India-Singapore DTAA Provides Major Relief to NRI Investor with ₹1.35 Crore in Tax-Free Capital Gains

In a game-changing judgment, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench has ruled that Non-Resident Indians (NRIs) are not liable to pay capital gains tax in India on redemption of mutual fund investments, thanks to the India-Singapore Double Taxation Avoidance Agreement (DTAA).

This ruling offers huge tax-saving opportunities for NRIs who invest in Indian mutual funds but live in countries with favorable tax treaties with India.

What Happened?

A Singapore-based NRI investor, Ms. A. Shah, earned short-term capital gains of ₹1.35 crore in FY 2021–22 through redemptions from:

• ₹88.75 lakh in debt mutual funds
• ₹46.91 lakh in equity mutual funds

She claimed exemption under the residual clause of Article 13 of the India-Singapore DTAA, which provides that such capital gains are taxable only in the country of residence, i.e., Singapore.

However, the Income Tax Department attempted to tax the gains in India, arguing that the mutual fund units derived substantial value from Indian assets. The case went up to the ITAT for resolution.

ITAT's Landmark Verdict: Mutual Funds ≠ Shares

The ITAT ruled in the NRI’s favor, stating:

• Mutual fund units are not shares – they are issued by trusts, not companies.
• Therefore, they do not fall under the "capital gains on shares" clause in the tax treaty.
• Instead, they fall under the residual clause, meaning the capital gains are taxable only in Singapore, and not in India.

Which NRIs Can Claim This Tax Exemption in India?

This benefit is not exclusive to Singapore-based NRIs.

If you are an NRI residing in any country that has a similar tax treaty with India, you could enjoy full exemption from capital gains tax on mutual fund redemptions.

Countries with Similar DTAA Benefits Include:

• UAE
• Mauritius
• Netherlands
• Spain
• Portugal, and more.

These treaties treat gains from sale of assets other than immovable property and shares under the residual clause, making them taxable only in the country of residence.

Tax Tips for NRIs Investing in Indian Mutual Funds

To take full advantage of these DTAA provisions, NRIs must:

• Maintain a valid Tax Residency Certificate (TRC) from the foreign country
• File a proper Income Tax Return in India and disclose the capital gains
• Quote the relevant DTAA article and claim exemption
• Obtain a CA certificate (Form 15CB) for remittances, if needed

Failing to follow this process can lead to unnecessary litigation and incorrect taxation.

Why This Ruling Matters for NRIs

This ruling provides clarity on an issue long disputed by tax authorities. It reinforces the view that mutual fund capital gains for NRIs are not taxable in India if a favorable DTAA is in place. With mutual fund investments becoming increasingly popular among the NRI community, this decision can result in significant tax savings. For NRIs seeking expert guidance, DTAA consultancy services can help navigate these tax treaty benefits effectively and ensure proper compliance.

Need Help Claiming DTAA Benefits as an NRI?

At Dinesh Aarjav & Associates, we specialize in NRI taxation, DTAA advisory, and global tax compliance. Whether you’re in Singapore, UAE, UK, USA, Canada, or anywhere else—our experts can help you:

• File Income Tax Returns in India
• Claim exemptions under DTAA
• Manage mutual fund taxation
• Get CA certificates for fund repatriation
• Legally minimize your global tax burden