NRI Mutual Fund Taxation: How Capital Gains, TDS and DTAA Actually Work (2026)

Introduction

Tax is the part of NRI investing that confuses almost everyone. You're earning returns in India, but you live in Australia or New Zealand. Which country taxes what? Are you taxed twice? What's TDS, and why is it deducted before you even see the money? What does DTAA actually do? And does any of this change depending on whether you're in Sydney or Auckland?

This guide cuts through it. We'll cover exactly how Indian mutual fund returns are taxed for NRIs, the differences between Australia and New Zealand, what TDS rates apply to which fund types, how the Foreign Income Tax Offset works in Australia, and how Indus's NZ users end up paying 0% Indian tax thanks to DTAA. By the end, you'll know what to expect when you redeem your investments and how to plan for it.

One important note up front: this is general information, not personalised tax advice. Tax rules change, individual situations vary, and YMYL content like this needs to be cross-checked with a qualified tax professional who knows both jurisdictions. Use this guide to understand the framework, then talk to your accountant about the specifics.

The Two Sides of NRI Tax

Every NRI investor faces tax on two sides: the country where the investment lives (India) and the country where the investor lives (Australia or NZ). The interaction between these two systems determines what you actually pay.

India taxes investment returns earned within its borders, regardless of who owns them. So when an NRI in Australia earns capital gains on Indian mutual funds, India wants its share. The mechanism India uses is TDS — Tax Deducted at Source — which means the tax is automatically withheld at the time of redemption, before the proceeds reach the investor.

Australia and New Zealand both tax their tax residents on worldwide income. So your Indian capital gains are also potentially taxable in your home country. Without any treaty in place, this would mean paying tax twice on the same income — first in India, then again at home. That's where DTAAs (Double Tax Avoidance Agreements) and Foreign Income Tax Offset rules come in.

How TDS Works on Indian Mutual Funds

TDS is the Indian tax authority's way of collecting tax automatically. When you redeem mutual fund units, the fund house calculates the capital gain on your sale, deducts TDS at the applicable rate, and remits only the net amount to you. You don't have to file an Indian tax return separately for these gains — the TDS is your final tax liability in India for that transaction.

The TDS rate depends on two things: the type of mutual fund (equity vs other) and how long you held the units before redeeming. For NRI investors, the rates as of 2026 are:

Equity Mutual Funds

These are funds that invest at least 65% of their portfolio in Indian stocks. Indus offers equity mutual funds in both Australia and New Zealand.

Long-term capital gains (held over 12 months): 12.5% TDS on gains exceeding ₹1 lakh per financial year

Short-term capital gains (held under 12 months): 20% TDS on the gains

Non-Equity / Debt Funds

These have higher TDS rates and different holding period rules. Indus does not offer non-equity funds, so this is included only for context if you're comparing investment options.

Long-term capital gains (held over 24 months): 12.5% TDS

Short-term capital gains: taxed at the NRI's slab rate, which can be up to 30%

The simple takeaway: holding equity mutual funds for more than 12 months meaningfully reduces your Indian tax cost.

Where Australia and New Zealand Diverge

Here's where the two markets fundamentally differ, and why Indus operates differently in each.

New Zealand: 0% Indian Tax (Thanks to DTAA)

New Zealand has a Double Tax Avoidance Agreement with India that specifically covers capital gains from mutual fund investments. Under this treaty, the right to tax these capital gains belongs to New Zealand, not India. In practice, this means TDS should not be deducted at the time of redemption — or if it is deducted, it can be claimed back.

The catch is that the DTAA needs to be actively applied. It doesn't happen automatically at the fund house level. The investor (or their platform) has to provide the right documentation — typically a Tax Residency Certificate from New Zealand and Form 10F — to claim the treaty benefits.

This is where Indus simplifies things for NZ users. Indus handles the DTAA application on your behalf as part of its standard service. The result: NZ-based investors using Indus pay 0% Indian tax on their equity mutual fund returns.

You're still subject to New Zealand's own tax rules on foreign investment income, of course. NZ has the Foreign Investment Fund (FIF) regime which applies to most offshore investments once the total cost of your foreign holdings exceeds NZ$50,000. Under FIF, your Indian mutual fund holdings may be taxed annually on a deemed-return basis (typically under the Fair Dividend Rate method at 5% of opening market value), rather than only when you redeem. This is a materially different tax treatment to what applies below the NZ$50,000 threshold, and it can significantly affect your annual tax liability. If your combined offshore investments approach or exceed NZ$50,000, you should speak to a qualified New Zealand tax adviser before and during the investment period. Indus provides the transaction and valuation data you need, but the FIF calculation and election of the right method (FDR, CV, DRP, or CAM) depends on your personal situation and is not something to self-manage.

