Can Singapore Resident NRIs Claim Indian Mutual Fund Capital Gains As Tax Free In India?

Mumbai: A Mumbai ITAT ruling has strengthened the case for Singapore-resident investors to claim treaty protection on capital gains from Indian mutual fund units. But the position still requires careful documentation and disclosure.

For Non-Resident Indians living in Singapore, investment in Indian mutual funds has traditionally been viewed through the lens of Indian capital gains tax. A recent judicial ruling, however, has brought renewed attention to a potentially significant treaty benefit under the India-Singapore Double Taxation Avoidance Agreement (“DTAA”).

In Anushka Sanjay Shah v. Income Tax Officer, decided on 26 March 2025, the Mumbai Bench of the Income Tax Appellate Tribunal (“ITAT”) held that capital gains earned by a Singapore tax resident from Indian mutual fund units were not taxable in India under Article 13(5) of the India-Singapore DTAA.

The ruling is particularly relevant for NRIs resident in Singapore who hold equity or debt mutual funds in India.

What was the dispute?

The taxpayer in the case was a non-resident Indian and a tax resident of Singapore.

During Assessment Year 2022-23, she reported short-term capital gains of approximately ₹1.36 crore from Indian mutual funds. This consisted of approximately ₹88.75 lakh from debt funds and ₹46.91 lakh from equity funds.

She claimed that the gains were protected by Article 13(5) of the India-Singapore DTAA and were therefore not taxable in India.

The Indian tax authorities disagreed and sought to tax the entire amount in India.

The dispute eventually reached the Mumbai ITAT.

Why does Article 13 matter?

Article 13 of the India-Singapore DTAA determines which country has the right to tax different categories of capital gains.

For example, the treaty separately deals with gains from:

• immovable property;
• property connected with a permanent establishment;
• ships and aircraft; and
• shares in a company.

Article 13(4B), in particular, permits India to tax gains arising from shares acquired on or after 1 April 2017 in an Indian company.

However, Article 13(5) acts as a residual provision. Broadly, it provides that gains from property that does not fall within the earlier specified categories are taxable only in the country in which the seller is resident.

For a genuine Singapore tax resident, that country would be Singapore.

The key question therefore became:

Is a unit of an Indian mutual fund the same as a “share” of an Indian company for purposes of Article 13?

Mutual fund units are not shares, says ITAT

The Mumbai ITAT held that mutual fund units cannot simply be equated with shares in a company.

The Tribunal relied on earlier decisions involving similarly worded tax treaties and noted that Indian securities law itself recognises shares and mutual fund units as separate forms of securities.

It also referred to the fact that Indian mutual funds are generally constituted as trusts rather than companies.

Accordingly, gains from mutual fund units did not fall within the share-specific capital gains provisions of the treaty.

They instead fell under Article 13(5).

Since the taxpayer was a Singapore resident, Article 13(5) allocated the taxing right exclusively to Singapore. The Tribunal therefore allowed the taxpayer's claim in respect of the ₹1.36 crore capital gain.

What does this mean for Singapore-resident NRIs?

The decision creates a strong argument that a Singapore tax resident who redeems ordinary Indian mutual fund units can claim that the resulting capital gains are not taxable in India, provided Article 13(5) applies.

The position may potentially apply to both equity-oriented and debt-oriented mutual funds, as the case itself involved gains from both categories.

Consider a simple example.

A Singapore-resident NRI invests ₹50 lakh in an Indian mutual fund and later redeems the units for ₹70 lakh.

The resulting capital gain is ₹20 lakh.

Under Indian domestic tax law, the ₹20 lakh may ordinarily be subject to capital gains tax.

However, if the investor qualifies for the India-Singapore DTAA and the units fall within Article 13(5), the investor may claim that the taxing right over the ₹20 lakh gain belongs only to Singapore.

The treaty does not make the ₹70 lakh redemption proceeds exempt. The relevant amount is the ₹20 lakh capital gain.

Does that mean there is no tax in Singapore either?

Potentially, yes, although the Singapore tax position must be considered separately.

The Inland Revenue Authority of Singapore (“IRAS”) states that gains from the sale of shares and other financial instruments by individuals are generally not taxable where they represent personal investment gains.

IRAS also confirms that Singapore does not impose a general capital gains tax on profits from investments and shares.

This can produce a situation where:

India does not tax the gain because the DTAA assigns the taxing right to Singapore; and Singapore does not tax it because the gain is capital in nature.

However, Singapore may reach a different conclusion where a person's activities amount to trading or a business rather than passive investment. Factors such as frequency of transactions, intention, holding period and surrounding circumstances can therefore remain relevant.

Is this now settled law?

No. 

This is perhaps the most important qualification for investors.

