Tax implications for NRI mutual fund investments ! NEW INCOME TAX ACT 2025 OF INDIA
Here is the updated guide on the tax implications for NRI mutual fund investments, strictly revised to align with the provisions of the Income-tax Act, 2025 and the Income-tax Rules, 2026:
Tax Implications for NRI Mutual Fund Investments
Understanding NRI mutual fund taxation under the new Income-tax Act, 2025 is crucial before investing:
1. Equity-Oriented Mutual Funds
(Defined under Section 198(8) as funds investing a minimum of 65% of total proceeds in equity shares of domestic companies listed on a recognised stock exchange). Taxation for the relevant tax year is as under:
- Short-Term Capital Gains (STCG):
- Holding period: Up to 12 months (as per Section 2(101)(b)(iii)).
- Taxed at: 20% under Section 196(1)(i). (#)*
- Long-Term Capital Gains (LTCG):
- Holding period: More than 12 months.
- Taxed at: 12.5% on gains exceeding ₹ 1,25,000 per annum, as per Section 198(2)(a). (#)*
2. Hybrid Mutual Funds
(Funds that do not meet the criteria of >65% domestic equity or >65% debt) Taxation for the relevant tax year is as under:
- Short-Term Capital Gains (STCG):
- Holding period: Up to 24 months (if unlisted units) or Up to 12 months (if listed on a recognised stock exchange in India, under Section 2(101)(b)(i)).
- Taxed at: Applicable Slab Rates.
- Long-Term Capital Gains (LTCG):
- Holding period: More than 24 months (unlisted) or more than 12 months (listed).
- Taxed at: 12.5% flat without indexation benefit, as per the general LTCG provisions under Section 197(1)(b). (#)*
3. Debt-Oriented Mutual Funds (Specified Mutual Funds)
(Defined under Section 76(5)(b) as funds investing more than 65% of total proceeds in debt and money market instruments). Taxation for the relevant tax year is as under:
- Short-Term Capital Gains (STCG):
- Holding period: N.A. (Under Section 76(1), gains from these “Specified Mutual Funds” are always treated as short-term capital gains, regardless of how long they are held).
- Taxed at: Applicable Slab Rates (or 30% for Foreign Institutional Investors under Section 210).
- Long-Term Capital Gains (LTCG):
- Not Applicable (Since all gains are legally deemed as STCG).
(#) All computed tax liabilities are further increased by the applicable Surcharge and a 4% Health & Education Cess.
Related post
Section 2 Income Tax Act 2025 Definitions
Section 196 Income Tax Act 2025 Tax on short-term capital gains in certain cases.
Section 197 Income Tax Act 2025 Tax on long-term capital gains.
Section 198 Income Tax Act 2025 Tax on long-term capital gains in certain cases.