NRI Investments in Mutual Funds and Shares: Capital Gains and TDS
NRIs can invest in Indian mutual funds and shares, and many do. Tax works differently from residents in one important way: TDS is deducted when you redeem or sell, not settled later through your ITR. Here is how it works under the current rules.
Can NRIs invest?
- Mutual funds: yes, through NRE or NRO accounts. Some fund houses limit investment from US and Canada-based NRIs because of FATCA and other compliance requirements. Check with the fund house.
- Shares: yes, through a PIS (Portfolio Investment Scheme) account with your bank for buying listed shares on the secondary market, with an NRE or NRO-linked demat and trading account.
- Investments made from NRE are repatriable. Investments made from NRO come under the USD 1 million repatriation limit.
Capital gains tax rates
| Asset | Holding period for long term | Short-term gains | Long-term gains |
|---|---|---|---|
| Listed equity shares / equity mutual funds (STT paid) | More than 12 months | 20% (section 196 of the 2025 Act; old 111A) | 12.5% on gains above ₹1.25 lakh a year (section 198; old 112A) |
| Debt mutual funds bought on or after 1 April 2023 (“specified mutual funds”) | Not relevant | Slab rate, always | Slab rate, always |
| Unlisted shares | More than 24 months | Slab rate | 12.5% without indexation |
Surcharge (capped at 15% on these capital gains) and 4% cess apply on top.
Grandfathering: for listed equity bought before 1 February 2018, the cost is the higher of the actual cost and the price on 31 January 2018 (capped at the sale price).
TDS on redemption or sale
| Type | Approximate TDS for NRIs |
|---|---|
| Equity STCG | 20% + surcharge + cess |
| Equity LTCG | 12.5% on gains above ₹1.25 lakh + surcharge + cess |
| Debt fund gains | 30% + surcharge + cess |
| No PAN given | Higher rate (at least 20%) |
Shares bought through PIS: the broker or bank works out the gain and deducts TDS.
Dividends
Dividends paid to NRIs are taxed at 20% (plus surcharge and cess), with TDS deducted at source. Under a tax treaty the rate can be lower, for example 10% under the India–UAE DTAA, if you give a Tax Residency Certificate and Form 41 (formerly 10F) to the company or fund house.
Capital gains under tax treaties
A few treaties let only your country of residence tax certain capital gains on shares, or did so for older investments. India has changed several treaties over the years, so check the specific treaty and the date you bought the shares before relying on any exemption.
Getting back extra TDS
Fund houses deduct TDS on the gain without considering your other income, losses or basic exemption limit. File your ITR to:
- set off capital losses against gains
- claim the ₹1.25 lakh LTCG exemption properly
- apply treaty rates
- get the extra TDS refunded
Frequently asked questions
Is there TDS when a resident redeems mutual funds?
No TDS on capital gains for residents. For NRIs, TDS is deducted on every redemption that has a gain.
Does the new tax regime affect my capital gains rates?
No. The special rates (20% STCG, 12.5% LTCG) apply under both regimes. But NRIs cannot use the section 156 rebate (the ₹12 lakh rule) to bring this tax down to zero.
Should I invest through NRE or NRO?
Use NRE if you want full repatriation. Use NRO for Indian income such as rent or dividends.
I am moving back to India. Should I tell my fund house?
Yes. Update your status to resident. TDS will then stop, and you will pay the tax through advance tax and your ITR.
Investing in India from abroad? Garvita Jain & Co. helps NRIs with capital gains calculations, treaty claims, TDS refunds and ITR filing. Contact us here, or at contact@garvitajainandco.com or +91 98678 16597.
This article is general information based on the law as of October 2026 and is not investment or professional advice.
Sources
Official
Professional / CA publications