Your rate, at a glance: by fund type
The 4-step recovery journey
From the moment your AMC withholds tax to the moment the refund credits to your NRO. Section 244A interest runs from 1 April of the assessment year on an in-time return, or from the filing date on a late one; a claim recovered by condonation carries none (Circular 11/2024).
AMC withholds tax
At the domestic default, 12.5% / 20% / 30% depending on fund type.
Net amount credits to NRO
You receive the post-TDS amount. The withheld portion went to the government.
File your return (ITR-2)
Reconcile to your fund-type rate (e.g., 12.5% equity LTCG) and claim the over-withholding, with Form 41 and a TRC if you have IDCW payouts.
Refund
Excess tax credits back to your NRO, with Section 244A interest of 0.5% a month, from 1 April of the assessment year if the return was filed by the due date or from the filing date if later, provided the refund is at least 10% of the tax finally due.
When a non-resident redeems an Indian mutual fund, the AMC is legally required to withhold tax at source under Section 195. The exact rate depends on what kind of fund and how long you held it.
| Fund type | Holding period | TDS withheld | Actual tax owed |
|---|---|---|---|
| Equity MF | More than 12 months | 12.5% | 12.5% on gain above ₹1.25L per FY |
| Equity MF | 12 months or less | 20% | 20% + cess + surcharge |
| Debt MF (post-1 Apr 2023) | Any holding | 30% slab | Same, Section 50AA STCG at slab |
| Debt MF (pre-1 Apr 2023) | More than 24 months | 12.5% | 12.5% without indexation |
| Gold ETF / MF | More than 12 months (listed) | 12.5% | 12.5% LTCG without indexation |
| Hybrid MF (equity ≥ 65%) | Same as equity | 12.5% / 20% | Treated as equity |
| Distributions (IDCW) | Any | 20% | Reducible to DTAA rate via Form 10F |
For the AMC, the safest default is the higher rate. The relief comes from you. In your return you claim back anything withheld above the tax you actually owe. For capital gains that is mostly the ₹1.25 lakh exemption. For IDCW payouts, Form 41 (formerly Form 10F) and a TRC can bring the rate down to your treaty rate. Many NRIs never file, and the extra tax withheld stays with the government unless they file, or apply for condonation within the five-year window.
The next section explains the three documents that turn the AMC's conservative withholding into a refund wherever more was deducted than the tax actually due.
The 3 documents you need to claim back excess TDS or a treaty rate
Three documents, in this order, are the standard NRI mutual-fund refund stack:
1. Form 10F (or Form 41 from FY 2026-27) : your declaration to the Indian tax department identifying you as a non-resident eligible for DTAA. Filed online via the income tax e-Filing portal. Annual filing, must be valid for each year you claim treaty relief.
2. Tax Residency Certificate (TRC) : issued by your home country's tax authority (IRS Form 6166 in the US, HMRC certificate in the UK, equivalent in Gulf countries). This is the proof that you're tax-resident somewhere India has a treaty with. Without it, no DTAA relief is allowed.
3. ITR-2 : your Indian income-tax return. This is where the actual refund claim happens. You declare the mutual-fund redemption, the TDS withheld and the rate that actually applies (your treaty rate on IDCW payouts), and claim the difference back. The refund credits to your NRO bank account, after the return is processed (timing varies), with Section 244A interest of 0.5% a month, counted from 1 April of the assessment year if the return was filed by the due date, or from the filing date if it was filed late.
For the distributions track (IDCW option), Section 196A allows the AMC to withhold at the DTAA rate directly at source, IF you submitted Form 10F + TRC to them before the distribution. This is the FA 2023 proviso. Most growth-option NRI portfolios don't trigger Section 196A; the capital-gains track (Section 195) is the more common path.
