Recently, the Mumbai Income Tax Appellate Tribunal (ITAT) ruled in favour of Anushka Sanjay Shah, a Singapore-based NRI. She had earned ₹1.35 crore in short-term capital gains by selling Indian equity and debt mutual fund units in FY 2022–23.
She argued that since she’s a tax resident of Singapore, the India-Singapore Double Taxation Avoidance Agreement (DTAA) should apply—and therefore, her capital gains shouldn’t be taxed in India.
While the Assessing Officer disagreed and tried to tax the full amount, claiming mutual fund units are similar to company shares, the ITAT took a different view.
Why the ITAT ruled in her favour?
The ITAT said mutual funds in India are structured as trusts, not companies, and thus not the same as shares.
“The Mumbai ITAT has held that capital gains earned by NRIs from the sale of Indian mutual fund units may not be taxable in India under certain DTAAs,”
said Sandeep Sehgal, Partner-Tax at AKM Global.
“The tribunal ruled that mutual fund units are not considered ‘shares’ and therefore fall under Article 13(5) of the India-Singapore DTAA. As a result, the gains are taxable only in the country of residence—Singapore in this case,” he said.
Who can benefit from this ruling?
The judgment may apply to NRIs in other countries with similar DTAA terms, especially where Article 13(5) exists. These include:
- Singapore
- United Arab Emirates (UAE)
- Mauritius
- Ireland
- Cyprus
In these countries, capital gains from Indian mutual funds may be taxed only in the country of residence, not in India.
Important caveats to note
This is an ITAT-level ruling, not a Supreme Court decision. It may be challenged by the Indian tax authorities.
Future rulings could reverse this interpretation.
NRIs should consult tax experts or financial advisors before claiming exemptions.
“It opens the door for NRIs in multiple jurisdictions to claim exemption on mutual fund capital gains,” Sehgal added. “But investors must monitor developments carefully before taking a final tax position.”
How to make use of this ruling?
If you’re an NRI and want to explore tax exemption on capital gains from Indian mutual funds, follow these steps:
- Check your country’s DTAA with India – Look for Article 13 or provisions related to capital gains.
- Confirm your tax residency status – You must be a valid tax resident in the country where you claim exemption.
- Keep transaction records ready – Especially redemption statements, fund unit details, and capital gains reports.
- File disclosures accurately – When filing taxes in your home country, disclose Indian capital gains and claim DTAA benefit.