shares

Dividend received by a non-resident from shares of an Indian company is generally taxable in India.

Under Indian domestic law, dividend income received by a non-resident is generally subject to tax at 20%, plus applicable surcharge and cess, subject to specific provisions and any more beneficial DTAA rate.

The applicable DTAA should therefore be checked before determining the final rate.

IDCW From Mutual Funds

Income distributed by a mutual fund under an IDCW option is taxable in the hands of the investor.

For a non-resident investor, withholding can generally apply at 20% plus applicable surcharge and cess, subject to a lower rate available under an applicable DTAA and satisfaction of documentation requirements.

Accordingly, an NRI should compare the tax consequences of growth and IDCW options based on individual circumstances rather than considering only the cash distribution.

TDS on Shares and Mutual Funds for NRIs

TDS on Capital Gains From Mutual Fund Redemption

Unlike a resident mutual fund investor, an NRI can be subject to TDS when mutual fund units are redeemed.

Broadly, current withholding rates reflect the nature of the taxable gain. For example, qualifying equity-oriented mutual fund gains can attract withholding corresponding to:

STCG – 20%

LTCG – 12.5%

plus applicable surcharge and cess.

For non-equity funds, the withholding rate depends upon the applicable tax treatment and can be higher where the gain is taxable at normal rates.

The Income Tax Department publishes current TDS rates applicable to non-residents.

TDS on Dividend and Mutual Fund Distribution

Dividend and qualifying mutual fund income paid to an NRI can also be subject to withholding tax.

Domestic withholding can generally be 20%, subject to applicable surcharge and cess and any beneficial DTAA rate.

The investor should provide the required treaty documentation before payment if a reduced DTAA rate is being claimed.

Excess TDS Can Be Claimed as Refund

TDS deducted by a broker, company, mutual fund or other payer does not necessarily represent the final tax payable.

For example, the investor may have:

• capital losses available for set-off;
• a lower final taxable gain;
• DTAA relief;
• other tax credits; or
• excess tax deducted.

Where final tax liability is lower than TDS, the excess may generally be claimed as a refund through an Indian income-tax return.

For assistance, see our NRI Income Tax Return Filing Services.

DTAA Benefits on Shares and Mutual Funds

Can DTAA Reduce Tax on Investment Income?

Potentially, yes.

India has entered into DTAAs with numerous countries, including the USA, UK, UAE, Canada, Australia and Singapore.

Treaty provisions can be particularly relevant for dividend income and certain other investment income.

However, capital gains articles vary significantly between treaties and may contain special rules based on the nature of the asset, date of acquisition or shareholding.

See our detailed guide on DTAA Benefits for NRI.

TRC and Form 41

An NRI claiming DTAA benefits should generally obtain a valid Tax Residency Certificate (TRC) from the country of residence.

Under the Income-tax Act, 2025 framework applicable from 1 April 2026, Form 41 replaces the earlier Form 10F for prescribed treaty information.

Appropriate treaty documents should ideally be furnished before the payer applies withholding tax.

Foreign Tax Credit in Country of Residence

Where Indian investment income is taxed in India and is also taxable in the NRI’s country of residence, foreign tax credit may be available under that country’s domestic law and the applicable DTAA.

The NRI should therefore retain:

• Indian income-tax return;
• TDS certificates;
• Form 26AS;
• AIS;
• capital gains statements;
• dividend statements; and
• Indian tax payment evidence.

These documents may be required for claiming overseas tax credit.

Grandfathering for Investments Acquired Before 1 February 2018

Why 31 January 2018 Value Can Be Relevant

Special grandfathering provisions apply when computing qualifying LTCG on certain listed equity shares and equity-oriented mutual fund units acquired before 1 February 2018.

The fair market value as on 31 January 2018 can become relevant while determining the deemed cost of acquisition.

The mechanism broadly protects eligible appreciation accrued up to the introduction of the earlier LTCG taxation regime.

