A Dubai-based member of our WhatsApp community recently asked a question that stopped us in our tracks.
"I invested ₹30 lakh in a debt mutual fund showing 9% returns. After three years, I calculated what I actually received. It was closer to 5.5%. Where did the rest go?"
The answer was simple but painful: taxes.
The 9% was a pre-tax, headline return. The kind you see on fund fact sheets, bank advertisements, and comparison websites.
What he actually kept, the post-tax return, told a very different story.
At Belong, we've helped thousands of NRIs navigate this exact confusion. The gap between what investments promise and what investors keep is one of the most misunderstood aspects of NRI finance.
And it's costing people lakhs every year.
This guide will show you why post-tax returns should be your primary filter when comparing any investment in India.
Not the headline number. Not the advertised rate. The money you actually keep.
What Are Headline Returns vs Post-Tax Returns?
Let's start with definitions so we're speaking the same language.
Headline returns (also called pre-tax or gross returns) are what investments advertise. When a fund says "12% CAGR" or a bank offers "7.5% FD rate," that's the headline number.
It assumes no taxes, no TDS deductions, and no currency conversion costs.
Post-tax returns (also called net returns or after-tax returns) are what you actually keep after taxes are paid in India and, potentially, in your country of residence.
For resident Indians, the difference might be 1-2 percentage points.
For NRIs, especially those in countries that tax global income, the gap can be 3-6 percentage points or more.
Investment Type | Headline Return | Post-Tax Return (NRI) |
|---|---|---|
NRO Fixed Deposit | 7.5% | 5.25% (after 30% TDS) |
Debt Mutual Fund | 9% | 5.5-6% (after slab-rate taxation) |
Equity Fund (held 2 years) | 15% | 13.5% (after 12.5% LTCG above ₹1.25L) |
GIFT City USD FD | 5% | 5% (tax-free under Section 10(4D)) |
The numbers don't lie. A "lower" headline return can deliver a higher post-tax return depending on the tax treatment.
👉 Tip: Before comparing any two investments, convert both to post-tax returns. The investment with the higher headline rate isn't always the better choice.
Reason 1: NRI Tax Rates Are Higher Than You Think
Most NRIs assume Indian tax rules work the same for them as for residents. They don't.
TDS rates are different:
When you redeem mutual funds or earn interest on FDs, the payer deducts Tax Deducted at Source before crediting your account.
For NRIs, these rates are often higher than for residents and apply regardless of your actual income level.
Income Type | TDS Rate for NRIs |
|---|---|
NRO FD interest | 30% (without DTAA) |
Equity fund STCG | 20% |
Equity fund LTCG (above ₹1.25 lakh) | 12.5% |
Debt fund gains | 30% (slab rate) |
Dividends | 20% |
(Source: Income Tax Department)
No automatic slab adjustments:
Resident Indians in lower tax brackets pay lower effective rates. NRIs face flat TDS rates that don't adjust based on total income.
If your only Indian income is ₹3 lakh in FD interest, you'd owe minimal tax under normal slabs. But as an NRI, you've already had 30% deducted at source.
You can claim refunds by filing ITR, but many NRIs don't file, so they never recover this overdeduction.
Surcharges add up:
For higher incomes, surcharges of 10-37% can apply on top of base rates, plus 4% health and education cess.
A 20% headline rate can become 27-28% effective rate for high earners.
The practical impact? That 7.5% FD rate becomes 5.2% or less after taxes. That "market-beating" debt fund delivering 9% might net you 5-6%.
👉 Tip: Always ask: "What will my actual TDS be?" before committing to any Indian investment. Most banks and platforms can tell you the exact post-TDS return for your situation.
Learn more about NRI tax rules and how to file your ITR to claim refunds.
Reason 2: Debt Investments Get Taxed at Slab Rates
This is where NRIs lose the most money without realizing it.
Until July 2024, debt mutual funds held for more than 3 years qualified for long-term capital gains treatment with indexation benefits.
The effective tax rate could be as low as 10-15%.
The 2024 change:
Post July 23, 2024, debt mutual funds, regardless of holding period, are taxed at your income tax slab rate. For most NRIs, this means 30% plus surcharge and cess.
