The Rs 1.35 Crore Ruling That Could Change NRI Taxation Forever.

In March 2025, the Mumbai bench of the Income Tax Appellate Tribunal delivered a ruling that sent ripples through the NRI tax world.

The case: a Singapore-based NRI redeemed mutual fund units and earned ₹1.35 crore in capital gains. India wanted to tax it at 12.5% (LTCG). The NRI said: under the India-Singapore DTAA, these gains are taxable only in Singapore. Singapore has no capital gains tax. Therefore, zero tax.

The core argument: are mutual fund units “shares” under Article 13 of the DTAA? If yes, India can tax them (under the 2017 amendment). If no, they fall under Article 13(5) — “any other property” — taxable only in the country of residence.

ITAT said: mutual fund units are NOT shares. They're a distinct category. They fall under “other property.” Taxable only in Singapore. Tax in India: zero.

The NRI saved ₹16.8 lakh in one transaction.

If this ruling holds, it applies to any NRI in a country where:

1. The DTAA has a similar Article 13(5) / “other property” clause

2. The residence country doesn't tax capital gains (or taxes them lightly)

That's a LOT of countries:

For Gulf NRIs alone, this ruling could mean billions of rupees in recoverable TDS across the community. AMCs have been deducting 12.5% on every equity MF redemption. If those gains are treaty-exempt, every rupee is refundable.

The Income Tax Department hasn't accepted this ruling quietly. They're appealing to the High Court. If the HC reverses the ITAT decision, the exemption disappears.

So should you claim it? Here's the risk-reward:

If you claim and the ruling is upheld: you save 12.5% on your entire MF redemption. For a ₹50 lakh gain, that's ₹6.25 lakh saved.

If you claim and the ruling is overturned: your claim is denied, you pay the normal 12.5% rate. No penalty for claiming — you made a legitimate argument based on existing ITAT precedent.

The downside of NOT claiming: you lose the exemption window permanently. Past years go unrecovered.

Our recommendation: if you're redeeming significant MF amounts and you're in a zero-CGT country, claim the exemption in your ITR. Cite the ITAT ruling. Attach your TRC. The worst case is you pay what you would have paid anyway. The best case is you keep ₹lakhs that would have gone to the government.

But get a CA who understands this specific ruling and can structure the claim properly. This is not DIY territory.