The ruling has been delivered by the Income Tax Appellate Tribunal, not by the Bombay High Court or the Supreme Court.

The Mumbai ITAT decision is directly relevant and provides substantial support for the taxpayer's position, and it follows earlier tribunal rulings involving similarly worded treaty provisions.

But Indian tax authorities may still challenge the interpretation in another case or pursue the matter before a higher judicial forum.

Accordingly, the position should be described as judicially supported but not finally settled.

It should not be treated as an automatic exemption available to every NRI living in Singapore.

Tax residency is critical

The treaty benefit is available because the taxpayer is a resident of Singapore for purposes of the India-Singapore DTAA.

Merely:

• holding an NRI bank account;
• possessing a Singapore work permit;
• working temporarily in Singapore; or
• describing oneself as an NRI

does not, by itself, establish entitlement to treaty benefits.

An investor seeking to claim the position should possess a valid Singapore Tax Residency Certificate (“TRC”) for the relevant period and satisfy the other applicable treaty documentation requirements.

The investor should also be able to demonstrate genuine Singapore tax residence if questioned.

Disclosure in the Indian income-tax return

A taxpayer adopting this position should generally not simply omit the mutual fund transactions from the Indian return.

A more defensible approach is to transparently report the transaction and separately claim the treaty benefit.

Broadly, the process should include:

1. computing the capital gain under the applicable Indian capital gains provisions;
2. disclosing the mutual fund transaction in the appropriate capital gains schedule;
3. identifying the gain as not chargeable in India under the DTAA;
4. mentioning Singapore as the treaty country;
5. referring to Article 13(5);
6. confirming availability of the TRC; and
7. maintaining the supporting treaty documentation.

This is also useful because mutual fund redemptions may already appear in the taxpayer's AIS or other information available to the Income Tax Department.

A transparent treaty claim allows the taxpayer to reconcile the reported redemption with the position taken in the return.

Treaty anti abuse rules should not be ignored

Tax treaty benefits are also subject to anti-abuse provisions.

Accordingly, the position is considerably stronger for an individual who has genuinely lived and worked in Singapore and has made Indian mutual fund investments in the ordinary course.

Greater caution may be required where, for example, a taxpayer changes residence shortly before a substantial redemption or enters into an arrangement primarily designed to secure the treaty benefit.

Treaty eligibility must therefore be considered on the investor's actual facts and not merely on the basis of the country shown on a residency certificate.

Does the Income-tax Act, 2025 change the position?

The Income-tax Act, 2025 came into force from 1 April 2026.

Importantly, the new legislation continues the principle that where India has entered into a tax treaty with another country, the more beneficial treaty provisions may generally be applied to an eligible taxpayer.

Accordingly, the enactment of the new law does not, by itself, appear to disturb the core treaty reasoning applied by the Mumbai ITAT.

The more fundamental question remains whether the asset being transferred is a “share” covered by the specific share provisions of Article 13 or “other property” falling within Article 13(5).

On the reasoning adopted by the Tribunal, ordinary Indian mutual fund units fall into the latter category.

What should investors do before claiming the benefit?

Singapore-resident NRIs considering this position should review each case individually.

At a minimum, investors should verify:

• their Singapore tax residency for the relevant year;
• availability of a valid TRC;
• the nature and legal form of the mutual fund investment;
• purchase and redemption dates;
• acquisition cost and redemption proceeds;
• whether the activity constitutes investment or trading;
• applicable Indian return disclosure requirements; and
• whether there are any facts that may raise treaty-abuse concerns.

For material gains, maintaining a written tax position supported by the relevant treaty provisions and judicial precedents may also be prudent.

The takeaway

The Mumbai ITAT ruling in Anushka Sanjay Shah is an important development for Singapore-resident NRIs investing in Indian mutual funds.

It supports the proposition that mutual fund units are distinct from shares of an Indian company and therefore fall within the residual capital gains provision of Article 13(5) of the India-Singapore DTAA.

Where Article 13(5) applies, the gain is taxable only in Singapore.

For an individual holding the investments on capital account, Singapore may in turn generally not tax the investment gain.

The result can therefore be highly favourable.

Nevertheless, the benefit should be claimed with appropriate caution. The principal authority remains a Tribunal decision rather than a High Court or Supreme Court ruling, and treaty residence, documentation, return disclosure and anti-abuse provisions remain important.

For Singapore-resident NRIs with significant Indian mutual fund investments, this is a position worth reviewing before redemption and again when preparing the Indian income-tax return.

Disclaimer: This article is intended for general informational purposes and does not constitute legal or tax advice. The tax treatment may vary depending on the taxpayer's residence, nature of investments, transaction history, applicable tax year and subsequent changes in law or judicial precedent. Professional advice should be obtained based on the specific facts of each case.

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