Debt Fund Return | Pre-July 2024 Post-Tax | Post-July 2024 Post-Tax |
|---|---|---|
8% over 3 years | ~6.5% (with indexation) | 5.6% (30% slab) |
10% over 3 years | ~8% (with indexation) | 7% (30% slab) |
The headline return stayed the same. The post-tax return dropped significantly.
Why this matters for NRI portfolios:
Many NRIs hold conservative portfolios heavy in debt funds, thinking they're "safe" and "tax-efficient."
After the 2024 changes, debt funds are neither as safe nor as tax-efficient as they were.
Compare this to GIFT City mutual funds where capital gains for NRIs can be entirely exempt from Indian tax under Section 10(4D). A GIFT City fund delivering 8% tax-free beats a domestic debt fund delivering 10% at 30% tax.
8% > 7%
The math is counterintuitive until you calculate post-tax returns.
👉 Tip: If you're holding debt funds for stability, compare them to GIFT City FDs which offer fixed USD returns with zero Indian tax. The headline rate may be lower, but the post-tax return is often higher.
Reason 3: Your Home Country May Tax You Again
India isn't the only country taxing your investment returns.
If you live in the UK, US, Canada, Australia, or other countries that tax global income, you face potential double taxation.
The UK example:
UK tax residents must report worldwide income, including Indian investment gains.
Even if India exempts your income under Section 10(4D) for GIFT City investments, the UK may still tax it under Capital Gains Tax rules.
UK CGT rates: 10% (basic rate) or 20% (higher rate) on most gains, with a £3,000 annual exemption (2024-25).
The US example:
US persons must report and pay tax on worldwide income. Indian mutual funds may be classified as PFICs (Passive Foreign Investment Companies), triggering punitive tax treatment that can exceed 50% effective rates on gains.
The UAE advantage:
UAE has no personal income tax and no capital gains tax. If your Indian gains are exempt under Indian law, you pay zero tax combined.
This is why GIFT City investments are particularly attractive for UAE-based NRIs.
Combined tax rate for UAE NRI in GIFT City fund: 0% India + 0% UAE = 0% total.
DTAA can help, but doesn't eliminate:
India has Double Taxation Avoidance Agreements with many countries. These treaties prevent you from paying full tax in both jurisdictions, but they don't eliminate tax entirely.
Typically, you pay in one country and claim credit in the other.
To claim DTAA benefits, you need a Tax Residency Certificate from your home country and must submit Form 10F to Indian tax authorities.
👉 Tip: Calculate your combined tax rate across both India and your country of residence. A product that's "tax-free in India" may not be tax-free for you overall.
Explore DTAA benefits for UAE NRIs or UK NRI DTAA rules.
Reason 4: TDS Recovery Requires Active Effort
Here's a scenario we see constantly in our community.
An NRI invests ₹20 lakh in an equity fund. After two years, the fund grows to ₹26 lakh, a ₹6 lakh gain.
TDS is deducted at 12.5% on the gain above ₹1.25 lakh exemption, roughly ₹59,000.
But the NRI has no other Indian income. Their total Indian income is below the basic exemption limit. They theoretically owe zero tax.
Did they get their ₹59,000 back? No. Because they didn't file an ITR.
The TDS problem for NRIs:
TDS is deducted at flat rates regardless of your actual tax liability. The system is designed for advance collection, not accurate assessment.
The only way to reconcile what was deducted versus what you actually owe is by filing an Income Tax Return.
Many NRIs don't file because:
They assume no Indian income means no filing requirement. They're intimidated by Indian tax compliance. They don't realize refunds are waiting.
The cost of not filing:
Over a decade of investing, unclaimed TDS refunds can easily total ₹2-5 lakh or more. That's money that's rightfully yours, sitting with the government because you didn't ask for it back.
What you need to do:
File ITR-2 annually if you have capital gains or rental income in India. Attach Form 26AS (TDS certificate) showing what was deducted.
Claim refunds where your actual liability is lower than TDS deducted.
The process is online, takes 30-60 minutes, and can be done from anywhere in the world through the Income Tax Department portal.
👉 Tip: Even if you think you owe no tax, file ITR to claim refunds and carry forward losses. Not filing means surrendering money that belongs to you.
