No one smiles at a tax bill—especially when you can bring it down to zero. An April 2025 ruling from India’s Income-Tax Appellate Tribunal (the country’s key tax court below the High Courts) now confirms that certain NRIs can legally skip Indian capital-gains tax on their mutual-fund profits. If you invest in Indian funds while living abroad, check whether this rule applies to you and follow the simple steps to claim the break.

Are You Eligible? 

You qualify for this exemption if you are an NRI and a tax resident of the following countries:

  • United Arab Emirates (UAE)
  • Singapore
  • Qatar
  • Mauritius
  • Kuwait
  • Switzerland
  • Ireland

What’s 100 % Tax‑Free?

Under the DTAA provisions, you can enjoy complete exemption from taxation in India on:

  • The exemption covers all mutual fund capital gains, regardless of:
    • Fund category (equity, debt, hybrid, multi-asset, etc.)
    • Holding period (both short-term and long-term gains qualify)
    • Investment amount (no upper limit on the exemption)

Note that this exemption does not cover capital gains from shares or direct equity investments, which remain taxable.

Portfolio Moves to Consider

This tax exemption opens up several strategic opportunities for different types of investors:

For Risk-Averse Investors

  • Consider moving investments from fixed deposits and bonds to Debt mutual funds and Arbitrage mutual funds

These options can provide potentially higher returns while maintaining a conservative risk profile, now with the added benefit of tax-free capital gains.

For Risk-Taking Investors

  • Shift from Stocks or Portfolio Management Services (PMS) to equity mutual funds
  • Explore balanced advantage funds that offer dynamic equity exposure

Review Alternative Investment Funds (AIFs) – Category 3: These funds pay taxes in India at the fund level, and you cannot claim a refund for taxes already paid by the AIF. This makes them less tax-efficient compared to mutual funds under the DTAA provisions, so you may want to reconsider these investments if tax efficiency is a priority.

How to Claim the Exemption—Step‑by‑Step

The path to tax-free mutual fund returns is straightforward, though it does require some paperwork. Let’s break down what you need to do:

Confirm eligibility & secure your Tax Residency Certificate (TRC)

You’ll need to be a tax resident of the specified countries. This typically means you spend a sufficient number of days in that country to qualify as a tax resident according to local laws.

Getting a Tax Residency Certificate (TRC) proves your tax status to Indian authorities and is essential for receiving the exemption.

To obtain your TRC, you’ll need to apply through your country’s tax authority with documents like your passport, residence permit, and proof of address. While the process varies by country, most tax authorities have streamlined this for residents.

File the necessary forms in India

Once you have your TRC, you’ll need to file Form 10-F on the Indian Income Tax portal. This form provides additional information to support your exemption claim under the DTAA. Many NRIs find it helpful to consult with a Chartered Accountant for this step to ensure everything is properly documented.

File your tax return

Even though your mutual fund gains are exempt, you still need to file an Indian tax return if you’ve realized these gains. This is particularly important because mutual fund companies might still deduct TDS (Tax Deducted at Source), which you can reclaim.

In your tax return, you’ll report these capital gains but mark them as exempt income under the relevant DTAA provision. Include copies of your TRC and Form 10-F to claim a refund for any TDS deducted.

Important Considerations

While this exemption provides significant benefits, keep these points in mind:

  • The exemption applies only to capital gains and not to dividend income from mutual funds.
  • You must maintain valid tax residency in the specified country throughout the investment period.
  • You must strictly follow documentation requirements to avoid complications.
  • Consult with a tax professional who specializes in international taxation to ensure compliance.

What to Do Next?

This tax exemption is a great opportunity to boost investment returns through tax-efficient structuring.

If you are residing in one of the 7 specified countries, review your portfolio with a financial advisor who understands both Indian tax regulations and the specific DTAA provisions applicable to your country of residence.