Are debt mutual fund returns tax free for NRIs?
No, investing in debt mutual funds as a NRI will make you liable for short term capital gains tax as per your tax slab if investment in made for less than 3 years and 20% tax with indexation or 10% without indexation for unlisted funds for investment over 3 year period.
You will have to pay tax on capital gains made through sale of debt Mutual Funds even if you are a NRI. Short term capital gains on debt Mutual Funds are taxed as per your tax slab and on long term capital gains, you will have to pay tax at the rate of 20% with indexation. There is no option of paying tax at 10% without the indexation benefit.