Preserve Historical Investment Records

NRIs holding old Indian equity investments should preserve:

• original contract notes;
• mutual fund statements;
• acquisition dates;
• acquisition cost;
• 31 January 2018 market values; and
• corporate action records.

These documents can materially affect the capital gain calculation when older investments are eventually sold.

Set-Off and Carry Forward of Capital Losses

Short-Term Capital Loss

A short-term capital loss can generally be set off against:

short-term capital gains, and
long-term capital gains.

This can make tax-loss planning relevant where an NRI has gains from one investment and losses from another during the same tax year.

Long-Term Capital Loss

A long-term capital loss can generally be set off only against long-term capital gains.

It cannot ordinarily be adjusted against salary, interest, rental income or other non-capital-gain income.

Losses should therefore be separately identified as STCL or LTCL.

Carry Forward for Up to Eight Years

Eligible unabsorbed capital losses can generally be carried forward for up to eight subsequent tax years, subject to the prescribed conditions.

Filing the return within the applicable due date is generally important for preserving the right to carry forward such losses.

The Income Tax Department provides detailed guidance on set-off and carry forward of losses.

SIPs, Redemption, Switches and Mutual Fund Transactions

Each SIP Investment Has Its Own Holding Period

Where an NRI invests through a Systematic Investment Plan (SIP), units are acquired on different dates.

The holding period therefore needs to be determined separately for the units being redeemed.

A single mutual fund folio may consequently generate both short-term and long-term gains in the same redemption year.

Switching Between Mutual Fund Schemes Can Trigger Tax

A switch from one mutual fund scheme to another generally involves redemption of units from the existing scheme followed by investment in another scheme.

Therefore, a switch can trigger a capital gain or capital loss even though the investor does not receive the money into a bank account.

Similarly, an STP may involve periodic taxable redemptions from the transferor scheme.

Tax consequences should therefore be considered before undertaking large switches merely for portfolio rebalancing.

NRE, NRO Accounts and Repatriation of Investment Proceeds

Investment on Repatriation Basis

Where eligible shares or mutual fund units are acquired on a repatriation basis through prescribed banking channels, the net sale or redemption proceeds may generally be eligible for repatriation subject to applicable FEMA conditions and payment of Indian taxes.

For mutual funds, permitted investment funds can generally be received through inward remittance or eligible NRE/FCNR(B) accounts.

Investment on Non-Repatriation Basis

Investments made on a non-repatriation basis are subject to a different FEMA framework.

Sale or maturity proceeds may generally be required to be credited to the investor’s NRO account and repatriation is then subject to the applicable FEMA limits and conditions.

The original investment route should therefore be preserved in the records.

Bank Account and Tax Documentation

Before processing overseas remittances, the authorised dealer bank may request documents relating to:

• investment source;
• purchase and sale statements;
• capital gain;
• TDS;
• income-tax return;
• tax payment; and
• applicable remittance forms or CA certification.

For a broader understanding of accounts and repatriation, see NRI Bank Accounts in India – NRE, NRO, FCNR and Tax Implications.

Income Tax Return Filing for NRI Investors

When an NRI Should File an Indian ITR

An NRI having taxable capital gains, dividend income or other Indian-source income may be required to file an Indian income-tax return depending upon the applicable provisions and total income.

Return filing may also be necessary or beneficial where the NRI wants to:

• claim excess TDS refund;
• set off capital losses;
• carry forward eligible losses;
• claim DTAA treatment; or
• correctly report investment income.

Our NRI Income Tax Return Filing Services assist NRIs with these requirements.

Reporting Capital Gains in Schedule CG

Capital gains should be correctly classified and reported in the applicable capital gains schedule of the income-tax return.

Separate reporting may be required for:

• listed equity shares;
• equity-oriented mutual funds;
• other securities;
• unlisted shares;
• short-term gains;
• long-term gains; and
• treaty-rate gains.

Incorrect classification can affect the applicable tax rate and TDS reconciliation.

