How Capital Gains Tax Works for NRIs
When you sell an asset in India — whether shares, mutual funds, or property — any profit is treated as a capital gain and taxed in India. As an NRI, the tax rates are largely the same as for residents, but there are two critical differences: TDS is deducted at source before you receive money, and no indexation benefit is available on property sold after July 2024 (unless you opt for the old regime at 20% with indexation).
The holding period determines whether gains are "short-term" (STCG) or "long-term" (LTCG). Each asset class has its own holding period threshold and tax rate.
Tax Rates at a Glance (FY 2025-26)
| Asset | Holding for LTCG | LTCG Rate | STCG Rate |
|---|---|---|---|
| Listed equity shares | > 12 months | 12.5% | 20% |
| Equity mutual funds | > 12 months | 12.5% | 20% |
| Debt mutual funds | Taxed at slab | Slab rate | Slab rate |
| Immovable property | > 24 months | 12.5% (no indexation) | Slab rate |
| Unlisted shares | > 24 months | 12.5% | Slab rate |
| Gold / REITs | > 24 months | 12.5% | Slab rate |
TDS Deducted Before You Get Your Money
Unlike residents who pay advance tax themselves, NRIs face mandatory TDS (Tax Deducted at Source) on capital gains. This is deducted by the buyer, broker, or mutual fund house before transferring proceeds to you.
| Transaction | TDS Rate | Who Deducts |
|---|---|---|
| Sale of property (LTCG) | 12.5% + surcharge + cess | Buyer (Section 195) |
| Sale of property (STCG) | Slab rate (approx 30%+) | Buyer (Section 195) |
| Equity/MF redemption | 12.5% LTCG / 20% STCG | Broker / AMC |
| Unlisted shares | 12.5% LTCG | Buyer/Company |
Effective TDS on property for NRIs is typically 20–23% including surcharge and health & education cess. This is often much higher than the actual tax liability — you can claim a refund when filing ITR.
Lower TDS Certificate: Get More Money Upfront
If you know your actual tax liability will be lower than the TDS rate, apply for a Lower TDS Certificate (Form 13) from the Income Tax Department before the transaction. This allows the buyer or fund house to deduct TDS at the actual tax rate instead of the maximum applicable rate.
- Apply online via the TRACES portal (traces.gov.in)
- Typically takes 2–4 weeks to process
- Certificate must be presented to the buyer before registration/transfer
- Especially valuable for large property sales where TDS runs into lakhs
Capital Gains from Stocks & Mutual Funds
Equity Shares (Listed)
NRIs investing through the Portfolio Investment Scheme (PIS) route can sell shares on Indian stock exchanges. Gains exceeding ₹1.25L in a financial year are taxed at 12.5% LTCG (no grandfathering exemption after Budget 2024). STCG is 20% flat. TDS is deducted by your broker. File ITR-2 to claim refunds on excess TDS.
Equity Mutual Funds
Same LTCG/STCG rates as equity shares (12.5% / 20%). The fund house (AMC) deducts TDS at redemption. NRIs from the US and Canada face additional restrictions — most major AMCs do not accept investments from US/Canada-based NRIs due to FATCA/FBAR compliance complexity.
Debt Mutual Funds (after April 2023)
Debt MFs purchased after 1 April 2023 are taxed at slab rates regardless of holding period — effectively the same as interest income. This change eliminated the indexation advantage debt funds previously offered. NRIs in higher tax brackets should compare this against NRE FD rates (which are fully tax-free).
Capital Gains from Property
Property gains for NRIs work similarly to residents, with two key differences in practice:
- Buyer's TDS obligation: When an NRI sells property, the buyer must deduct TDS under Section 195 (not Section 194-IA which applies to resident sellers). The TDS rate is higher and applies to the full sale consideration, not just the gain.
- PAN mandatory: NRI sellers must have a PAN. Without it, TDS is deducted at 20% or maximum marginal rate — whichever is higher.
Reinvestment Exemptions (Section 54 / 54EC)
NRIs can claim the same reinvestment exemptions available to residents:
- Section 54: Reinvest LTCG from one residential property into another (buy within 2 years or construct within 3 years)
- Section 54EC: Invest LTCG in specified bonds (REC, NHAI) within 6 months — up to ₹50L, lock-in 5 years
- Section 54F: Reinvest full sale proceeds (not just gains) from a non-property asset into a residential house
DTAA Relief on Capital Gains
India's DTAA treaties with most countries have a specific capital gains article. In most cases, India retains the right to tax gains from Indian assets (unlike salary or interest which can be taxed in your country of residence). However, the treaty may cap the tax rate or provide credit for tax paid in India against your foreign tax liability.
Check the specific DTAA between India and your country of residence for capital gains provisions — they vary significantly. For example, the India-UAE DTAA offers no relief on capital gains (UAE has no income tax), but the India-USA treaty allows a foreign tax credit for Indian capital gains tax against US taxes.
Filing ITR and Claiming Refunds
File ITR-2 if you have capital gains from India (no business income). Even if TDS has been deducted, you must file ITR to claim refunds for excess TDS, claim exemptions under Section 54/54EC, or report foreign assets. The due date is 31 July (or 31 October with audit). Late filing attracts a penalty of ₹5,000 and interest on unpaid tax.