- 5 min
How NRIs in the UAE Can Legally Save Tax on Indian Mutual Funds Under DTAA
Written by
Kashish Manjani
- Blog
- Financial Planning
Date
24 Sep 2025
Kashishmanjani
@Kashishaikeyam
YouTube
Kashishaikeyam
Imagine paying 0% tax on your Indian mutual fund gains while living in the UAE. This isn’t a dream—it’s a reality that thousands of NRIs in the UAE are already leveraging through the India-UAE Double Taxation Avoidance Agreement (DTAA). With the UAE’s zero-tax system combined with the strategic benefits of the India-UAE DTAA, you could potentially eliminate tax on your mutual fund investments.
What is the DTAA Between India and the UAE?
The Double Taxation Avoidance Agreement (DTAA) is a comprehensive tax treaty signed between India and the UAE to prevent the same income from being taxed in both countries. For NRIs living in the UAE, this agreement is particularly beneficial because it allows them to avoid paying tax twice on the same income.
What is DTAA in income tax?
Simply put, DTAA is a bilateral agreement that determines which country has the right to tax specific types of income. The India-UAE DTAA ensures that NRIs don’t face the burden of paying taxes on their investments in both countries, making it a powerful tool for wealth optimization.
The DTAA between India and the UAE came into effect to facilitate cross-border investments and trade while providing clarity on taxation matters for residents of both countries.
Importance of DTAA Between India and UAE for Both Countries
The DTAA between India and Dubai (UAE) serves multiple strategic purposes that benefit all stakeholders:
For UAE
- Encourages Indian businesses and individuals to invest in the UAE
- Promotes the UAE as a global financial hub
- Attracts more NRI capital and expertise
For India
- Attracts significant NRI investment flows
- Facilitates remittances and foreign exchange inflows
- Strengthens economic ties with a key Gulf partner
For NRIs
- Direct benefit through reduced or 0% tax on investment gains
- Eliminates the double taxation burden
- Provides a legal framework for tax optimization
The DTAA between the UAE and India has become one of the most favorable tax treaties for NRIs, particularly those investing in Indian financial markets
Taxes Covered Under DTAA
The comprehensive India-UAE DTAA covers various types of income to ensure complete protection against double taxation:
- Salary and Employment Income: For working professionals
- Dividend Income: From shares and mutual funds
- Interest Income: From deposits and bonds
- Capital Gains: The most relevant for mutual fund investors
- Business Income: For entrepreneurs and business owners
- Rental Income: From property investments
For mutual fund investors, the most critical aspect is capital gains taxation, which forms the cornerstone of tax-free investing under the DTAA income tax provisions.
DTAA Rates Between India and UAE: Your Gateway to 0% Tax
The India-UAE DTAA rates are exceptionally favorable for UAE residents, particularly under specific articles:
Article 13 of the DTAA between India and the UAE deals with capital gains taxation and states that capital gains are generally taxable only in the country where the seller is a tax resident.
Article 13(5) of the India-UAE DTAA specifically covers gains from securities (including mutual fund units) and provides that such gains shall be taxable only in the country of tax residence of the seller.
Since UAE has 0% personal income tax, this means:
- Indian mutual fund capital gains = 0% tax for UAE tax residents
- No tax liability in India under DTAA protection
- Complete exemption from capital gains tax
These DTAA rates make India-UAE DTAA capital gains mutual fund investments incredibly attractive for NRIs in The UAE.
Capital Gains Taxation Under DTAA Between India and the UAE
Understanding the taxation difference is crucial for making informed investment decisions:
For Resident Indians
- Short Term Capital Gains (STCG): 20% on equity mutual funds
- Long Term Capital Gains (LTCG): 12.5% above ₹1.25 lakh exemption
For NRIs in UAE (Without DTAA): (Without DTAA)
- Same rates as resident Indians
- Additional compliance burden
For NRIs in UAE (With DTAA Benefits): (With DTAA Benefits)
- 0% tax on both STCG and LTCG from mutual funds
- Complete exemption under mutual fund NRI taxation rules
- No tax liability in India when properly claimed
This means no tax on mutual funds for NRI residents of the UAE who follow the correct procedures, making the question “is mutual fund taxable for NRI” effectively answered as “no” for UAE residents under DTAA.
Limiting Factors in the India– UAE DTAA
While the benefits are substantial, there are important compliance requirements:
Tax Residency Certificate (TRC)
- Mandatory document from the UAE tax authorities
- Prove your tax residency status in the UAE
- Must be obtained annually
Form 10F Filing
- Required to be filed with the Indian tax authorities
- Declares your eligibility for DTAA benefits
- Must be submitted before claiming benefits
GAAR (General Anti-Avoidance Rules)
- Prevents misuse of DTAA benefits
- Ensures genuine tax residency in the UAE
- Requires substantial presence and ties to the UAE
These safeguards under the India-UAE tax treaty capital gains provisions ensure that only legitimate UAE tax residents can benefit from the NRI mutual fund tax exemptions.
How Does DTAA Between India and the UAE Eliminate Double Taxation?
