Indian mutual funds offer NRIs a convenient way to participate in India's economic growth — but the tax treatment is more complex than for resident investors, and the rules have changed significantly since 2023. Getting this wrong can mean unexpected TDS deductions and missed refund opportunities.
This guide explains exactly how NRI mutual fund gains are taxed in FY 2025-26, including the post-Budget 2025 slab structure and how TDS works at redemption.
Can NRIs Invest in Indian Mutual Funds?
Yes — most NRIs can invest in Indian mutual funds using their NRE or NRO accounts. However, US and Canada-based NRIs face a practical restriction: FATCA (Foreign Account Tax Compliance Act) reporting requirements make most Indian AMCs unwilling to accept investments from these countries. A few fund houses like HDFC MF and SBI MF accept US/Canada NRI investments, but with additional documentation requirements.
NRIs from UAE, UK, Singapore, Australia, and most other countries face no such restriction and can invest through standard NRI KYC.
Equity Fund Taxation for NRIs (FY 2025-26)
Equity mutual funds include equity-oriented hybrid funds, ELSS funds, and index funds with over 65% equity exposure. The tax rates as of FY 2025-26 are:
| Gain Type | Holding Period | Tax Rate | Exemption |
|---|---|---|---|
| Long-Term Capital Gain (LTCG) | More than 12 months | 12.5% | First ₹1.25 lakh exempt |
| Short-Term Capital Gain (STCG) | 12 months or less | 20% | Nil |
The LTCG rate increased from 10% to 12.5% in Budget 2024 (effective 23 July 2024), and the exemption limit was raised from ₹1 lakh to ₹1.25 lakh. NRIs get the same exemption as residents.
Debt Fund Taxation for NRIs (FY 2025-26)
The Budget 2023 change removed the preferential tax treatment for debt funds. Here is how it breaks down:
| Purchase Date | Tax Treatment |
|---|---|
| After 1 April 2023 | Taxed at applicable income tax slab rate, regardless of holding period. No indexation. No special LTCG rate. |
| Before 1 April 2023 | Units held over 36 months: 20% with indexation (old LTCG rule preserved until redemption). Units held under 36 months: slab rate. |
This makes most new debt fund investments tax-inefficient for NRIs in higher slabs. NRE FDs, which offer tax-free interest, often compare favourably for fixed-income allocation.
TDS on NRI Mutual Fund Redemptions
Unlike resident investors, NRIs have TDS deducted automatically by the AMC at the time of redemption. You do not need to calculate this — the fund house does it. But understanding the rates helps you plan:
| Fund Type | Gain Type | TDS Rate |
|---|---|---|
| Equity funds | LTCG (over 12 months) | 20% (on gain above ₹1.25L) |
| Equity funds | STCG (under 12 months) | 15% |
| Debt funds (post Apr 2023) | All gains | At slab rate (30% if highest) |
| Debt funds (pre Apr 2023, LTCG) | LTCG (over 36 months) | 20% without indexation |
After filing your ITR, if your actual tax liability is less than the TDS deducted, the difference is refunded to your pre-validated bank account.
What Budget 2025 Changed for NRI Mutual Fund Investors
- The new tax regime is now the default, making slab rates lower for many — this benefits NRIs with debt fund gains at slab rates
- Surcharge rates on LTCG were rationalised, reducing effective rates for higher income NRIs slightly
- No change to the ₹1.25 lakh LTCG exemption threshold for equity funds
- 4% health and education cess continues to apply on top of all tax amounts
Repatriating Mutual Fund Gains Abroad
If you invested via NRE account, gains can be freely repatriated. If via NRO, the standard NRO repatriation limit of USD 1 million per year applies, and Form 15CA/15CB from a CA is required. Most NRIs prefer to invest via NRE for this reason.
- Equity LTCG for NRIs: 12.5% on gains above ₹1.25 lakh per year (same exemption as residents).
- Equity STCG: 20% regardless of holding period — no exemption.
- Debt funds bought after April 2023 are taxed at your full slab rate — NRE FDs may be more efficient.
- TDS is automatically deducted by the AMC at redemption; file your ITR to claim any excess back.
- US and Canada NRIs face AMC-level restrictions; most other NRI locations can invest freely.
- Invest via NRE account to keep repatriation simple and free of the USD 1M cap.