How India taxes Indian mutual fund gains and dividends
India taxes a fund by what it holds, not by its name. Here are the FY 2026-27 rates, the holding clocks, the Rs 1.25 lakh limit, TDS for NRIs and the papers for treaty relief.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on November 5, 2026.
India taxes a mutual fund by what it holds, not by its name, and NRIs meet it first as TDS (tax deducted at source). Our Twelve-or-Twenty-Four Clock Card keeps class, clock and rate together. Figures are for FY 2026-27 (April 2026 to March 2027). Accounts are in our NRI guide.
- Class sets the rate: equity-oriented (65% or more in listed Indian shares), debt-heavy (over 65% debt) or other.
- Equity funds pay 20% on short-term gains and 12.5% on long-term gains exceeding Rs 1,25,000 a year per person.
- NRIs: TDS comes off gains (equity long term: the part above Rs 1,25,000); extra TDS returns only by Indian return.
The numbers
| Fund class | Short-term rate | Long-term rate | Turns long term after |
|---|---|---|---|
| Equity-oriented | 20% | 12.5% above Rs 1,25,000 | 12 months |
| Debt-heavy, bought from 1 April 2023 | Slab rate | None | Never |
| Debt-heavy, bought earlier | Slab rate | 12.5% | 24 months (12 if listed) |
| Gold, silver, international, other | Slab rate | 12.5% | 24 months (12 if listed) |
Sales in FY 2026-27; slab rate is your income tax slab, up to 30%. Add surcharge (capped at 15% on the 20% and 12.5% gains and on dividends) and 4% cess. Budget 2026 left these rates alone. Non-residents get no rebate.
Source: Income Tax Department, TDS rates
Dividends and treaty papers
From 1 April 2026 nothing is deductible against IDCW. For NRIs, IDCW on units bought in foreign currency is taxed at a flat 20%, with TDS at 20% plus surcharge and cess. A treaty rate needs a Tax Residency Certificate and Form 41 (once Form 10F); a lower TDS certificate uses Form 128 (once Form 13).
Invented example: an NRI sells equity units after 14 months for a Rs 4,00,000 gain. Tax is 12.5% of Rs 2,75,000 plus 4% cess (no surcharge): Rs 35,750. TDS is also 12.5% only above Rs 1,25,000, so it may equal this tax; the return settles any gap.
Mistakes people make
- Counting on indexation, or on long term after three years, for debt funds.
- Treating the Rs 1,25,000 limit as per fund.
- Not filing when TDS exceeds the tax due.
Our checklist
The Twelve-or-Twenty-Four Clock Card, for each redemption:
- The fund's class, and each unit's purchase date (each SIP instalment has its own).
- Months held (over 12, over 24, or listed) and the rate that follows.
- The TDS certificate and statements kept, and the sale-day rate from our IRS rates tool.
Common questions
Does an NRI get the Rs 1,25,000 limit?
Yes. It is a single amount for each person each year, shared among your equity funds and listed shares. How a fund house allows for your other sales in TDS is not stated, so the return settles any gap.
Must an NRI file an Indian return?
Generally yes if income passes the exemption limit, or to reclaim extra TDS. For tax year 2026-27 it is due 31 July 2027; see our [Indian CPA page](/indian-cpa/).
How does this meet my U.S. return?
U.S. credit generally counts only Indian tax that cannot be refunded; see [FBAR, Form 8938 and credits](/indian-mutual-funds/countries/usa-fbar-8938-treaty-and-credits/).
Official sources
- Income Tax Department: TDS rates for tax year 2026-27
- Income Tax Department: Income-tax Act, 2025 as amended by the Finance Act, 2026
- Union Budget: Memorandum explaining the Finance Bill, 2026
- Income Tax Department: Section 112A, long-term gains on equity funds
- e-Filing portal: Guide to Income-tax Act 2025 forms
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