NRI Mutual Fund Taxation in India: Shares and Capital Gains Guide 2026

NRI mutual fund taxation in India is an important consideration for Non-Resident Indians investing in Indian shares, equity mutual funds, debt funds and other securities. NRIs must consider capital gains tax, Tax Deducted at Source (TDS), dividend taxation, Double Taxation Avoidance Agreement (DTAA) benefits and Foreign Exchange Management Act (FEMA) requirements.

For 2026, 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 Securities Transaction Tax (STT) and other statutory conditions.

Debt mutual funds, unlisted shares, gold funds, international funds and other investments may have different tax treatment. NRIs must also consider applicable withholding tax when investments are sold or mutual fund units are redeemed.

At EzyBiz India Consulting LLP, our Chartered Accountants assist NRIs with investment taxation, capital gains computation, TDS reconciliation, income-tax returns, DTAA relief and FEMA compliance.

For broader professional support, explore our NRI Taxation Services in India.

Can NRIs Invest in Indian Shares and Mutual Funds?

Investment in Indian Listed Shares

NRIs and eligible Overseas Citizens of India (OCIs) may invest in shares of Indian companies subject to applicable RBI, FEMA and SEBI regulations.

The permissible route depends on the investment, account arrangement and whether the investment is made on a repatriation or non-repatriation basis.

Investment in Indian Mutual Funds

NRIs can generally invest in eligible Indian mutual fund schemes, subject to FEMA, SEBI, Know Your Customer (KYC), FATCA/CRS and asset-management-company requirements.

Some fund houses may impose additional documentation or restrictions for investors residing in particular countries, including the USA and Canada.

Repatriation and Non-Repatriation Investment Routes

Eligible investments can be made through permitted banking channels on a repatriation or non-repatriation basis.

Repatriable investments are generally funded through permitted overseas remittances or eligible NRE/FCNR(B) sources. Certain non-repatriable investments may be funded using permitted NRO balances.

The applicable bank account and original investment route affect the subsequent remittance of sale or redemption proceeds.

Read our NRI Bank Accounts in India guide for NRE, NRO and FCNR(B) rules.

How Are Shares and Mutual Funds Taxed for NRIs?

Short-Term Capital Gains and Long-Term Capital Gains

Capital gains arise when an investment is transferred, sold or redeemed for a taxable gain.

The classification as short-term or long-term depends on the type of asset, its acquisition date, period of holding and applicable statutory provisions.

Key Capital Gains Tax Rates in 2026

Investment	Holding Period	Broad Tax Treatment
Listed equity shares satisfying applicable STT conditions	Up to 12 months	20% STCG
Listed equity shares satisfying applicable STT conditions	More than 12 months	12.5% LTCG above the aggregate ₹1.25 lakh threshold
Qualifying equity-oriented mutual funds	Up to 12 months	20% STCG
Qualifying equity-oriented mutual funds	More than 12 months	12.5% LTCG above the aggregate ₹1.25 lakh threshold
Specified debt mutual funds acquired on or after 1 April 2023	Any period	Deemed STCG, generally taxed at applicable normal rates
Unlisted shares	More than 24 months	Generally 12.5% LTCG
Other qualifying non-equity mutual funds	Depends on listing and classification	Applicable STCG or LTCG rules

Rates shown above are base rates and exclude applicable surcharge and Health and Education Cess. The ₹1.25 lakh threshold is shared across eligible gains falling under the relevant special long-term capital gains provision; it is not a separate limit for each investment.

Factors Affecting Final Tax Liability

Before finalising capital gains tax, an NRI should verify the residential status, acquisition date, investment classification, Securities Transaction Tax conditions, cost of acquisition, transfer expenses, capital losses and applicable DTAA provisions.

Older transactions may be subject to different rules. The Income-tax Act, 2025 applies to tax years beginning on or after 1 April 2026.

For authoritative information, review the Income Tax Department’s guidance on taxation of shares.

Taxation of Listed Equity Shares for NRIs

Holding Period for Listed Shares

Listed equity shares are generally treated as long-term capital assets where held for more than 12 months.

Shares held for 12 months or less are generally short-term capital assets.

Short-Term Capital Gains Tax on Listed Shares

Where the relevant STT and other statutory conditions are satisfied, qualifying short-term capital gains from listed equity shares are generally taxable at 20% under the current framework.

Other share transactions that do not qualify for the concessional provision may be subject to different tax treatment.

Long-Term Capital Gains Tax on Listed Shares

Qualifying long-term capital gains from listed equity shares are generally taxed at 12.5% on aggregate qualifying gains exceeding ₹1.25 lakh during the relevant tax year.

