TDS on mutual fund redemptions for NRIs, explained

Last reviewed October 2026

The short answer

When an NRI redeems mutual fund units in India, the fund house deducts tax (TDS) from the payout before the money reaches your NRE or NRO account. It is worked out on your gain, not on the whole amount, and the rate depends on the type of fund and how long you held it: broadly 12.5% or 20% for equity funds, and up to 30% for most debt funds, plus surcharge and cess.

The important thing to know is that TDS is an advance, not your final tax. It is often more than you actually owe, and the difference comes back only if you file an Indian income tax return.

How the TDS is worked out

For residents, fund houses do not deduct tax on capital gains. For non-residents, they must. So at the time of redemption, the fund house looks at each lot of units you are selling, works out the gain on it and deducts tax at the rate that applies to that kind of gain.

On top of these rates comes a 4% health and education cess, and a surcharge if your income is high. For equity fund gains, the surcharge is capped at 15%. Hybrid and international funds follow whichever category the fund falls into for tax purposes, so it is worth checking before you redeem.

Why you may end up paying more than you owe

The fund house only sees one transaction. It does not know your total Indian income, any losses you have booked elsewhere, or whether you have already used your yearly exemption. So it deducts on the safe side.

A rupee example: an equity fund

Say you invested ₹10 lakh in an equity fund four years ago and redeem it at ₹15 lakh. Your long-term gain is ₹5 lakh. If TDS is deducted at 12.5% on the full gain, that is ₹62,500, plus cess.

But the first ₹1.25 lakh of long-term equity gains each financial year is tax-free. Your actual tax is 12.5% of ₹3.75 lakh, which is about ₹46,900 plus cess. Fund houses do not always give you this exemption at the TDS stage, so roughly ₹15,600 (plus cess) may be sitting with the tax department, waiting for you to claim it.

A rupee example: a debt fund

Now say your only Indian income this year is a ₹2 lakh gain on a debt fund bought in 2024. TDS at 30% plus cess comes to about ₹62,400. Gains on these debt funds are taxed at your slab rate, and under the new tax regime the first ₹4 lakh of total income is not taxed. In this case, almost all of that TDS could come back to you once you file.

One honest caveat: some benefits residents get, such as setting equity gains against the basic exemption limit, are not available to NRIs. So not every refund is as large as you might hope.

What we’d usually suggest

• File a return every year you redeem. It is the only way to get excess TDS back. The refund goes to your bank account in India, and the tax department pays interest on it if you file on time.
• Check your Form 26AS or AIS. It shows the TDS deducted against your PAN. Make sure it matches what the fund house statement says.
• Plan the timing of larger redemptions. Spreading a big equity redemption across two financial years can let you use the ₹1.25 lakh exemption twice.
• Keep your details clean. Your PAN, residential status and overseas address should be updated with every fund house. A missing or inoperative PAN can mean TDS at a higher rate.
• For very large redemptions, consider a lower-deduction certificate. Under the new Income-tax Act, the application is Form 128 (earlier Form 13). It takes time and paperwork, so it makes sense mainly when the excess TDS would be large.

If you are wondering what your redemption is likely to be worth before tax, our calculators can help you plan, and our page for NRI families explains how we work with clients abroad.

When it’s different

• Tax treaties. India has tax treaties (DTAAs) with many countries. For most of them, India keeps the right to tax mutual fund gains, but a few treaties are read differently. Claiming any benefit needs a Tax Residency Certificate and a declaration (now Form 41, earlier Form 10F), and is best done with a tax professional.
• Your home country taxes you too. In countries such as the US, Canada or the UK, you will usually report the gain there as well and claim credit for Indian tax. Getting the Indian TDS right matters for that credit.
• Dividends (IDCW) are separate. Fund houses deduct TDS on dividend payouts to NRIs as well, at a different rate. This post is only about redemptions.
• If you have just moved back to India. Once you become a resident, fund houses stop deducting TDS on gains. Update your status promptly so the right rules apply.

CurateMyMoney is an AMFI-registered mutual fund distributor (ARN-184811). Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. Tax rules mentioned are as applicable at the time of writing and may change; please check the current rules or consult a tax professional before acting.