Learn more about NRI ITR filing and common tax filing mistakes.
Reason 5: Tax-Efficient Products Exist But Aren't Advertised
Banks and distributors don't highlight tax-efficient products because commissions are often lower on them.
Here's what they won't tell you.
NRE Fixed Deposits:
Interest on NRE accounts is completely tax-free in India. A 7% NRE FD yields 7% post-tax, while a 7.5% NRO FD yields only 5.25% after 30% TDS.
7% > 5.25%
The lower headline rate delivers more money in your pocket.
GIFT City Investments:
Under Section 10(4D), capital gains from specified GIFT City funds are exempt from Indian tax for NRIs (Source: Income Tax Act). This includes mutual funds, AIFs, and certain fixed deposits.
Compare: Regular debt fund: 9% headline → 6.3% post-tax GIFT City fund: 8% headline → 8% post-tax
The "underperforming" GIFT City fund actually wins.
Equity funds held long-term:
Equity mutual funds held over 12 months qualify for long-term capital gains treatment at 12.5% (above ₹1.25 lakh exemption).
This is significantly better than the 30% slab rate on debt funds.
If you're comparing a debt fund at 9% and an equity fund averaging 12%, the post-tax comparison shifts even further:
Debt: 9% → 6.3% Equity: 12% → 10.5% (approx)
The equity fund's tax efficiency amplifies its headline advantage.
Direct mutual funds vs Regular:
This isn't a tax difference, but a cost difference that affects returns similarly. Direct plans have lower expense ratios than regular plans (no distributor commission).
Over time, this 0.5-1.5% annual difference compounds significantly.
👉 Tip: When comparing investments, ask: "What's the most tax-efficient way to achieve this exposure?" Often, the answer isn't the most advertised product.
Explore tax-efficient options through our mutual fund tools and GIFT City AIF explorer.
How to Calculate Post-Tax Returns: A Simple Framework
Here's the calculation we use when helping NRIs compare investments.
Step 1: Start with the headline return
Let's say Fund A shows 10% CAGR over 3 years.
Step 2: Identify the applicable tax rate
For debt funds post-July 2024: 30% (plus surcharge/cess if applicable)
For equity funds held >12 months: 12.5% above ₹1.25 lakh exemption
For NRE FD interest: 0% For GIFT City funds under Section 10(4D): 0%
Step 3: Calculate the tax impact
If you invested ₹10 lakh and it grew to ₹13 lakh (30% gain over 3 years):
Debt fund tax: ₹3 lakh × 30% = ₹90,000
Post-tax value: ₹13 lakh - ₹90,000 = ₹12.1 lakh Post-tax return: 21% over 3 years, or roughly 6.5% CAGR
Compare to a GIFT City fund growing from ₹10 lakh to ₹12.4 lakh (24% over 3 years):
Tax: ₹0 (exempt under Section 10(4D)) Post-tax value: ₹12.4 lakh
Post-tax return: 24% over 3 years, or roughly 7.4% CAGR
The "lower performing" GIFT City fund wins on post-tax returns.
Step 4: Add home country tax if applicable
UK NRIs would calculate CGT on the GIFT City gains. US NRIs would check PFIC implications. UAE NRIs are done, no additional tax.
Step 5: Compare apples to apples
Now you have comparable numbers. Both are post-tax returns accounting for all relevant taxes. This is how investment decisions should be made.
👉 Tip: Create a simple spreadsheet to compare investments on a post-tax basis. It takes 10 minutes and can save you lakhs in misinformed decisions.
Common Mistakes NRIs Make With Tax Calculations
Mistake 1: Ignoring TDS altogether
"I'll just file ITR and get it back." Many NRIs never get around to filing. Even those who do face a 6-18 month wait for refunds. The time value of that locked-up money matters.
Mistake 2: Assuming Indian tax is the only tax
UK, US, Canadian, and Australian NRIs face home country taxation on Indian gains. The combined rate matters, not just the Indian rate.
Mistake 3: Comparing different asset classes on headline returns
A 12% equity fund is not necessarily better than a 7% NRE FD. One has capital risk and potential losses. The other is guaranteed. Compare risk-adjusted, post-tax returns for meaningful analysis.
