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 — with 6% Section 244A interest on top.
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 10F + TRC + ITR-2
Reconcile to your fund-type rate (e.g., 12.5% equity LTCG) and claim the over-withholding.
Refund + 6% interest
Excess tax credits back to your NRO with Section 244A simple interest.
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 36 months | 20% with indexation | 20% on indexed gain |
| 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 — by filing Form 10F + TRC + ITR-2 to claim back the gap to your treaty rate. Most NRIs never run this, and the over-withholding becomes a permanent loss.
The next section explains the exact 3-document cure that turns the AMC's conservative withholding into a real refund — typically ₹40,000 to ₹3 lakh per redemption year recovered.
The 3 documents that cut your TDS to the 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, your DTAA-reduced rate, and claim the difference back. The refund credits to your NRO bank account, typically in 4-8 months, plus 6% simple interest under Section 244A.
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: held >36 months = 20% with indexation (legacy regime)
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 most NRIs leave ₹20,000-₹2 lakh on the table per redemption — 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 available.
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.
For distributions (IDCW option) (Section 196A): Treaty Article 10 (Dividends) applies. Reduced rates per country: • UAE: 10% • UK: 10% • Singapore: 15% • Saudi Arabia / 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 §1297. The US tax treatment is punitive unless you elect properly:
• Default (IRC §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 §1296): The practical route. Annual unrealised gain taxed as ordinary income. File Form 8621 per fund per year.
• QEF (IRC §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.
For Gulf, Singapore, Hong Kong, UK, Australia, EU NRIs — no PFIC equivalent. Indian-side 12.5% LTCG is the only tax bite.
How much can you actually recover — recent client numbers
Real recovery examples from our client base (anonymised):
Dubai NRI, ₹40L equity MF redemption (FY 2024-25): • LTCG: ₹18L • AMC withheld at 12.5%: ₹2.25L • ₹1.25L FY exemption ignored by AMC: applied at ITR = ₹15,625 recovered • Total recovered: ₹15,625 + interest
Singapore NRI, ₹85L debt MF redemption (pre-2023 acquisition): • AMC withheld at slab 30% (treating as Section 50AA STCG): ₹25.5L • Actual treatment: pre-2023 lot, > 36 months held → 20% with indexation • Indexed gain: ₹35L (vs ₹85L gross gain) • Actual tax: ₹7L • Recovered: ₹18.5L + 6% Section 244A interest = ~₹19L
US NRI, ₹25L equity MF redemption + 5 years of past distributions: • Past 5 years of distributions: ₹12L cumulative • AMC withheld at 30% on distributions (no Form 10F filed at the time): ₹3.6L • DTAA rate (Section 196A + India-US treaty): 25% capped • Reclaim via Section 119(2)(b) condonation + ITR for past 5 years: ₹60,000 • Plus 244A interest on past-year refunds: ~₹15,000 • Plus current year LTCG recovery: ₹1.2L • Total recovered: ~₹2L
Average NRI client recovery on MF TDS: ₹40K-₹3L per year of holdings, depending on portfolio size, fund types, and country combination.
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. File Form 10F + your TRC (or guide you to obtain TRC if you don't have one) 4. File ITR-2 with DTAA claim where applicable 5. Track refund to NRO credit — typically 4-8 months with 244A interest on top
Past-year recovery (up to 5 AYs): 6. Identify which past AYs are recoverable 7. File Section 119(2)(b) condonation petition with CBDT for late filing of ITR 8. File late ITRs for those years (within the condonation window granted by CBDT) 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. Avoid double-taxation via Form 67 + Schedule TR on the Indian return
Pricing: Flat fee scoped after a free 15-minute scoping call. No NRI markup. Pricing typically recovers 4-10x via the refund.