Are gains from equity mutual funds tax-free for NRIs?

I am an NRI and I have started investing in mutual funds through my NRE a/c with the bank recently. I think all gains from mutual fund transactions are tax free for NRIs in India. Is that correct? My investment horizon is between 5-8 years. I have made lumpsum investments, instead of SIP.
--Amit Dasgupta

Deepali Sen, Founder, Srujan Financial Advisers, responds:

Mutual fund units are subject to tax for NRI investors. For tax on equity oriented mutual funds, the definition of long term refers to more than 1 year and otherwise it is short term. LTCG (Long Term Capital Gains) for equity mutual funds held by NRIs is 10 per cent (exceeding Rs 1 lakh in one financial year, provided such units are subject to STT), STCG (Short Term Capital Gains) tax is 15 per cent.

For debt funds the definition of long term refers to more than 3 years for taxation and otherwise it is short term. LTCG is 20 per cent with indexation benefit and STCG is 30 per cent (here the assumption is that the investor is in the highest tax bracket).