Article
Dec 28, 2025
Is double taxation reducing your net worth?
Diving Straight In
Double taxation hardly ever means the same rupee is taxed twice, but if you are an NRI in the US, Canada or Australia using the wrong Indian products, tax friction can quietly shave 2–5% off your yearly returns and leave you 20–40% poorer over the long term than someone with a better structure.
India is now a serious “first‑taxing” country for NRI mutual funds: equity schemes like SBI Bluechip Fund, ICICI Prudential Bluechip Fund and HDFC Flexi Cap Fund face 20% tax on short‑term gains (up to 12 months) and 12.5% on long‑term gains beyond the annual exemption, while many debt, hybrid and international funds are taxed at a flat 30% for NRIs, with tax cut at source. Your resident country then taxes your global income, but generally gives a foreign tax credit for what you paid in India, so the final burden usually settles near the higher of the two systems’ rates, not their sum, yet still high enough to hurt compounding.
Treat India’s tax as the first bite; your resident country quietly decides how much more gets eaten.
For a Canada‑based NRI, investing ₹10 lakh into an Indian equity fund earning 18% a year for 10 years ends with about ₹52.7 lakh (gain ≈ ₹42.7 lakh). India keeps roughly 12–13% of that gain (~₹5.2–5.5 lakh) under LTCG rules, while Canada effectively takes the overall tax towards ~20% after inclusion rate (50% of capital gains are taxable) and marginal slab adjustments, crediting Indian tax paid, dropping your 18% pre‑tax CAGR to around 14–15% post-tax, which compounds into a massive ₹20+ lakh gap in your final corpus over 20 years.
For US‑based NRIs, PFIC remains brutal: India‑domiciled funds like Nippon India Large Cap Fund, HDFC Nifty 50 Index Fund, Mirae Asset Large Cap Fund and thematic schemes face high ordinary rates + interest charges, pushing effective US tax towards 40–50% even after Indian TDS. That turns an 18% pre‑tax return into 9–11% post-tax, while US‑domiciled India/EM ETFs or direct stocks via PMS avoid PFIC and capture far more of that high performance.
By contrast, UAE‑based NRIs typically pay only Indian tax, 12.5% long‑term on equity MFs, 20% on short‑term equity and about 30% on many debt‑type gains, because the UAE does not currently tax individual capital gains, so post‑tax equity returns near 9% are very realistic for a 10%‑return fund. In this case, “double taxation” is almost irrelevant; the real risk is poor fund choice, high churn and excess TDS stuck as refunds instead of compounding.
DTAA mainly stops pure duplication; it does not guarantee efficient compounding. Two NRIs with the same SIP into “India” can end up in very different places, one locked into PFIC‑hit or high‑tax funds from New York or Toronto, another using tax‑aligned, domicile‑friendly structures, and the second can finish 20–40% richer without taking more risk, simply by letting returns, not tax, drive the compounding.