Applicable surcharge and cess are additional. Certain older shareholdings may qualify for grandfathering of acquisition cost under the statutory rules.

Taxation of Unlisted Shares for NRIs

Holding Period for Unlisted Shares

Unlisted shares are generally classified as long-term capital assets if held for more than 24 months.

Gains from unlisted shares held for 24 months or less are generally short-term capital gains and are subject to the applicable tax provisions.

Tax on Sale of Unlisted Shares

Long-term capital gains from unlisted shares are generally taxable at 12.5% under the current capital gains framework, subject to applicable statutory conditions.

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

Where the shares are transferred at a value differing from prescribed fair market value, the relevant income-tax valuation provisions should be examined.

Special Rules for Non-Resident Investors

For certain shares or debentures of Indian companies acquired in foreign currency, special capital gains computation provisions may apply to non-residents.

The mechanism involves prescribed foreign-currency conversion of relevant amounts and must be distinguished from the separate tax rate or any available treaty benefit.

The actual calculation should be prepared using the appropriate statutory provision applicable to the transaction.

Taxation of Equity Mutual Funds for NRIs

What Is an Equity-Oriented Mutual Fund?

For Indian capital gains taxation, an equity-oriented mutual fund must satisfy the prescribed statutory investment conditions relating to domestic equity holdings.

An investor should verify the mutual fund’s tax classification instead of relying only on its commercial description.

Holding Period for Equity Mutual Funds

Units of a qualifying equity-oriented mutual fund generally become long-term capital assets when held for more than 12 months.

Where the holding period is 12 months or less, gains are generally short-term.

STCG and LTCG Rates for Equity Mutual Funds

Where prescribed conditions are fulfilled, the relevant base rates are:

• STCG: 20%.
• LTCG: 12.5% on aggregate qualifying long-term gains exceeding ₹1.25 lakh.

Surcharge and cess apply where relevant.

Example: An NRI redeems qualifying equity mutual fund units after 18 months and earns a long-term capital gain of ₹3 lakh. Assuming no other gains covered by the same threshold, the amount exceeding ₹1.25 lakh is ₹1.75 lakh.

Base LTCG tax would be ₹21,875 at 12.5%, before applicable surcharge, cess and any permissible adjustments.

Taxation of Debt Mutual Funds for NRIs

Specified Mutual Funds Acquired on or After 1 April 2023

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

Under Section 76 of the Income-tax Act, 2025, the relevant gains may be deemed short-term regardless of the actual holding period.

The statutory definition applicable from 1 April 2026 principally covers funds investing more than 65% of their total proceeds in debt and money-market instruments, together with specified fund-of-fund structures.

Tax Rates on Specified Debt Mutual Funds

Capital gains covered by the deemed-short-term provision are generally taxable at normal applicable rates, rather than the special long-term capital gains rate.

Holding eligible units for several years will not by itself convert such deemed-short-term gains into LTCG.

Debt Mutual Fund Investments Acquired Earlier

Units acquired before 1 April 2023, and units outside the special specified-mutual-fund classification, must be examined under the ordinary classification and capital gains rules applicable to their specific circumstances.

Older acquisitions may have different tax outcomes. Investors should not apply one uniform rate to every debt fund without checking acquisition dates and scheme classification.

For a detailed industry reference, consult the Association of Mutual Funds in India – Tax Regime.

Taxation of Gold, International and Hybrid Mutual Funds

Gold Mutual Funds and Gold ETFs

Gold mutual funds and gold exchange-traded funds require separate review of their classification, acquisition dates, listing status and holding periods.

Their tax treatment should not automatically be equated with equity-oriented mutual funds or specified debt funds.

International Mutual Funds

International funds investing in overseas securities may have a different classification from Indian equity-oriented mutual funds.

Their capital gains treatment depends upon the investment structure, statutory fund classification, acquisition date and applicable holding-period rules.

Hybrid Funds and Fund-of-Funds

Hybrid funds may have equity, debt and other asset exposures, and their tax classification depends on the statutory conditions rather than the fund’s marketing category.

Fund-of-funds may also be subject to special rules depending upon the composition of the underlying investment.

Tax classifications can change with statutory amendments and portfolio characteristics. NRIs should confirm the treatment of the specific scheme before redemption.

Taxation of Dividends and IDCW Income for NRIs

Dividend Income from Indian Shares

Dividends received by NRIs from Indian companies are generally taxable in India.

Domestic taxation and withholding may generally involve a 20% base rate for relevant non-resident dividend income, subject to applicable surcharge, cess, specific statutory provisions and treaty relief.

IDCW Income from Mutual Funds

Income distributed under the Income Distribution cum Capital Withdrawal (IDCW) option is generally taxable in the hands of the investor.

