Mutual Funds earned by a Singapore resident is not taxable in India unlike shares: ITAT Mumbai
Anushaka Sanjay Shah (Ms) v. ITO (IT) (ITAT Mumbai) (IT(IT)A No.174/MUM/2025)
Facts:
1. The core dispute pertains to the taxability in India of short-term capital gains arising from mutual fund redemptions (both equity and debt), totaling Rs. 1,35,66,368.
2. The assessee, being a tax resident of Singapore, claimed exemption under Article 13(5) of the India-Singapore DTAA, which provides that gains from alienation of property (other than specified ones) shall be taxable only in the state of residence.
3. Both the AO and DRP rejected the claim, invoking the source rule under Indian tax law.
4. Note: Article 13(5) of the DTAA states that:
Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4A and 4B of this Article shall be taxable only in the Contracting State of which the alienator is a resident.
5. The core issue hinges on whether capital gains from mutual fund units fall within the purview of Article 13(4) (which allows taxation in the source country for gains from shares of Indian companies) or Article 13(5) (which provides exclusive residence-state taxation for all other types of capital assets).
ITAT Mumbai held as below:
1. The mutual fund units are distinct from shares of a company.
2. Since mutual fund units do not fall under the categories listed in Articles 13(1) to 13(4B) of the India–Singapore DTAA, the gains arising from their sale or redemption are governed by Article 13(5).
3. Accordingly, the addition made by the AO and sustained by the DRP is deleted, and the capital gains in question are held to be not taxable in India under Article 13(5) of the India-Singapore DTAA. The appeal of the assessee is allowed.
The Copy Of the order is as under:
