Are your Indian share and mutual fund gains taxable in India if you live in Israel?

Your direct company shares, yes. Your fund units, no. India taxes a non-resident on gains that arise in India, and Article 14 of the India-Israel treaty keeps India's right to tax your Indian company-share gains. But the residual gains clause, Article 14(6), is residence-only. A mutual fund unit is issued by a trust, not by a company, so it is not a share, and it drops into that residence-only residual clause. So your fund-unit gain is taxable only in Israel, not in India.

This is the same outcome a Singapore or Dubai resident gets on fund units, and the opposite of what a China resident gets. The dividing line is the wording of one clause, which is why it has to be checked treaty by treaty and not assumed.

The units-are-not-shares point turns on the wording of the residual clause, and this treaty's wording helps you. In 2025 the Mumbai Tribunal used the point in Anushka Sanjay Shah: a fund unit is not a company share, so a unit gain falls in the residual clause. Because this treaty's residual clause is residence-only, that clause taxes the gain only in the country of residence.

So the argument does two things here. It moves your unit gain out of the taxable share clause, and the box it lands in, the residence-only residual, is one India cannot tax. Keep the distinction clean: this works for fund units, not for direct company shares, which stay taxable in India under Article 14.

The split is what matters, so keep the two apart. India taxes only your direct company shares; your fund units carry no Indian tax.

The 12.5% and 20% share rates apply to sales on or after 23 July 2024, and the Rs 1.25 lakh yearly exemption is available to you as an NRI on the share gains. The fund units carry no Indian tax under the treaty, so there is nothing to compute in India on them.

Israel taxes the unit gain instead, at its standard 25 per cent on securities gains, with a surtax on top once your income passes the high-income threshold. The 30 per cent rate you may have read about applies where you held 10 per cent or more of the company, so it bites on a large direct shareholding rather than on fund units. Because India cannot tax the unit gain there is no Indian tax to credit and nothing to reclaim in India on the units. Do not read across the 10 per cent rule that Spanish and Belgian residents get. Article 14(5) here lets India tax your Indian share gains at any size of holding, so even a small listed stake is taxable in India. Separately, the 2015 Protocol removed the treaty's most-favoured-nation clause and added a limitation of benefits article, so advice built on that old clause no longer holds.

So the planning point is simple: on your fund units there is no Indian tax to fight over, only the Israeli tax, and you should make sure the Indian side does not withhold on the redemption in the first place. On your direct Indian shares the tax is Indian, and Israel gives a credit for it under Article 24, so the same gain is not taxed twice.

On your direct Indian shares, tax comes out under Section 195, which becomes Section 393(2) from FY 2026-27, and you true it up on an Indian return, ITR-2. On your fund units, the aim is different: because the treaty exempts the unit gain in India, you want the fund house not to withhold, so you give it your Israeli Tax Residency Certificate and Form 10F, now Form 41, and claim the Article 14 exemption. If tax is still deducted, you reclaim it in full through the return. A lower or nil deduction certificate, Form 13 under Section 197, now Form 128 under Section 395, before a large redemption is the clean way to stop the withholding up front.

Naveen, an NRI in Tel Aviv, redeems Indian equity mutual funds and books a gain of Rs 8 lakh, and separately sells listed Indian shares held nine months for a short-term gain of Rs 2 lakh.

On the fund units, the treaty makes the gain taxable only in Israel, so India taxes nothing on the Rs 8 lakh. Naveen files the Israeli TRC and Form 10F so the fund house does not withhold, or reclaims it if it does. On the direct shares, the Rs 2 lakh short-term gain is taxable in India at 20% under Section 111A, Rs 40,000, and Israel then credits that Indian tax under Article 24. So the fund gain is Israel's alone to tax and the share gain is where the Indian tax sits.