New Delhi, Dec. 3 -- Non-Resident Indians (NRIs) have long looked to India's mutual funds for wealth creation - but taxation on capital gains remained a grey area.

Recent rulings by the Income Tax Appellate Tribunal (ITAT) have now brought meaningful clarity: NRIs in countries with favourable Double Taxation Avoidance Agreements (DTAAs) may be taxed only in their country of residence, not in India. They can choose whichever is more beneficial - domestic tax rules or DTAA provisions.

Under the Income-tax Act, 1961, capital gains on mutual funds are taxed as follows: long-term gains on equity funds held over 12 months are taxed at 12.5% (above Rs.1.25 lakh), while short-term gains are taxed at 20%. Fund houses deduct tax at source (TDS) b...