IVAFE: a yearly tax on your Indian funds and accounts
Italy taxes the value of the financial assets you hold abroad, through a charge called IVAFE. The rate is 0.2% a year on the market value of foreign shares, bonds and mutual fund units, so your Indian mutual funds and shares are taxed on their value each year, whether or not you sell them.
Bank and deposit accounts are treated a little differently: instead of the 0.2%, each foreign account carries a fixed charge of about 34 euro a year, and nothing is due if the account's average balance stays under 5,000 euro. The point that surprises Indians living in Italy is that this catches your NRE and NRO accounts. NRE interest is exempt in India, but the account itself is a foreign financial asset to Italy, so it still counts.
IVIE: a yearly tax on your Indian property
If you own a house or other property in India, Italy taxes its value each year through IVIE, at 1.06%. The base is usually the property's purchase cost or market value, since Indian property has no European-style cadastral value. So a flat in India worth, say, one crore rupees carries an Italian charge of a little over one percent of that value every year you hold it, on top of any Indian property tax.
The rate drops to 0.4% if the foreign property is genuinely your main home, which is rarely the case for an Indian property you have kept while living in Italy. Nothing is due if the IVIE works out under 200 euro.
Everything goes on the Quadro RW
Italy runs a strict foreign-asset monitoring system, and the schedule for it is the Quadro RW in your Italian return. You declare all of it there: your NRE, NRO and any FCNR accounts, your Indian shares and mutual funds, and your Indian property. There is no small-value exemption from reporting, so even modest holdings have to be listed, and the IVAFE and IVIE are computed on that schedule.
The penalties for leaving foreign assets off the Quadro RW are heavy, so the practical need is a clean, valued list of your Indian holdings each year. That list, in euro, with the source figures behind it, is exactly what we prepare on the Indian side for your Italian accountant.
What India still taxes, and where the treaty helps
The wealth taxes are separate from tax on income and gains, where India still has the first claim. When you sell your Indian property, India taxes the gain and the buyer withholds under Section 195, which becomes Section 393 from FY 2026-27; Italy then also counts the gain but gives a credit for the Indian tax, so it is not taxed twice, and you still pay IVIE for each year you held it.
On Indian mutual funds, the India-Italy treaty may give Italy the sole right to tax the gain, because fund units are not shares and fall into the treaty's residual category. That is a reasonable reading rather than a settled certainty, and India still withholds tax on redemption, so you have to claim the treaty position with a tax residency certificate and Form 10F, which becomes Form 41, to recover it. On dividends and interest from India, the treaty caps the Indian rate, again claimed with the same documents.