When it comes to investing in India, NRIs must pay attention not just to returns—but to the tax consequences of each investment. Whether it’s mutual funds, real estate, life insurance, or ULIPs, tax treatment differs depending on the asset class, holding period, and the account (NRE or NRO) used. This comprehensive 2025 guide explains capital gains taxation, insurance maturity rules, and how to optimize tax payments across borders. If you’re a global Indian looking to grow wealth efficiently, understanding these rules is non-negotiable.
Table of Contents
Capital Gains Tax for NRIs
Capital gains are the profits earned from selling an asset. In India, capital gains are categorized as short-term or long-term based on how long the asset was held. Different asset types have different thresholds and tax rates.
A. Equity Shares and Equity Mutual Funds
- Short-Term Capital Gain (STCG): If equity shares or equity-oriented mutual funds are sold within 12 months, gains are taxed at 15% plus cess and surcharge.
- Long-Term Capital Gain (LTCG): If held for 12 months or more, LTCG is taxed at 10% on gains exceeding ₹1 lakh per financial year. No indexation benefit is allowed.
B. Debt Mutual Funds (Post-April 2023 Rule)
- As per the latest tax rule, all capital gains on debt mutual funds are now considered short-term, irrespective of the holding period.
- Tax Rate: Added to your total income and taxed as per your applicable slab rate, which can go up to 30% for NRIs.
C. Real Estate Capital Gains
- Short-Term Capital Gain (STCG): If a property is held for less than 2 years, the gains are added to your income and taxed at your applicable slab rate.
- Long-Term Capital Gain (LTCG): If held for 2 years or more, taxed at 20% with indexation benefit.
Important: TDS (Tax Deducted at Source) is applicable on property sales by NRIs, even if the actual tax liability is lower. NRIs should consider applying for a Lower Deduction Certificate (LDC) to reduce upfront tax deduction.
Taxation on Insurance Maturity Payouts for NRIs
NRIs often invest in life insurance policies, ULIPs, and endowment plans. However, not all insurance maturity proceeds are tax-free. Here’s what you need to know:
When Insurance Maturity Is Tax-Free under Section 10(10D)
- Premium paid should not exceed 10% of the sum assured (for policies issued after April 2012)
- ULIPs issued before February 2021, or where sum assured is at least 10x of premium
- No violations of Section 80C (such as surrendering the policy prematurely)
When Insurance Maturity Is Taxable
- If annual premium exceeds 10% of the sum assured
- ULIPs issued after February 2021 and premiums aggregate over ₹2.5 lakh per year
- Policies issued after April 2023 with annual premium exceeding ₹5 lakh
Tax Treatment
- Taxable portion = Maturity value – Total premiums paid
- Taxed as capital gains or “Income from Other Sources” depending on the structure of the policy
Tip: Keep insurance premiums within limits to qualify for Section 10(10D) exemption.
What If Tax Is Paid from NRE or NRO Account?
Paying Tax from NRE Account
- NRE accounts are primarily for inward remittances. However, some NRE accounts allow local tax payments. If permitted, there is no adverse tax implication.
Paying Tax from NRO Account
- Commonly used for paying taxes on income sourced in India (rent, interest, dividends)
- Income in the NRO account is already subject to TDS
- Using this account for tax payments does not impact taxability of income
Note: The type of account used to pay tax is not what matters—the nature and source of income determine the tax liability.
Is Maturity Amount from Investments Taxable for NRIs?
Here’s a summary of taxability across common NRI investment instruments:
| Investment Type | Is Maturity Tax-Free? | Tax Notes |
|---|---|---|
| NRE Fixed Deposits | Yes | Interest is tax-free and fully repatriable |
| NRO Fixed Deposits | No | Interest taxed at 30% TDS |
| Insurance (Compliant) | Yes | Only if it meets Section 10(10D) conditions |
| Insurance (Non-Compliant) | No | Taxable as capital gains or income |
| Equity Mutual Funds | Partially | LTCG over ₹1 lakh taxable at 10% |
| Debt Mutual Funds | No | Fully taxable at slab rates post-April 2023 |
| ULIPs | Depends | May be taxable if premiums exceed ₹2.5L/year |
Takeaway: Carefully select policies and mutual funds based on your premium limits, investment horizon, and expected returns. Ensure your NRE/NRO account usage aligns with income type.
Quick Tax-Saving Tips for NRIs
- Choose NRE FDs over NRO FDs: NRE interest is tax-free and freely repatriable
- Stay within insurance premium thresholds: To enjoy Section 10(10D) tax exemptions
- Explore term insurance + mutual fund combos: If your ULIP premiums exceed the tax-free limits
- Use GIFT City investment options: Capital gains earned via IFSC platforms may be exempt from tax
- File your Indian ITR even if TDS is deducted: Many NRIs are eligible for refunds after tax computation
- Apply for Form 13 (Lower/Nil TDS Certificate): Especially helpful when selling property or receiving large payouts
Conclusion
Tax planning for NRIs in India requires a sharp focus on more than just income—it involves understanding how capital gains, insurance payouts, and maturity amounts are treated under the tax law. With frequent changes in taxation rules, especially post-2023, informed decisions can help you preserve wealth and optimize returns.
Every rupee saved on tax is a rupee earned. From choosing the right mutual funds to selecting compliant insurance policies and using the correct bank account for transactions, NRIs must structure their portfolio with tax efficiency in mind.
If you’re unsure how your investments are taxed or how to claim eligible deductions, consulting a FEMA-aware Chartered Accountant or NRI financial advisor is strongly recommended. Proactive tax planning ensures not just compliance—but also peace of mind.