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Why UAE NRIs don’t pay capital gains tax on Mutual Funds (MFs) in India

UAE Non-Resident Indians (NRIs) are exempt from paying capital gains tax in India on profits from mutual funds under the India-UAE tax treaty. This makes Indian mutual fund investments highly tax efficient for NRI investors seeking to build long-term wealth. Go through this blog to understand why UAE NRIs do not have to pay capital gains tax on their mutual fund investments in India.

Author

Tejas Lakhani
October 16, 2024 • Estimated Reading Time: 4 minutes

Dubai

Let’s face it—taxes are the least fun part of investing. But guess what? If you're a Non-Resident Indian (NRI) in the UAE, you’re in for a treat!

Background on NRI taxation in India

It is essential for UAE NRIs to understand how their income and capital gains through MF’s are treated under Indian tax laws.

  • An individual is considered an NRI if they have stayed in India for less than 182 days in the preceding financial year.

  • NRIs are taxed similarly to resident Indians on their income from Indian investments or property. Any income earned in India is subject to tax, regardless of their residential status.

  • Capital gains arising in India from the sale of listed shares and immovable property located in the country are also liable to capital gains tax.

  • India has signed Double Taxation Avoidance Agreements (DTAAs) with various countries including the UAE. These treaties provide relief to NRIs from being taxed twice on the same income or gains.

Thanks to India’s tax treaties, your mutual fund gains in India are pretty much tax-free!

Quick NRI Tax Lesson:

- Debt Funds: Taxed as per your income tax slab, up to 30% (plus surcharge and cess).

- Short-Term Equity Funds: Redeemed within 12 months? Expect a 20% tax (plus surcharge and cess).

- Long-Term Equity Funds: After 12 months, tax drops to a comfy 12.5%. But here’s the magic—up to ₹1.25 lakh gains per year? Exempt! 💪

The Tax-Free Sweet Spot for NRI from UAE:

Understanding tax treaties is essential for maximising returns on investments made across borders.

  • India and UAE have signed a DTAA to avoid double taxation of income and capital between both countries. The benefit of DTAA can be extended to the NRI if he provides documents like Tax Residency Certificate and Form 10F to the person who is required to deduct tax.

  • As per Article 13 of this DTAA, for UAE NRIs capital gains made from selling shares, debentures, or mutual fund units in India would be taxable in UAE and not in India.

  • The NRI must not be considered a tax resident of India as per the 182-day rule and must be an actual resident of UAE with a valid UAE tax identification number.

Benefits of Indian MFs for UAE NRIs:

1. High-Returns & No Capital Gains Tax! Indian markets deliver strong returns, and the tax treaty ensures zero capital gains tax in India for you.

2. Diversified Portfolios. With tons of sector-based funds to choose from, you’re investing in India’s booming economy.

3. Rupee-Cost Averaging via SIPs. Regular investments make it easier to navigate market volatility.

4. Seamless Transfers. Free instant money transfers between UAE and Indian bank accounts make the process super smooth.

Closing Thought:

If you're an NRI based in the UAE, now is the perfect time to take advantage of India’s thriving mutual fund market—completely free from capital gains tax! Why let your hard-earned money sit idle when you can grow your wealth with zero tax worries? Get started today and let your money work smarter for you! If you would like to know more, simply reply to this email or drop me an email on [email protected].