Equity vs Debt vs Gold/International: the rate matrix
Indian mutual funds are NOT one tax regime. Four buckets, each with its own rate stack:
Equity-oriented MFs (≥ 65% in Indian equity per Section 112A Explanation): • LTCG (>12 months): 12.5% above ₹1.25L per FY exemption • STCG (≤12 months): 20% • Distributions: 20% (reducible to DTAA rate)
Debt MFs / Specified mutual funds (>65% in debt + money market per amended Section 50AA, FA(No.2) 2024): • Gains on units acquired on/after 1 April 2023: STCG at SLAB regardless of holding period • No LTCG path. No indexation. The 36-month long-term concept ended. • For pre-1 April 2023 lots: these keep an LTCG path, but on the current rules, not the old ones. Held more than 24 months and sold on or after 23 July 2024, the gain is taxed at a flat 12.5% with no indexation. The 36-month holding period and the 20%-with-indexation rate both ended on 23 July 2024 and apply only to sales made before that date.
Gold ETFs / Gold MFs / International FoFs (from FY 2025-26 onwards): • Outside Section 50AA per FA(No.2) 2024 amendment • Listed gold ETFs held > 12 months: 12.5% LTCG without indexation (Section 112) • Unlisted gold MFs / international FoFs: > 24 months for LTCG
Hybrid MFs: • If equity allocation ≥ 65%: treated as equity-oriented (Section 112A/111A regime) • If equity allocation < 65%: treated as 'specified mutual fund' if >65% in debt (Section 50AA), or as 'other' (Section 112)
The key gotcha: at the moment of redemption, the AMC doesn't always classify correctly. They withhold conservatively, and you reconcile to actual liability in your ITR. This is where many NRIs lose money, by not filing the ITR to claim back over-withholding.
Country-by-country, what TDS rate applies to your NRI residence
The DTAA-reduced rate depends on TWO things:
1. What kind of payment : Section 195 capital-gains vs Section 196A distributions follow different treaty articles 2. Your country of residence : and whether India's treaty with it gives a source-state taxing right or not
For capital gains on equity MFs (Section 195 + Section 112A): Most DTAAs follow OECD Model Article 13, gives India (the source state) the taxing right. So the 12.5% LTCG / 20% STCG IS your cost. No treaty reduction is normally available. One tribunal view for Singapore residents is noted in the examples below, but treat it as unsettled.
Exceptions : Singapore (Article 13(4A) post-2017 Protocol) and Mauritius (Article 13 post-2016 Protocol) grandfather pre-1 April 2017 acquisitions as exempt in India. For Singapore/Mauritius NRIs holding pre-2017 lots. Indian-side tax is zero. That remains true for a genuine direct holding, but Tiger Global (SC, January 2026) confirmed GAAR can override the exemption where the structure is a conduit.
For distributions (IDCW option) (Section 196A): Treaty Article 10 (Dividends) applies. Reduced rates per country: • UAE: 10% • UK: 10% • Singapore: 15% • Saudi Arabia: 5% • Qatar: 10% • US: 25% (so domestic 20% prevails, no reduction) • Bahrain: no DTAA (TIEA only), 20% applies
The country-by-country matrix below uses your selected country's effective rate. Refer to it for your specific country combination.
The PFIC tax (US NRIs only), separate from the Indian withholding
If you're a US person (citizen, green-card holder, or tax-resident) holding Indian mutual funds, you face a SECOND tax stack on TOP of the Indian-side TDS:
Every Indian MF is a Passive Foreign Investment Company (PFIC) under IRC Section 1297. The US tax treatment is punitive unless you elect properly:
• Default (IRC Section 1291): Excess distribution regime. Gains taxed at the highest ordinary income rate for each prior year, with interest. Effective rate often > 50%.
• Mark-to-market (IRC Section 1296): The practical route. Annual unrealised gain taxed as ordinary income. File Form 8621 per fund per year.
• QEF (IRC Section 1295): Best treatment but requires the AMC to issue a 'Qualified Electing Fund' annual statement. Indian AMCs don't.
Most US NRIs don't realise this until they're 3-5 years deep into Indian MF holdings. The fix is to (a) elect mark-to-market on the first year of acquisition (b) file Form 8621 annually (c) consider direct Indian listed stocks instead, no PFIC issue.
