When it comes to investing in India, NRIs need to be mindful of not just returns—but tax outcomes too. Whether it’s mutual funds, property, stocks, or insurance plans, the tax treatment differs for short-term vs. long-term, and also depends on the type of account (NRE/NRO) used for investment or payout.
In this guide, we break down the key tax rules NRIs need to know—with focus on capital gains, insurance maturity, and what happens if taxes are paid from NRE or NRO accounts.
1. Capital Gains Tax for NRIs
Capital gains are taxed based on asset type and holding period.
A. Equity Shares & Equity Mutual Funds
- Short-Term Capital Gain (STCG): If held < 12 months
Tax Rate: 15% + cess/surcharge - Long-Term Capital Gain (LTCG): If held ≥ 12 months
Tax Rate: 10% on gains exceeding ₹1 lakh (without indexation)
B. Debt Mutual Funds (Post-April 2023 Tax Rule)
- All gains are now Short-Term (no indexation benefit)
Tax Rate: Added to your total income and taxed as per slab (up to 30% for NRIs)
C. Real Estate
- STCG: Held < 2 years → Taxed as per slab
- LTCG: Held ≥ 2 years → Taxed at 20% with indexation benefit
TDS for NRIs is deducted at source, even if actual liability is lower. Apply for a Lower Deduction Certificate (LDC) if needed.
2. Tax on Insurance Maturity Payouts (for NRIs)
Many NRIs invest in life insurance policies, ULIPs, or endowment plans—but not all maturity proceeds are tax-free.
When Insurance Maturity Is Tax-Free (Section 10(10D)):
- Policy premium is ≤ 10% of sum assured (issued after April 2012)
- ULIPs issued before Feb 2021, or sum assured is 10x the premium
- No benefit was claimed under Section 80C in violation
When Insurance Maturity Is Taxable:
- If premiums exceed 10% of sum assured
- New rules for high-value policies (issued after April 2023) may attract tax if premium > ₹5L/year
- ULIP gains are now taxable like mutual funds if aggregate premium exceeds ₹2.5L/year
Tax Rate:
- Taxable amount = Maturity value – Total premiums paid
- Taxed as capital gains or “Income from Other Sources” depending on policy type
3. What if Tax Is Paid from NRE or NRO Account?
- Paying tax from NRE account: The account must allow local payments for tax purposes. If allowed, there’s no impact on the taxability of income.
- Paying from NRO account: Common for Indian income. No additional tax impact, but income in NRO is already taxable.
The account used to pay tax doesn’t affect whether the income is taxable. What matters is the source and type of income.
4. Is Maturity Amount from Investments Taxable for NRIs?
| Investment Type | Is Maturity Tax-Free? | Notes |
|---|---|---|
| NRE Fixed Deposit | Yes | Interest is tax-free and fully repatriable |
| NRO Fixed Deposit | No | Interest is taxed at 30% TDS |
| Insurance (compliant) | Yes | Subject to 10(10D) conditions |
| Insurance (non-compliant) | No | Taxable as capital gains or income |
| Equity Mutual Funds | Partially | LTCG over ₹1 lakh is taxable at 10% |
| Debt Mutual Funds | No | Post-2023 rule: No LTCG benefit; taxed as per slab |
| ULIPs | Depends | May be taxable under new regime if premium > ₹2.5L/year |
Quick Tax-Saving Tips for NRIs
- Prefer NRE accounts for FDs and repatriable funds—interest is tax-free
- Keep insurance premiums within 10% of sum assured to enjoy 10(10D) exemption
- For high-value policies, explore term insurance + mutual fund combos instead
- Use GIFT City investment accounts to earn tax-free capital gains and global returns
- File ITR even if TDS is deducted—you may get a refund
Final Thoughts
As an NRI, taxation in India isn’t just about income—it’s about understanding how every investment behaves over time. With shifting rules around capital gains and insurance taxation, strategic planning is key.
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