What if moving abroad could wipe out your tax bill? That’s exactly what happened when an NRI based in Singapore reported ₹1.35 crore in capital gains—and walked away paying zero tax.
The twist? The exemption didn’t come easy. A battle with Indian tax authorities followed, but a tribunal verdict ultimately flipped the script in her favour.
The case, flagged by Mumbai-based tax advisory firm Taxbuddy, could be a game-changer for NRIs investing in India from tax-haven nations like Singapore and the UAE.
The case began when an NRI tax resident in Singapore declared capital gains of ₹1.35 crore for FY 2021–22: ₹88.75 lakh from debt mutual funds and ₹46.91 lakh from equity mutual funds. She sought tax exemption under the India–Singapore tax treaty.
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But the Income Tax officer wasn’t convinced. “These mutual funds derive value from Indian assets. So the gains are taxable in India,” he argued. The matter escalated to the Income Tax Appellate Tribunal (ITAT), Mumbai.
At the heart of the case was one legal question: Do mutual fund units count as “shares” under the India–Singapore tax treaty?
If yes, India retains the right to tax. If not, only Singapore can impose tax—which, in this case, would mean zero tax, as Singapore doesn’t levy capital gains tax.
The tribunal drew from previous rulings and concluded:
Mutual fund units are not equivalent to shares, as they are issued by trusts, not companies.
They therefore fall under the “residual clause” of Article 13 in the tax treaty.
That gave Singapore—and not India—the sole taxing rights. The result: the NRI paid zero tax.
This verdict is a major relief for NRIs from countries with similar treaty clauses. If you’re an NRI based in Singapore or the UAE, capital gains from redeeming Indian mutual fund units aren’t taxable in India—as long as you meet residency norms (like 183+ days of stay).
However, financial advisor Kanan Bahl flagged a caveat: “GAAR provisions may get triggered if capital gains exceed ₹3 crore.” Below that, shifting countries just to avoid a 12.5% tax may not be worth the effort.