Mistake 4: Not considering holding period
Equity held under 12 months faces 20% STCG. Over 12 months, it's 12.5% LTCG above the exemption. Timing your redemptions can save significant tax.
Mistake 5: Overlooking exempt categories
NRE FD interest, GIFT City gains, and certain government bonds have partial or full exemptions. Not knowing these options means leaving money on the table.
Investment Comparison: Headline vs Post-Tax
Let's put this framework into practice with a real comparison.
Scenario: UAE-based NRI with ₹50 lakh to invest for 5 years.
Option | Headline Return | Indian Tax | Home Country Tax | Post-Tax Return |
|---|---|---|---|---|
NRO FD at 7.5% | 7.5% | 30% TDS | 0% (UAE) | 5.25% |
NRE FD at 7% | 7% | 0% | 0% (UAE) | 7% |
Debt Mutual Fund at 9% | 9% | 30% (slab) | 0% (UAE) | 6.3% |
Equity Fund at 12% | 12% | ~12.5% (LTCG) | 0% (UAE) | ~10.5% |
GIFT City FD at 5% (USD) | 5% | 0% (10(4D)) | 0% (UAE) | 5% |
GIFT City Mutual Fund at 10% | 10% | 0% (10(4D)) | 0% (UAE) | 10% |
Analysis:
The NRE FD beats NRO FD despite lower headline rate. The GIFT City mutual fund delivers same post-tax as equity with potentially lower volatility.
The GIFT City FD preserves USD exposure and eliminates currency risk entirely.
Without post-tax analysis, you'd pick the highest headline numbers and end up with less money.
Use our NRI FD rate comparison to see current rates across products and calculate your actual returns.
The GIFT City Tax Advantage Explained
We've mentioned GIFT City several times. Here's why it matters for post-tax returns.
Section 10(4D) of the Income Tax Act:
This section exempts income arising to non-residents from transfer of units of specified funds launched under IFSCA regulations (Source: Income Tax Act).
In plain English: If you're an NRI investing in IFSCA-registered mutual funds or AIFs, your capital gains are exempt from Indian tax.
What qualifies:
Mutual funds registered with IFSCA (not SEBI) Alternative Investment Funds in GIFT IFSC Certain fixed deposits with GIFT City banks
What doesn't qualify:
PMS (Portfolio Management Services) in GIFT City, where gains are taxed individually Direct stock trading on NSE IFSC (taxed at 9%, still lower than mainland) Products registered with SEBI instead of IFSCA
The practical benefit:
For UAE-based NRIs, GIFT City investments can be completely tax-free, making the headline return equal to the post-tax return. For UK and US NRIs, the India exemption still helps, though home country tax may apply.
Explore GIFT City options and compare with traditional investments using our GIFT City mutual fund tool.
👉 Tip: GIFT City isn't right for everyone. If you're returning to India soon, planning to become a resident, or need liquidity within 1-2 years, evaluate carefully. Read our guide on situations where GIFT City may not be right.
Learn about RNOR status and tax implications when returning to India.
Your Action Plan
This week:
Calculate post-tax returns on your current investments. Identify any NRO FDs that could be moved to NRE. Check if you've claimed TDS refunds by filing ITR.
This month:
Compare your portfolio's actual post-tax performance to benchmarks. Research GIFT City alternatives for your debt allocation. Download the Belong app to explore tax-efficient options.
This quarter:
Restructure your portfolio based on post-tax analysis, not headline returns. Set up annual ITR filing if you haven't been doing it.
Join our WhatsApp community to learn from other NRIs optimizing their tax efficiency.
The difference between investing based on headline returns versus post-tax returns can be hundreds of thousands of rupees over a decade. The calculation takes 30 minutes. The impact lasts a lifetime.
Track market movements with our GIFT Nifty tool and make informed decisions based on what you actually keep, not what investments advertise.
Disclaimer: This article is for educational purposes only and does not constitute tax or investment advice. Tax laws change frequently and vary based on individual circumstances. Always consult a qualified chartered accountant or tax advisor for personalized guidance. Verify current tax rates with the Income Tax Department before making investment decisions.
