- Equity funds: 20% short-term, 12.5% long-term (above ₹1.25L) — same rates as residents.
- Debt funds (bought on/after 1 Apr 2023): taxed at your slab rate, no LTCG benefit.
- The NRI difference is TDS: the AMC deducts tax at source on every redemption — residents face no such TDS.
- The TDS is often too high. File an Indian return to claim back the excess and apply any DTAA relief.
The 2026 Tax Regime: What Changed and What Stuck
The Union Budget of July 2024 reset India's capital gains framework, and that framework carries into the current financial year. For mutual funds the headline changes were: equity short-term gains moved from 15% to 20%; equity long-term gains moved from 10% to 12.5%, with the annual exemption raised from ₹1 lakh to ₹1.25 lakh; and indexation was removed across the board. Subsequent budgets have kept these rates in place, so this is the regime NRIs are planning around in 2026.
For NRIs specifically, none of this changes the most important structural fact: you are taxed at source. Where a resident simply redeems and settles tax later, an NRI's Asset Management Company is legally required to withhold TDS before the money reaches your NRE or NRO account.
Equity Mutual Fund Taxation for NRIs
A fund is "equity-oriented" if it holds at least 65% in Indian equities. For these funds:
- Short-Term Capital Gains (held < 12 months): taxed at 20% + surcharge + 4% cess. For NRIs this is withheld as TDS at redemption.
- Long-Term Capital Gains (held ≥ 12 months): taxed at 12.5% on gains exceeding ₹1.25 lakh in the financial year, with no indexation. TDS is applied by the AMC on the gain.
- Surcharge: applies on higher income bands; note the surcharge on capital gains is capped at 15% for these gains.
Debt and Hybrid Funds
The taxation of debt funds changed materially. For units purchased on or after 1 April 2023, gains are taxed at your slab rate regardless of how long you hold — there is no long-term benefit and no indexation. For NRIs, the AMC withholds TDS at the highest slab (around 30%) plus surcharge and cess, which you then reconcile in your return. Hybrid funds are taxed as equity or debt depending on their actual equity allocation, so always check the fund's category before assuming the rate.
The tax side of this is exactly where NRIs lose money to errors and missed deadlines. Mintra works with an in-house Chartered Accountant who has over 15 years of experience handling NRI tax matters — from DTAA claims and TRC/Form 10F to ITR filing, TDS refunds and Form 15CA/15CB repatriation certificates. We offer this as an add-on tax advisory service alongside your investments, so your portfolio and your compliance stay aligned under one roof. Ask Our NRI Tax CA on WhatsApp
TDS: The Real NRI vs Resident Difference
| Scenario | Resident Investor | NRI Investor |
|---|---|---|
| Equity STCG | 20% (no TDS on redemption) | 20% TDS at source |
| Equity LTCG | 12.5% above ₹1.25L (self-paid) | 12.5% TDS at source |
| Debt fund gains | Slab rate (self-paid) | ~30% TDS at source |
| How tax is collected | Advance tax / self-assessment | Withheld by AMC before payout |
| Excess paid? | Rare | Common — reclaim via ITR |
This is the crux: an NRI redeeming a long-held equity fund with, say, ₹1 lakh of gains may have zero actual tax (within the ₹1.25 lakh exemption) yet still see TDS withheld — money you only get back by filing a return. Across a portfolio, this cash-flow drag is significant, and it is entirely recoverable with correct filing.
DTAA Relief and Reclaiming Excess TDS
India's Double Taxation Avoidance Agreements with 90+ countries can reduce withholding or let you credit Indian tax against home-country tax. To access treaty benefits you typically need a Tax Residency Certificate (TRC), an online Form 10F, and a PAN. Separately — and regardless of DTAA — filing an Indian return is how you reclaim TDS deducted above your real liability. For a deeper treatment, see our guide on DTAA explained simply for NRIs and on ITR filing for NRIs.
Want Tax-Efficient SIP Structuring?
We position your NRI SIPs and redemptions to minimise TDS drag and capture the ₹1.25 lakh LTCG exemption every year.
Structuring SIPs and Redemptions Tax-Efficiently
Because TDS is deducted at source and the rules reward patience, small structuring choices compound:
- Harvest the ₹1.25 lakh LTCG exemption annually — systematically book long-term gains up to the exemption each year to reset your cost base tax-free.
- Mind the 12-month line — redeeming equity units a few weeks early flips you from 12.5% LTCG to 20% STCG.
- Choose NRE for repatriable goals so the post-tax proceeds flow back out cleanly (see our NRE vs NRO vs FCNR guide).
- File every year to reclaim excess TDS and carry forward any capital losses.
The tax side of this is exactly where NRIs lose money to errors and missed deadlines. Mintra works with an in-house Chartered Accountant who has over 15 years of experience handling NRI tax matters — from DTAA claims and TRC/Form 10F to ITR filing, TDS refunds and Form 15CA/15CB repatriation certificates. We offer this as an add-on tax advisory service alongside your investments, so your portfolio and your compliance stay aligned under one roof. Ask Our NRI Tax CA on WhatsApp
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SEBI-registered SIP advice plus an in-house CA with 15+ years in NRI tax — your portfolio and your compliance, handled together.
Frequently Asked Questions