The case concerned A Shah, a Singapore tax resident, who declared capital gains of Rs 88.75 lakh from debt mutual funds and Rs 46.91 lakh from fairness mutual funds for the monetary 12 months 2021–22. In her earnings tax return, she claimed exemption for these gains below the residual clause of Article 13 of the India-Singapore tax treaty, asserting that such gains are taxable solely in her nation of residence, Singapore.
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Nevertheless, the Earnings Tax officer rejected her declare, arguing that the mutual fund models derived substantial worth from Indian belongings and have been subsequently topic to taxation in India. The dispute escalated to the ITAT, the place Shah contended that mutual fund models are issued by trusts and never firms, and thus mustn’t be equated with ‘shares’ below the Earnings Tax Act and the tax treaty provisions.
The ITAT, referencing prior authorized reasoning, agreed with Shah’s place, stating that models of Indian mutual funds are certainly issued by trusts and never firms, and subsequently can’t be categorized as ‘shares’. Consequently, the tribunal held that the residual clause applies, and the gains from the sale of mutual fund models are taxable solely in the investor’s nation of residence, in this case, Singapore.
Tax professional Gautam Nayak, a accomplice at CNK & Associates, highlighted that this ruling underscores a side of the India-Singapore tax treaty—and different related treaties—that many NRIs may not be conscious of. He famous that below such treaties, capital gains from the sale of mutual fund models are taxable solely in the nation of residence.
This profit extends to tax treaties with nations just like the UAE, Mauritius, Netherlands, Spain, and Portugal, the place belongings apart from immovable property and firm shares fall below the ‘residual clause’, making the gains taxable solely in the vendor’s nation of residence, Nayak added.
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This resolution supplies readability and potential tax reduction for NRIs investing in Indian mutual funds, emphasizing the significance of understanding the provisions of relevant tax treaties.
Based mostly on this exemption, Nilesh Shah of Kotak Mutual Fund stated that, “US levies hefty exit tax on residents turning into non-resident. India is incentivising residents to shift tax residency and save on capital gains tax legal responsibility.”
US levies hefty Exit tax on residents turning into non-resident.
India is incentivising Residents to shift tax residency and save on capital gains tax legal responsibility.
In case you have vital capital gains tax legal responsibility on eligible securities, shift to UAE for greater than 183 days.
Your… pic.twitter.com/PPkqT7ixFc
— Nilesh Shah (@NileshShah68) April 13, 2025
Shah additional talked about that if one has vital capital gains tax legal responsibility on eligible securities, shift to UAE for greater than 183 days then their household vacation overseas will be funded from the financial savings on capital gains tax.
Whereas evaluating this with a dialogue of a film, Shah stated आम के आम गुठलियों के दाम (Get mangoes and their seeds for the identical worth) and emphasised to amend the legal guidelines instantly to make sure that tax is paid in the host nation and credit score is taken in the reciprocal nation.
“The trail of fiscal prudence runs by taxes. Tax compliance relies upon on an equitable distribution of the burden. Equitable distribution of tax burden is not going to occur if excessive taxpayers are incentivised to maneuver overseas. At this time it would be a small quantity however tomorrow it might open a flood gate. Allow us to give a good, stage enjoying subject to each sincere, tax-paying residents of India and non-resident Indians,” Shah posted on social media.
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