TDS on Mutual Funds: Why NZ-Based Investors Pay Zero Indian Tax

Introduction

If you’re an NRI living in New Zealand and investing in Indian mutual funds, here’s something that changes the maths on your returns entirely: you don’t pay TDS. Not a reduced rate. Not a special concession. Zero. TDS — Tax Deducted at Source — is the tax India withholds from your mutual fund gains before paying you out. For most NRIs around the world, it’s unavoidable. But New Zealand has a Double Tax Avoidance Agreement (DTAA) with India that, when applied correctly, brings that TDS rate down to zero on mutual fund capital gains. This article explains what TDS is, how it normally works, why NZ investors are exempt, and what you need to do (or more accurately, what Indus does for you) to make sure the benefit is applied.

What Is TDS and How Does It Work on Mutual Funds?

TDS stands for Tax Deducted at Source. It’s India’s mechanism for collecting tax at the point of payment rather than waiting for the investor to file a return. When you redeem (sell) mutual fund units and make a profit, the mutual fund house deducts tax from your gains before sending you the proceeds. For NRIs, TDS rates on mutual fund redemptions in India are typically:

1. Equity funds (held over 12 months): 12.5% on long-term capital gains (LTCG) above ₹1.25 lakh

2. Equity funds (held under 12 months): 20% on short-term capital gains (STCG)

3. Debt funds: Taxed at the applicable income tax slab rate, with TDS typically at 30% for NRIs

These rates apply to NRIs globally — whether you’re in the US, UK, UAE, Singapore, or Australia. The fund house deducts this amount automatically before crediting your bank account. You don’t get a choice. Except in New Zealand. If you invest through a platform like Indus, which automates DTAA compliance on your behalf, you pay zero TDS on your mutual fund returns. No paperwork, no chasing certificates — Indus handles it all.

Why New Zealand Is Different: The DTAA Advantage

India and New Zealand have a Double Tax Avoidance Agreement (DTAA) that covers investment income, including capital gains from mutual funds. Under Article 13 of this treaty, when the correct documentation is filed, India agrees not to tax capital gains on mutual fund redemptions for NZ tax residents. The TDS rate drops to zero.

This is not a loophole. It’s the intended function of the treaty — to prevent double taxation by allocating taxing rights between the two countries. India gives up its right to tax these gains at source, and New Zealand taxes them under its own domestic rules.

The practical impact is significant. Let’s look at what happens to the same investment depending on where you live:

*Illustrative. Assumes equity LTCG at 12.5% on gains above ₹1.25 lakh exemption. Actual TDS may vary based on fund type, holding period, and individual circumstances. AU investors may claim a foreign income tax offset. The NZ investor keeps the full ₹15,20,875. No deduction at source. The entire return compounds and stays invested until you choose to withdraw. For long-term investors, this compounding advantage grows with every year. On Indus, this benefit is applied automatically from your first investment — you don’t need to request it or file separate forms.

How to Make Sure the DTAA Is Applied

The DTAA benefit doesn’t apply automatically at the fund house level. You need to file specific documentation with the mutual fund house to claim the reduced (zero) TDS rate. Without it, the fund house will deduct TDS at the standard NRI rates. The required documents are:

1. Tax Residency Certificate (TRC) — issued by the Inland Revenue Department (IRD) in New Zealand. This proves you’re a NZ tax resident.

2. Form 10F — a self-declaration form required by Indian tax authorities containing details like your tax identification number, NZ address, and residency period.

3. Self-declaration / No PE declaration — confirming you don’t have a Permanent Establishment in India through which the income is earned.

These documents need to be submitted to the fund house or through your investment platform before redemption. If you’re investing through Indus, all of this compliance is fully automated. You don’t file a single form. Indus collects your NZ residency details during onboarding — all you need is a local NZ driver’s licence to get started — and handles the TRC, Form 10F, and self-declaration filings with the fund house on your behalf. The DTAA is applied from day one, and TDS is claimed back automatically. The result: you pay 0% Indian tax on your mutual fund returns, without ever touching the paperwork. Indus is registered with the FMA (Financial Markets Authority) in New Zealand, so this compliance is backed by local regulatory oversight.

What About Tax in New Zealand?

Zero Indian tax does not mean zero tax overall. New Zealand taxes its residents on worldwide income, and your mutual fund returns from India are part of that worldwide income. Indus provides transaction statements and investment reports that your NZ tax adviser can use to assess your FIF or overseas income obligations. Depending on the type and value of your Indian mutual fund holdings, they may fall under New Zealand’s Foreign Investment Fund (FIF) rules. Under FIF, you may be taxed annually on a deemed return (typically using the Fair Dividend Rate method at 5% of the fund’s opening market value) rather than on actual gains at the time of sale. There are exemptions — for example, if your total foreign investment portfolio is under NZ$50,000, FIF may not apply. The specifics depend on your individual situation, portfolio size, and how the funds are classified. This is an area where working with a New Zealand tax adviser who understands cross-border investment income is important. The key point remains: India doesn’t take a cut. Whatever NZ tax applies, you’re not paying twice.

TDS Rates by Fund Type: NZ vs Rest of World

Rates shown are indicative based on 2025–26 Indian tax rules for NRIs. Actual rates may vary. The DTAA benefit applies across all fund types for NZ tax residents.

Notice the debt fund row. For NRIs in most countries, debt fund gains are taxed at slab rate (often 30% for NRIs). For NZ investors, that’s 0%. The DTAA benefit applies across all fund categories. Indus currently focuses on equity mutual funds — where the 0% TDS advantage means your full equity returns compound without any Indian tax drag. That’s a significant edge over NRIs investing from countries without a comparable DTAA.

What Happens If the DTAA Isn’t Applied?

If you invest through a channel that doesn’t file the DTAA paperwork, the fund house has no way of knowing you’re a NZ resident entitled to the zero rate. They’ll deduct TDS at the standard NRI rates — 12.5%, 20%, or 30% depending on the fund and holding period.

You can claim a refund by filing an Indian income tax return, but this means engaging with the Indian tax system directly: filing ITR forms, potentially appointing a Chartered Accountant in India, and waiting months for the refund to process. It’s doable but adds significant friction and cost.

The simpler path is to ensure the DTAA is applied before you invest, so TDS is never deducted in the first place. Indus handles this as part of its standard onboarding for NZ investors — no separate paperwork required from your side.

Start Investing with 0% Indian Tax

Indus is the only platform that automates DTAA compliance for NZ-based investors. All you need is a New Zealand driver’s licence to get started — no Indian paperwork, no bank branch visits, no TDS headaches. Set up in 3 minutes, invest in Indian equity mutual funds, and keep 100% of your returns. And you don’t need to be an NRI — Indus is open to all New Zealand residents.