The elimination process is straightforward yet powerful:
Without DTAA
- Pay capital gains tax in India (up to 20%)
- Potentially face tax liability in the UAE (though the UAE has 0% rate)
- No mechanism to offset taxes paid in one country against those in the other
With DTAA
- Gain exemption from Indian capital gains tax
- Pay 0% tax in the UAE (due to the UAE taxation policy)
- Result: Complete tax elimination
This is why many ask, “Does Dubai have income tax for foreigners?” The answer is no, and combined with DTAA benefits, creates a powerful tax-free investment environment.
Practical Guide: How NRIs Can Claim 0% Tax
Follow this step-by-step process to legally achieve tax-free mutual fund investing:
Step 1: Invest in Indian Mutual Funds
- Use your NRE/NRO account
- Choose from equity, debt, or hybrid funds
- Ensure SEBI-registered fund houses
Step 2: Obtain Tax Residency Certificate (TRC)
- Apply to the UAE Federal Tax Authority
- Provide proof of UAE residency
- Renew annually
Step 3: File Form 10F
- Submit to the Indian Income Tax Department
- Declare DTAA benefit claim
- Include TRC as a supporting document
Step 4: Claim DTAA Benefit
- Reference Article 13(5) in your tax filing
- Provide all supporting documentation
- Maintain detailed investment records
Step 5: Ensure FEMA Compliance
- Follow Reserve Bank of India guidelines
- Maintain proper documentation
- Report foreign investments as required
Investment Opportunities for NRIs in the UAE
Beyond mutual funds, NRIs in the UAE can explore various investment opportunities:
Indian Investment Options
- Equity and debt mutual funds
- Fixed deposits through NRE/NRO accounts
- National Pension Scheme (NPS)
- Real estate investments
- Government bonds
Dubai Investment Landscape
- Dubai Financial Market (DFM)
- Real estate investments
- UAE mutual funds and ETFs
- Commodity trading
The tax advantage makes Indian mutual funds particularly attractive compared to Dubai investments for long-term wealth creation.
Common Mistakes NRIs Should Avoid
Avoid these critical errors that could jeopardize your tax benefits:
Not Obtaining TRC
- Automatic disqualification from DTAA benefits
- Full Indian tax liability applies
- No recourse after tax is deducted
Assuming DTAA Auto-Applies
- Benefits must be actively claimed
- Proper documentation is mandatory
- Tax is deducted at source without proper filing
Ignoring FEMA : Complianc
- Can lead to penalties
- May affect future investment eligibility
- Regulatory violations have serious consequences
Inadequate Record Keeping
- Difficult to claim benefits retrospectively
- Compliance issues during audits
- Loss of tax optimization opportunities
Don’t make these costly mistakes. Consult with a SEBI Registered Investment Advisor before making your investment decisions to ensure full compliance and maximum tax benefits.
Conclusion: Unlock Tax-Free Wealth Creation
The India-UAE DTAA presents an unprecedented opportunity for NRIs in UAE to build wealth through Indian mutual fund investments while paying zero tax on gains. By understanding and properly utilizing Article 13(5) of the DTAA, obtaining the necessary documentation, and maintaining compliance, you can legally eliminate tax on your mutual fund investments.
The combination of the UAE’s zero-tax environment and India’s growth potential creates a perfect storm for wealth creation. However, success depends on proper planning, documentation, and compliance with both countries’ regulations.
Key Takeaways
- 0% tax on mutual fund gains is legally achievable under DTAA
- Proper documentation (TRC and Form 10F) is mandatory
- Compliance with both Indian and UAE regulations is essential
- Professional guidance ensures maximum benefits with minimum risk
Ready to start your tax-free investment journey? The opportunity to build substantial wealth while paying zero tax on gains is real and available right now. Take the first step by calculating your potential returns and consulting with qualified professionals who understand the intricacies of DTAA benefits.
Remember, in the world of investing, legal tax optimization isn’t just smart—it’s essential for maximizing your wealth creation potential. The India-UAE DTAA provides the legal framework; now it’s time for you to leverage it for your financial freedom.
Written by
Kashish Manjani
Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values. Kashish blends strategic thinking with timeless financial principles — helping clients grow, protect, and align their wealth with their values.
FAQs
Frequently Asked questions
Is GST applicable in Dubai?
Dubai has a Value Added Tax (VAT) system, not GST. The Dubai GST rate (technically VAT rate) is 5% on most goods and services, introduced in 2018 as part of the UAE’s revenue diversification strategy.
How are mutual fund gains taxed for NRIs in the UAE?
Under the India-UAE DTAA, mutual fund capital gains for UAE tax residents are taxed at 0% in both countries. UAE doesn’t tax capital gains, and India exempts them under Article 13(5) of the DTAA, provided proper compliance is maintained.
What is Article 13 of DTAA between India and the UAE?
Article 13 addresses capital gains taxation, stipulating that capital gains from securities (including mutual funds) are taxable only in the country of the taxpayer’s tax residence. For UAE residents, this means 0% tax on Indian mutual fund gains.
Is mutual fund investment profitable for NRIs in the UAE?
Yes, extremely profitable due to the combination of potential high returns from Indian markets and 0% tax liability under DTAA. This creates a unique opportunity for tax-free wealth creation.