For an NRI, domestic withholding is generally applicable subject to the relevant provisions, and a beneficial DTAA rate may be available where the conditions are satisfied.

Growth Option vs IDCW Option

Under the growth option, investment returns generally accumulate within the scheme, with capital gains taxation arising when a taxable sale or redemption occurs.

Under IDCW, taxable distributions may occur without a full redemption of units.

NRIs should evaluate these options based on their tax circumstances, liquidity requirements and investment objectives.

TDS on Shares and Mutual Funds for NRIs

TDS on Mutual Fund Redemption

NRIs may be subject to TDS when redeeming Indian mutual fund units.

The applicable withholding depends on the type of fund, the tax character of the gain, the statutory rate and any applicable treaty provisions.

Qualifying short-term equity mutual fund gains may attract withholding corresponding to the 20% base rate, while qualifying long-term equity mutual fund gains may attract withholding corresponding to the 12.5% base rate, subject to the applicable rules and computation.

TDS on Dividends and IDCW

Dividend payments and mutual fund distributions to NRIs may be subject to Indian withholding tax.

A lower treaty rate may be available where applicable, provided the investor satisfies treaty eligibility and prescribed documentation requirements.

Relevant documents may include a Tax Residency Certificate, Form 10F or the applicable prescribed declaration, PAN and beneficial-ownership evidence.

Refund of Excess TDS

Tax deducted at source is not necessarily the final Indian income-tax liability.

An NRI may be eligible to claim a refund where TDS exceeds the final tax payable after considering the actual gain, eligible losses, applicable provisions, tax credits and treaty benefits.

For professional support, see our NRI Income Tax Return Filing Services.

SIP, SWP and Mutual Fund Switching Taxation

Each SIP Investment Has a Separate Holding Period

Each Systematic Investment Plan (SIP) instalment results in the acquisition of separate mutual fund units.

The holding period must therefore be computed with reference to the acquisition dates of the relevant units being redeemed.

One redemption can contain both short-term and long-term capital gains.

Taxation of Systematic Withdrawal Plans

A Systematic Withdrawal Plan (SWP) generally involves periodic redemption of mutual fund units.

The tax treatment depends upon the cost and holding period of the units redeemed, the nature of the scheme and the applicable capital gains provisions.

The entire amount withdrawn is not necessarily taxable income; the taxable component must be separately computed.

Are Mutual Fund Switches Taxable?

A switch between different mutual fund schemes generally involves redemption of units in the existing scheme and a subsequent investment in another scheme.

Consequently, a switch or Systematic Transfer Plan (STP) may trigger a taxable capital gain even if the funds are reinvested immediately.

Investors should calculate potential gains and withholding before undertaking significant portfolio restructuring.

FEMA Rules for NRI Shares and Mutual Fund Investments

Repatriation Basis Investments

Eligible shares and mutual funds may be acquired on a repatriation basis through prescribed banking channels.

Net sale or redemption proceeds may generally be eligible for repatriation subject to the original investment route, relevant FEMA conditions and applicable taxes.

Non-Repatriation Basis Investments

Certain investments made on a non-repatriation basis are governed by different FEMA rules.

Proceeds may be credited to an eligible NRO account, with any subsequent overseas transfer subject to the applicable remittance facility and related conditions.

Portfolio Investment and KYC Requirements

Investment in Indian listed equity shares may involve the prescribed NRI portfolio investment arrangements, designated banking channels, demat accounts and brokerage compliance.

Direct mutual fund investments generally follow the relevant mutual fund and banking procedures and do not necessarily require the same portfolio investment account arrangement as listed-share trading.

Refer to the RBI Foreign Exchange Management Investment Regulations for the underlying regulatory framework.

NRE, NRO Accounts and Repatriation of Investment Proceeds

Using NRE Accounts for Investments

Eligible investments funded from an NRE account or permitted inward remittance may qualify for repatriation treatment under the applicable FEMA route.

The account holder should maintain documentary evidence of the original investment source.

Using NRO Accounts for Investments

NRO accounts are commonly used for Indian income and investments permitted on a non-repatriation basis.

Investment proceeds and subsequent remittances must comply with the relevant FEMA conditions.

Repatriation of Capital Gains and Redemption Proceeds

Where shares or mutual fund investments are sold or redeemed, the eligibility to transfer proceeds abroad depends upon the investment route, source of funds, applicable taxes and bank documentation.

For certain eligible NRO balances, the USD 1 million per financial year facility may apply, while other qualifying investments may follow separate repatriation arrangements.

See our detailed NRO Account Repatriation Guide for applicable limits, documents and remittance procedures.

