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

Your direct company shares, yes. Your fund units, no. India taxes a non-resident on gains that arise in India, and Article 13 of the India-Japan treaty keeps India's right to tax your Indian company-share gains. But the residual gains clause, Article 13(5), 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 Japan, 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 13.

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.

Japan taxes the unit gain instead, at a flat 20.315 percent on listed securities gains, which is 15.315 percent national tax including the 2.1 percent surtax plus 5 percent local tax. Because India cannot tax the unit gain there is no Indian tax to credit and nothing to reclaim in India on the units. Watch two things. If you have been in Japan five years or less out of the last ten you are a non-permanent resident, and Japan then taxes your foreign income only to the extent you remit it, which is where most Indian expats in Tokyo actually sit. Separately, the multilateral instrument applies to this treaty, so its Principal Purpose Test can deny the benefit, and its Article 9(4) reaches trust interests: a fund whose value comes mainly from Indian property stays taxable in India, so this escape covers ordinary equity and debt funds, not real-estate funds.

So the planning point is simple: on your fund units there is no Indian tax to fight over, only the Japanese 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 Japan gives a credit for it under Article 23, 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 Japanese Tax Residency Certificate and Form 10F, now Form 41, and claim the Article 13 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.

Sanjay, an NRI in Tokyo, 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 Japan, so India taxes nothing on the Rs 8 lakh. Sanjay files the Japanese 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 Japan then credits that Indian tax under Article 23. So the fund gain is Japan's alone to tax and the share gain is where the Indian tax sits.