Are your Indian share and mutual fund gains taxable in India if you live in the United States?
Yes, on both. India taxes a non-resident on gains that arise in India, and a gain on an Indian share or a mutual fund unit arises in India. The India-United States treaty does not take that right away, so whether you sell direct shares or redeem fund units, India keeps the right to tax the gain.
This is the opposite of a Singapore or Dubai resident, whose treaty makes fund-unit gains taxable only in the country of residence. Yours does not, so the escape route that works from Singapore is closed here. Your fund house and broker are right to treat the gain as taxable in India.
Why the units-are-not-shares argument fails from the United States
The units-are-not-shares point is correct in law but it does not help you here, because of where the units land. A fund unit is issued by a trust, not a company, so it is not a share, exactly as the Mumbai Tribunal held for a Singapore resident in Anushka Sanjay Shah. That case worked because the India-Singapore residual clause is residence-only, so Singapore alone could tax the gain.
The India-United States treaty gives your units no such shelter. They are not shares, but the box they fall into still leaves India free to tax the gain, so moving them out of the share clause changes nothing. Claiming the Singapore result from the United States is the mistake that leads to a demand with interest later.
What India charges, by asset type
The Indian tax depends on what you sold. The three common cases:
| Asset | Indian tax on the gain |
|---|---|
| Listed shares, equity funds, held over 1 year | 12.5% over Rs 1.25 lakh, no indexation (Section 112A) |
| Listed shares, equity funds, held under 1 year | 20% (Section 111A) |
| Debt mutual funds (over 65% in debt) | Slab rate, always short-term (Section 50AA) |
The 12.5% long-term rate and the 20% short-term rate apply to sales on or after 23 July 2024, and the Rs 1.25 lakh yearly exemption is available to you as an NRI. There is no indexation and no currency-fluctuation relief on fund gains.
How the United States taxes it, and the credit
The US taxes your worldwide gains too, long-term at 0, 15 or 20 percent plus the 3.8 percent net investment income tax, and it treats every Indian mutual fund as a PFIC with its own punitive Form 8621 regime. You claim a foreign tax credit for the Indian tax on Form 1116. The PFIC rules make Indian mutual funds especially costly for a US person, so most US-based NRIs are better off holding Indian equity directly than through funds.
Because both countries tax the same gain, the treaty stops it being taxed twice: the United States gives a credit for the Indian tax you paid, under Article 25. The credit only reaches up to the US tax on that gain, so if the Indian tax is the higher of the two, the excess is money you recover in India through your return, not in the United States. Getting the Indian rate right from the start is what saves the cash-flow.
The India paperwork: TDS, TRC and Form 10F
Tax often comes out before the right rate is applied. When you redeem Indian mutual fund units, the fund house deducts TDS under Section 195, which becomes Section 393(2) from FY 2026-27, and it cannot apply your final rate or your Rs 1.25 lakh exemption for you. Listed shares sold on the exchange are usually settled without tax at source, so there you pay through your return instead.
You set it right by filing an Indian return, ITR-2, at the correct 12.5%, 20% or slab rate, and any TDS over-deducted comes back as a refund with interest. You support it with your US Tax Residency Certificate and Form 10F, now Form 41. For a large redemption, a lower-deduction certificate, Form 13 under Section 197, now Form 128 under Section 395, keeps the withholding down from the start.
A worked example: Rohan's New Jersey sale
Rohan, an NRI in New Jersey, redeems Indian equity mutual funds and books a long-term gain of Rs 8 lakh, and also sells listed Indian shares held eight months for a short-term gain of Rs 2 lakh.
On the funds, India taxes the gain above the Rs 1.25 lakh exemption, so Rs 6.75 lakh at 12.5% under Section 112A, about Rs 84,375. On the shares, the Rs 2 lakh short-term gain is taxed at 20% under Section 111A, Rs 40,000. Rohan cannot move the fund gain out of Indian tax the way a Singapore resident could, because the India-United States treaty lets India tax it. The United States taxes the same gains and gives a credit for the Indian tax under Article 25, so the total cost is the higher of the two sides, not the sum.