DTAA Benefits and International Taxation of NRI Investments

How DTAA Relief May Apply to Capital Gains

India has entered into Double Taxation Avoidance Agreements with numerous countries.

An applicable treaty may affect the allocation of taxing rights between India and the investor’s country of tax residence.

The treatment of share-sale gains, mutual fund gains and dividends can differ across treaties. Treaty eligibility must be established based on the investor’s circumstances.

Foreign Tax Credit and Treaty Documentation

An NRI who is also liable to tax overseas on Indian investment income may be eligible to obtain relief under the relevant treaty or foreign tax credit provisions of the country of residence.

Keep Indian tax returns, withholding certificates, capital gains statements, investment documents and foreign tax records.

Read our DTAA Benefits for NRIs guide for more information.

Income Tax Return Filing for NRIs With Investments

Which ITR Form Should an NRI Use?

NRIs should select the correct income-tax return based on residential status and the nature of income, including capital gains, dividends and other sources.

ITR-2 may be applicable to eligible individuals having investment income without business or professional income, while ITR-3 may be relevant where business or professional income is involved.

The forms and schedules applicable to the relevant tax year must be checked before filing.

Documents Required for Reporting Investment Gains

Commonly relevant documents include:

• PAN and residential-status details.
• Bank and demat account statements.
• Broker capital gains reports.
• Mutual fund consolidated account statements.
• SIP, redemption and switch statements.
• Dividend and IDCW records.
• Form 26AS and AIS.
• TDS certificates and tax challans.
• Foreign Tax Residency Certificate and other treaty records, where applicable.

Capital Loss Set-Off and Carry Forward

Eligible capital losses may be set off against permitted categories of capital gains, subject to statutory restrictions.

Short-term capital losses may generally be set off against eligible short-term or long-term capital gains, while long-term capital losses are generally restricted to eligible long-term capital gains.

Carry-forward of losses is subject to return-filing conditions and applicable time limits.

Frequently Asked Questions on NRI Investment Taxation

Does an NRI Get the ₹1.25 Lakh LTCG Threshold?

The special capital gains provision taxes qualifying aggregate long-term gains exceeding ₹1.25 lakh.

However, this should be distinguished from the adjustment of unused basic exemption limits, which is not generally available to non-residents for these special-rate gains.

Is TDS the Final Tax on Mutual Fund Redemption?

Not necessarily. TDS is tax collected at source and may be higher or lower than the final tax liability determined under applicable law.

An NRI can file an eligible income-tax return to calculate final liability and claim excess TDS as a refund.

Can NRIs Continue Existing Mutual Fund SIPs?

NRIs may generally continue eligible mutual fund investments after updating residential status, KYC and required banking details, subject to the individual fund house’s acceptance and applicable country-specific restrictions.

Investors should avoid continuing investment arrangements using an outdated resident status.

Related NRI Investment Taxation and FEMA Services

Professional Advisory Services for NRI Investors

EzyBiz India Consulting LLP provides taxation and FEMA advisory services for NRIs holding Indian shares, mutual funds and other investments.

Our services include:

• Classification of short-term and long-term capital gains.
• Capital gains computation for shares and mutual funds.
• Tax treatment of debt, equity, hybrid and other mutual fund schemes.
• Review of TDS on redemption and dividend income.
• DTAA applicability and tax relief documentation.
• ITR filing, capital loss set-off and refund claims.
• NRE/NRO banking and repatriation advisory.
• FEMA compliance review for investment transactions.

Explore Our Related Services

• NRI Taxation Services in India – Main NRI taxation and regulatory advisory service.
• NRI Income Tax Return Filing Services – Capital gains reporting, TDS reconciliation and refund claims.
• DTAA Benefits for NRIs – Treaty relief and international tax planning.
• NRI Bank Accounts in India – NRE, NRO and FCNR account rules.
• NRO Account Repatriation – Overseas fund transfers, documentation and FEMA limits.
• NRI Returning to India Tax Planning – RNOR, foreign income and investment transition planning.
• Sale of Property by NRI – Capital gains, withholding tax and property compliance.
• Form 145 and Form 146 Filing Services – Tax reporting and CA certification for applicable overseas remittances.

Need Assistance With NRI Shares and Mutual Fund Taxation?

Our team can review your Indian investment transactions, calculate capital gains, examine TDS and DTAA relief, prepare the applicable income-tax return and advise on related FEMA requirements.

Contact: CA Anil Agrawal, Founder, EzyBiz India Consulting LLP

Mobile/WhatsApp: +91 98992 17778

Email: anil@ezybizindia.in

Website: EzyBiz India Consulting LLP