DTAA and mutual funds: how NRIs in Singapore and UAE may pay zero capital gains tax
In April 2025, the Mumbai Income Tax Appellate Tribunal delivered a ruling that changed the landscape for NRI mutual fund taxation. The case involved a Singapore-based NRI who earned over ₹1.35 crore in capital gains from Indian mutual fund redemptions and claimed exemption under the India-Singapore DTAA.
The ITAT ruled in her favour. The reasoning: mutual fund units in India are structured as trusts, not as shares of companies. Most DTAA treaties — including those with Singapore, UAE, Kuwait, Oman, Qatar, and Saudi Arabia — have a "residual clause" in Article 13 that says capital gains from assets not specifically covered elsewhere in the article are taxable only in the country of residence. Since mutual fund units are not "shares" as defined in the treaty, they fall under this residual clause.
The practical implication: if you are a tax resident of Singapore, the UAE, or similar countries with favourable DTAA provisions, your capital gains from Indian mutual funds may be taxable only in your country of residence. Since Singapore and the UAE do not levy capital gains tax, the effective tax rate becomes zero.
This is a significant development. But it comes with important caveats.
First, this ruling is being appealed by the Indian tax department. The law may evolve. Planning around it requires ongoing monitoring, not a one-time decision.
Second, to claim DTAA benefits, you need a valid Tax Residency Certificate (TRC) from your country of residence, and you must file Form 10F on the Indian income tax portal. Without these documents, the AMC will deduct TDS at the standard Indian rate. You can claim a refund later through the ITR process, but obtaining the documents upfront avoids the deduction entirely.
Third, this benefit applies specifically to mutual funds — not to direct equity shares, which are treated differently under most DTAA treaties.
For our NRI clients in Singapore and the UAE, we recommend discussing this with their CA before any large redemption. The potential savings are substantial — but the documentation must be impeccable. A missing TRC or an improperly filed Form 10F can cost the family the entire benefit.
Returns will vary; discipline and documentation age better than tips. We publish these pieces so families can normalise calm, process-led thinking. Your portfolio may need something different — that is what reviews are for.
NRI taxation, FEMA regulations, and DTAA provisions are complex and change frequently. This article reflects our understanding as of April 2026 and is for general education only. It is not tax, legal, or investment advice. Always consult a qualified chartered accountant or cross-border tax advisor for guidance specific to your residency status, country of residence, and financial situation.