Australia: TDS Applies, Foreign Tax Credit Available

Australia does not have a DTAA with India that covers mutual fund capital gains the same way New Zealand does. This means Indian TDS is deducted at the time of redemption — typically 12.5% on long-term equity gains and 20% on short-term gains.

The relief comes through Australia's Foreign Income Tax Offset (FITO) rules. When you declare your Indian capital gains on your Australian tax return, you can claim a credit for the tax already paid in India. This prevents double taxation — you essentially get to subtract what you paid India from what you owe Australia.

There are limits and conditions on how the offset works. The FITO can't exceed the Australian tax that would otherwise be payable on the same income. If your Australian marginal tax rate on the gain is higher than the 12.5% Indian TDS, you'll owe the difference to the ATO. If it's lower, you get the offset up to the Australian tax amount but not a refund of excess Indian tax paid.

For most Australian residents on standard tax brackets, the practical result is: Indian TDS plus a top-up to your Australian marginal rate. Indus provides a clear tax statement showing exactly how much TDS was deducted, so your accountant can calculate the offset correctly.

A Worked Example

Let's make this concrete. Imagine two investors, both putting $10,000 (or NZ$10,000) into the same Indian equity mutual fund through Indus, holding it for three years, and redeeming when the investment is worth $15,000 (long-term capital gain of $5,000).

The NZ Investor (Auckland)

Indus applies the India–NZ DTAA. India does not deduct TDS on the capital gain. The investor receives the full $5,000 gain (less currency conversion costs and Indus's platform fees, which are separate from tax). They still need to declare the income in NZ under standard tax rules and the FIF regime if applicable, but the Indian side is settled at 0%.

The Australian Investor (Sydney)

India deducts TDS at 12.5% on the long-term capital gain. On a $5,000 gain, that's roughly $625 deducted at source. The investor receives the net amount ($4,375 of the gain). At Australian tax time, they declare the $5,000 gain on their tax return. If their marginal tax rate is 32.5%, the Australian tax on the gain would be $1,625. They claim the $625 already paid in India as a Foreign Income Tax Offset, and end up owing the ATO an additional $1,000. Total tax paid: $1,625 — the same as if it were a domestic Australian gain.

The NZ investor pays NZ tax only. The AU investor pays effectively their full Australian rate, just split between the two countries. The DTAA difference is significant for NZ; it's neutral for AU in dollar terms but adds paperwork.

Common Tax Mistakes NRIs Make

Forgetting to declare Indian gains on the Australian or NZ tax return — worldwide income disclosure is mandatory

Not keeping the Indian TDS certificate — you need this to claim the Foreign Income Tax Offset in Australia

Confusing the holding period rules — 12 months for equity, 24 months for non-equity

Assuming TDS is the final tax — it's only the Indian portion. Your home country may still apply its own tax

Trying to claim DTAA benefits in Australia for mutual fund capital gains — Australia doesn't have the same treaty coverage as NZ

Missing the deadline to claim FITO in your Australian return — keep all the documentation organised

Underestimating the impact of currency conversion on the actual tax — the gain in INR may look different in AUD or NZD terms

How Indus Helps with NRI Taxation

Indus is built specifically for NRIs and Australian/NZ residents investing in Indian mutual funds, so the tax-related friction points are designed into the product:

For NZ users: Indus automates the India–NZ DTAA application, so you pay 0% Indian tax on equity mutual fund returns

For AU users: Indus provides a detailed annual tax statement showing every TDS deduction, redemption date, capital gain, and holding period — exactly what your accountant needs to claim FITO

All transactions are documented in INR and your home currency for accurate reporting

Indus is registered with the FMA in New Zealand and authorised under an AFSL licence holder in Australia, so you're investing through a regulated channel that meets local compliance standards

When You Should Talk to a Tax Professional

This guide gives you the framework, but tax is one area where the specifics really matter. Talk to an accountant who understands both Indian and home-country tax in any of these situations:

Your investment value or annual gains are large (over $50,000 in any year)

You're moving back to India and need to understand the residency status change

You have multiple income sources — employment, business, rental, investment — across both countries

You're claiming the Foreign Income Tax Offset for the first time and want to make sure you do it correctly

Your fund holdings include both equity and non-equity funds with different tax treatment

You've held the same fund for more than 5 years and accumulated significant gains

A good NRI-aware accountant pays for themselves several times over in correctly claimed offsets and avoided mistakes.

Start Investing in India with Tax Documentation Built In

Indus handles the tax-side complexity so you can focus on the investing. NZ users get automated DTAA application and 0% Indian tax. AU users get clean tax statements ready for foreign tax credit claims. Sign up in three minutes with just your local driver's licence. Download Indus from the App Store or Google Play.