TDS for NRIs on mutual funds — how it differs from a resident’s

This is the part that catches people out, so read it as mechanism, not as a number to plan around.

When a resident redeems a mutual fund at a gain, no tax is withheld at that moment; the resident settles capital-gains tax later, when they file their return. For an NRI, tax is deducted at source (TDS) on the capital gain at the time of redemption — the fund house withholds it before the proceeds reach you. The rate that applies depends on the type of scheme (equity-oriented versus other) and how long you held it (short-term versus long-term), and those definitions and rates are set by law and revised from time to time, so the current figures should be confirmed at the time you redeem rather than assumed from an article.

There is a second mechanism worth knowing exists: the Double Taxation Avoidance Agreement (DTAA) between India and your country of residence. Where a DTAA applies, it may reduce the rate at which tax is deducted, and it is meant to prevent the same income being fully taxed twice. Claiming a DTAA benefit typically needs supporting documentation, such as a Tax Residency Certificate from your country of residence.

Here is where we stop, and we want to be clear about why. H2 Investment is a mutual fund distributor, not a tax adviser. Your tax liability depends on your total income, your country of residence, the DTAA in force, and rules that change — and it is specific to you in a way we are neither licensed nor positioned to work out. So we will explain, as above, that TDS is deducted at source and that a DTAA may reduce it. We will not tell you what your tax will be, and we do not handle your overseas tax position. For that, speak to a qualified tax adviser in your country of residence. That is not a disclaimer we are adding to be safe; it is genuinely the right person for the question.

The account your money comes from is covered in NRE vs NRO.