Reconcile Broker and Mutual Fund Statements With AIS

Before filing the return, NRIs should reconcile investment information with:

• Annual Information Statement (AIS);
• Form 26AS;
• broker capital-gain reports;
• mutual fund capital-gain statements;
• CAS;
• dividend statements; and
• TDS certificates.

Differences should be investigated rather than simply copying values from one report.

Frequently Asked Questions on NRI Taxation of Shares and Mutual Funds

What Is the LTCG Tax Rate for NRI on Indian Shares?

For qualifying listed equity shares satisfying the prescribed STT conditions, LTCG is generally taxable at 12.5% on aggregate qualifying long-term gains exceeding ₹1.25 lakh.

Applicable surcharge and cess must be added.

The ₹1.25 lakh threshold applies collectively to qualifying gains falling under the relevant provision.

What Is the STCG Tax Rate for NRI on Listed Shares?

Qualifying short-term capital gains on listed equity shares subject to STT are generally taxable at 20%, plus applicable surcharge and Health and Education Cess.

Listed shares are generally short-term where held for 12 months or less.

Are Debt Mutual Funds Taxed as LTCG After Two or Three Years?

Not necessarily.

Where a debt-oriented fund qualifies as a Specified Mutual Fund and the units were acquired on or after 1 April 2023, Section 76 can deem the gains to be short-term irrespective of the actual holding period.

From 1 April 2026, the definition principally focuses on funds investing more than 65% in debt and money-market instruments and specified fund-of-fund structures.

Does an NRI Get the ₹1.25 Lakh LTCG Exemption?

The special tax provision taxes aggregate qualifying long-term gains exceeding ₹1.25 lakh at 12.5%.

However, NRIs should distinguish this threshold from the separate ability of a resident individual or HUF to use an unutilised basic exemption limit against such special-rate capital gains.

That basic-exemption adjustment is specifically available to residents and should not automatically be applied to an NRI.

Is ITR Filing Required if TDS Has Already Been Deducted?

TDS deduction does not automatically eliminate the need to examine return-filing requirements.

An NRI may still need or wish to file an income-tax return to report capital gains, claim DTAA relief, set off or carry forward losses, reconcile investment income or claim refund of excess TDS.

Related Services, Reviewed By and Disclaimer

Related Services

• NRI Income Tax Return Filing Services
• NRI Taxation Services in India
• NRI Tax Advisory Services
• DTAA Benefits for NRI
• NRI Bank Accounts in India
• NRI Returning to India – Tax Planning and RNOR Benefits
• Sale of Property by NRI – Tax, TDS and Other Implications
• International Tax Advisory Services
• Direct Tax Advisory Services
• Contact EzyBiz India

Reviewed By

CA Anil Agrawal
Founder, EzyBiz India Consulting LLP

Chartered Accountant with more than 20 years of professional experience in Indian taxation, international taxation, NRI taxation, capital gains, DTAA and cross-border advisory.

Last Reviewed: September 2026

Disclaimer

The information provided on this page is for general informational and educational purposes only and should not be construed as tax, legal, investment, financial, FEMA or regulatory advice.

Taxation of shares and mutual funds depends upon several factors including residential status, type of security, mutual fund classification, date of acquisition, period of holding, Securities Transaction Tax, repatriation status, applicable DTAA and the individual facts of the transaction.

The Income-tax Act, 2025 applies from 1 April 2026. Transactions and tax years relating to earlier periods may continue to be governed by the Income-tax Act, 1961 and the corresponding rules applicable to those periods.

Mutual fund portfolios and tax classifications may change, and different rules may apply to equity-oriented funds, specified mutual funds, gold funds, international funds, ETFs, hybrid funds and other investment products.

Tax rates, TDS rates, treaty provisions, FEMA regulations and compliance procedures may also be amended from time to time. Investors should verify the latest applicable law and obtain professional advice before undertaking any material investment, redemption, switch, repatriation or tax-filing decision.

EzyBiz India Consulting LLP does not accept responsibility for any action taken solely on the basis of the general information contained on this page without a specific professional review.