Canadian NRIs face a parallel, Section 94.1 of the Income Tax Act (Canada) applies an imputed-income inclusion on certain 'offshore investment fund property'. The threshold is purpose-based (whether the investment was to defer Canadian tax), but conservative Canadian CAs treat Indian MFs as in-scope.
Gulf and Singapore residents generally pay no home tax on these gains. UK residents face the offshore fund rules, under which gains on most Indian funds are taxed as income. UK, Australian and EU residents report the gains at home, with a credit for the Indian tax.
How much can come back: illustrative examples
Illustrative examples, not client records. Amounts are before surcharge and cess unless stated.
Dubai NRI, ₹40L equity MF redemption, redeemed after 23 July 2024: • LTCG: ₹18L • AMC withheld at 12.5%: ₹2.25L • The ₹1.25L yearly exemption, which the AMC does not apply, is applied in the return: ₹15,625 comes back
A note for Singapore residents: in Anushka Sanjay Shah (ITAT Mumbai, ITA 174/Mum/2025, 26 March 2025) the tribunal held that mutual fund units are not shares, so under the India-Singapore treaty the gain falls under the residuary rule and is taxable only in Singapore. It is one tribunal ruling, not settled law, and it does not help residents of treaties that leave gains to domestic law, such as the UK's. Raise it with your CA before relying on it.
UK NRI, ₹85L debt MF redemption (units bought before April 2023, held over 24 months): • Cost ₹55L, gain ₹30L • AMC withheld 30% on the gain, treating it as a Section 50AA short-term gain: ₹9L • Correct treatment: a long-term gain at 12.5% with no indexation (indexation is not available on mutual fund units sold on or after 23 July 2024, for residents or NRIs): ₹3.75L • The difference of ₹5.25L comes back through the return, with Section 244A interest, which runs from 1 April of the assessment year if the return is filed on time, or from the filing date if it is late
US NRI, ₹25L equity MF redemption plus five years of IDCW payouts: • IDCW payouts over five years: ₹12L in total • AMC deducted 20% plus 4% cess under Section 196A: about ₹2.5L • The India-US treaty caps dividends for an individual at 25%, which is higher than India's 20%, so the 20% stands and there is nothing to reclaim on the payouts • Redemption: lots held over 12 months, gain ₹10L, AMC deducted 12.5% plus cess on the full gain: about ₹1.3L • The ₹1.25L yearly exemption is applied in the return: about ₹16,250 comes back, with Section 244A interest from 1 April of the assessment year if the return is filed on time, or from the filing date if it is late • For a US person the larger cost is usually the PFIC treatment covered above, not the Indian withholding
What comes back depends on fund type, holding period, country and whether returns were filed on time; nothing here is a promised refund.
What we file for you. The end-to-end mutual fund TDS recovery service
We handle the full stack remotely. No India trip needed:
Year-of-redemption recovery: 1. Pull your Form 26AS + AIS to confirm the exact TDS withheld by each AMC 2. Compute actual liability under your fund-type-specific rate (Section 112A / 111A / 50AA / 112) 3. For IDCW payouts, prepare Form 41 (formerly Form 10F) and your TRC (or guide you to obtain a TRC) 4. File ITR-2 with DTAA claim where applicable 5. Track refund to NRO credit. Section 244A interest runs from 1 April of the assessment year on an in-time return, or from the filing date on a late one; a past year recovered by condonation returns principal only (Circular 11/2024)
Past-year recovery (up to 5 AYs): 6. Identify which past AYs are recoverable 7. File the Section 119(2)(b) condonation application with the senior income-tax officer whose limit covers your claim (the Principal Commissioner or Commissioner for a claim up to ₹1 crore) 8. File late ITRs for those years once condonation is granted 9. Track each refund to NRO
Coordination with US CPA (if applicable): 10. Liaise with your US CPA on Form 8621 PFIC reporting + foreign tax credit for the Indian-side tax paid 11. Give your US CPA the Indian tax figures needed for the foreign tax credit on your US return (Form 1116)
Scope is agreed after a free 15-minute call.