Zero Capital Gains Tax for NRIS in Indian Mutual Funds – What You Need to Know in 2025
Introduction
Are you looking for smart, tax-efficient ways to grow your wealth in India? Then you’ll be pleased to know that zero capital gains tax for NRIs investing in Indian mutual funds is now a legal possibility under certain conditions. With rising global interest in Indian markets, NRI mutual fund investment in India is gaining momentum, and so is the need to understand the tax rules. Traditionally, NRIs had to pay tax on capital gains earned from mutual funds in India. Even with tax treaties in place, many missed out on benefits.
But 2025 brings good news—thanks to Double Taxation Avoidance Agreements (DTAA) and a recent ITAT ruling, you can legally avoid paying capital gains tax in India on specific mutual fund investments.
This blog is your complete guide to tax-free investments, explaining how using NRE accounts, smart SIP strategies, and DTAA clauses can help you invest wisely. We’ll also explore a real-life case where tax was avoided legally, setting a precedent. If you aim for the best mutual funds in 2025 and want to grow your portfolio without tax erosion, read on. Your smarter financial journey starts here.
Understanding Standard Taxation and How to Beat It
Knowing how the tax system works helps you break free from it. Taxes differ based on mutual fund type—equity or debt—and how long you hold the investment.
- Equity Mutual Funds:
• STCG: If sold within 12 months, taxed at a flat 15%.
• LTCG: If held for more than 12 months, the first ₹1.25 lakh of gains is exempt, and the rest is taxed at 10%. - Debt Mutual Funds (Post-April 2023):
• All gains, regardless of holding duration, are now treated as short-term.
• Taxed according to your income tax slab—often 30%.
• LTCG and indexation are no longer available.
But here’s the real opportunity: If you reside in a country like the UAE, Mauritius, or Singapore, DTAA clauses can be used to eliminate tax liability in India. With the right structure, your capital gains can remain untouched.
The Game Changer: How to Pay Zero Capital Gains Tax
- Invest via NRE Account + Equity Mutual Funds
Use your NRE account and keep LTCG under ₹1.25 lakh annually. Your gains are 100% tax-free in India. Use SIPS and plan redemptions wisely to remain under the limit.
Utilize DTAA (Double Taxation Avoidance Agreement)
India has DTAS with 90+ countries, including:
• United Arab Emirates
• Singapore
• Mauritius
• Qatar
• Kuwait
If your country doesn’t tax capital gains and DTAA grants sole taxing rights to that country, your mutual fund gains are not taxable in India. This is how many are now legally paying zero tax on Indian mutual fund investments.
DTAA: Your Best Tax Shield
Double Taxation Avoidance Agreements ensure you’re not taxed twice. Certain treaties assign capital gains taxation exclusively to your country of residence. For residents of zero-tax countries like Singapore or the UAE, this results in complete exemption. It boosts clarity, promotes cross-border investing, and reduces your tax burden. This is not a loophole—it’s the law.
A Court Case That Changed Everything
In a landmark decision, India’s Income Tax Appellate Tribunal (ITAT) ruled that an NRI investor from a tax-free country owed no capital gains tax in India. The case involved mutual fund investments worth over ₹1 crore. The investor claimed immunity under the DTAA articles with their country of residence. Despite opposition from the Indian tax department, the tribunal ruled that mutual fund units are issued by trusts and not equivalent to shares, thereby placing taxing rights with the country of residence. Because that country does not levy capital gains tax, the investor paid zero tax in India. This ruling now sets a benchmark for all eligible investors.
Zero Tax—A Real Possibility Depending on Where You Live
If you live in a tax-friendly country, your mutual fund gains of even crores could be taxed at 0%. Let’s say you earn ₹1 crore in capital gains. Normally, LTCG tax would be up to ₹12.375 lakh (after ₹1.25 lakh exemption) or up to ₹20 lakh if treated as STCG. But in countries like the UAE or Singapore, you pay nothing on that ₹1 crore because local tax laws and DTAA treaties shield you completely. This makes location and structure key.
Who Qualifies and How to Benefit
You Qualify If:
• You reside in a DTAA country that exempts capital gains tax.
• You invest using legal NRE/NRO routes.
• You file returns correctly in both countries.
Not Applicable If:
• You invest directly in equities.
• You reside in non-DTAA countries.
• You misstate your residency or avoid documentation.
What To Do:
• Use NRE/NRO accounts.
• Quote the correct DTAA article in filings.
• Get a residency certificate.
• Use smart tools to manage tax limits and compliance.
How NRIGROW Helps You Pay Zero Tax
At our core, we believe tax planning should be both effective and effortless. That’s why we offer end-to-end strategies tailored to help you invest smartly, legally, and tax-efficiently.
🔹 Goal-Based Portfolios for Zero-Tax Outcomes
Our Goal-Based Portfolios are specially designed to target zero-tax outcomes, ensuring that your investment returns are aligned with your long-term objectives without triggering unwanted tax liabilities.
🔹 DTAA Advisory Tailored to Your Residency
If you’re an NRI or have financial ties across borders, our DTAA (Double Taxation Avoidance Agreement) Advisory ensures your investments are optimized for the tax laws of your country of residence, helping you avoid paying taxes twice on the same income.
🔹 SIP Planning Within Exemption Limits
With our SIP Planning, we structure your investments to remain within exemption limits, allowing your wealth to grow while staying under the tax radar.
🔹 Compliance Support from Start to Finish
From account setup to ITR filing, our compliance support ensures a seamless experience at every step of your investment journey.
🔹 Always Updated, Always Tax-Smart
We closely monitor evolving tax regulations, such as recent ITAT rulings, and adjust your strategy accordingly. Our goal is simple — to help you preserve your gains, avoid unnecessary taxes, and achieve financial growth through smart, lawful investment practices.
We closely track updates like the ITAT ruling and align your strategy to stay tax-free. Our mission is to help you invest smartly and legally without losing to taxes.
Conclusion
2025 marks a new era for mutual fund investment. With smart planning and DTAA benefits, zero capital gains tax is no longer an exception, it’s an achievable goal. By investing from your NRE account, staying under the ₹1.25 lakh limit, or residing in a DTAA-exempt country, you can safeguard your entire profit.
The ITAT ruling now gives investors a blueprint to follow. If you structure your investments right and file your paperwork properly, the government itself lets you walk away without paying capital gains tax.
At NRIGROW, we support your zero-tax journey from end to end. From curated portfolios, tax cosultation to documentation we ensure that your mutual fund profits remain intact.
Why give away your returns when you can keep them all? Discover the best tax-free mutual fund investments in 2025 today.