UAE residents investing in Indian mutual funds: Key Indian tax rules you must follow to claim India-UAE DTAA benefits

Residents of the United Arab Emirates (UAE) can invest in Indian mutual funds as long as they follow the necessary regulatory frameworks like FEMA (Foreign Exchange Management Act), SEBI (Mutual Fund) Regulations, and complete the required KYC, NRE/NRO bank account setup and tax declarations.

Keep in mind though, that when a UAE resident redeems their Indian mutual fund units, the mutual fund house has to withhold TDS at the time of redemption under Indian law. TDS for non-resident investors is deducted at 20% on short-term capital gains from equity mutual funds, 30% on short-term gains from debt / specified mutual funds, and 12.5% on long-term capital gains on both equity and non-equity schemes (excluding surcharge and cess).

Chartered Accountant Suresh Surana, said to ET Wealth Online: “This happens because fund houses apply domestic tax provisions and do not evaluate double tax avoidance treaty (DTAA) eligibility themselves.” However, this TDS is not a final tax liability.


According to Surana, non-resident investors including UAE residents are entitled to DTAA benefits (India-UAE DTAA), subject to furnishing a Tax Residency Certificate (TRC), Form 10F, and a self-declaration.

Also read: Dubai-based taxpayer gets I-T notice for unexplained investment in Rs 2 crore Mumbai property; he fights back and gets relief from ITAT Mumbai

Yeeshu Sehgal, UAE Practice Lead, AKM Global, agrees with Surana and adds that non-resident investors are entitled to DTAA benefits, subject to furnishing a Tax Residency Certificate (TRC), Form 10F, and a self-declaration.

Sehgal says: “A UAE resident can file an Indian income-tax return, claim exemption under Article 13(5) of the India–UAE DTAA, and since the UAE does not levy personal income tax, the capital gains remain untaxed and the entire TDS deducted at redemption becomes refundable.”

Also read: UAE based taxpayer earned Rs 4 crore income in India on which TDS was deducted but didn't file ITR, got tax notice; wins case in ITAT Delhi

Get TRC from UAE and other documents to claim India-UAE DTAA benefits

According to Surana, the India–UAE Double Taxation Avoidance Agreement (DTAA) significantly alters the tax outcome for UAE tax residents.

Article 13(5) of the DTAA between India and the UAE provides that capital gains arising from alienation of property, other than immovable property or shares as defined in the treaty, may be taxed only in the country of residence of the taxpayer.

Because mutual fund units are issued by trusts and not defined as “shares” under Indian law, gains from their sale fall outside the scope of Article 13(4) and instead come under the general provision in Article 13(5) of the DTAA.

Surana says: Thus, capital gains on mutual funds are taxable only in the taxpayer’s country of residence if they are UAE tax residents.”

Surana points out that since the UAE currently does not levy personal income tax or capital gains tax, a UAE tax resident can, in effect, have nil tax on the capital gains arising from Indian mutual fund redemptions in India, provided they obtain the necessary documentation such as a valid Tax Residency Certificate (TRC) etc. from the UAE authorities.

Where TDS is already deducted, UAE residents should file the Indian Income Tax Return (ITR) appropriately, disclosing gains and claiming the DTAA benefit along with Form 10F.

If TRC does not mention the required details then file Form 10F

It is important to note that the need to file Form 10F arises only if the details required to be filled therein are not mentioned in the Tax Residency Certificate.

Section 90(5) of the Income Tax Act, 1961 read with Rule 21AB of the Income Tax Rules, 1962 requires Non-resident (NR) taxpayers to furnish Form 10F in order to be eligible for treaty benefits.

Non-resident taxpayers have to furnish Form 10F if the details required under Form 10F are not available in the Tax Residency Certificate issued by the country of residence of the NR taxpayers (like nationality, taxpayer identification number, address, period of residential status etc).

Non residents can get tax notice if Form 10F is not taken

In the past, many non-resident Indians (NRIs) who claimed benefit of lower or nil rate of taxation under the Double Taxation Avoidance Agreement (DTAA) have received income tax notice(s) for failing to file Form 10F. The Income Tax Act, 1961, allows NRI taxpayers to declare their income and file ITR by applying for lower or nil rate of income tax (in some cases) under DTAA.

For availing the benefit of lower or nil taxes under DTAA, NRIs must submit a TRC and Form 10F. This form can be filled any time before filing Income Tax Return (ITR). As per the existing Indian tax law, there is no deadline to file Form 10F and it can be filed electronically by all NRIs who may or may not have a PAN card.

UAE TRC

A TRC is an official certificate issued by the United Arab Emirates Federal Tax Authority (FTA) and it establishes that a person is a UAE tax resident for the specified period. You can get it via the UAE Federal Tax website at: https://tax.gov.ae/en/services/issuance.of.tax.certificates.aspx

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