All You Need to Know About Capital Gains Tax for NRIs

Table of Content

1. Types of Capital Gains for NRIs

2. Applicable STCG Tax Rates for NRIs

3. Applicable LTCG Tax Rates for NRIs

4. Capital Gains Taxation for NRIs on Immovable Property

5. NRI Capital Gains Tax on Shares and Equity Investments

6. Capital Gains Tax on Other Investments for NRIs

7. Tax Rates Applicable on Capital Gains for NRIs

8. TDS Rules on Capital Gains for NRIs

9. Exemptions Available on Capital Gains Tax for NRIs

10. How DTAA Helps NRIs Avoid Double Taxation?

11. Step-by-Step Process to Calculate Capital Gains for NRIs

12. Common Mistakes NRIs Should Avoid While Calculating Capital Gains Tax

13. Conclusion

14. FAQ's on Capital Gains Tax for NRIs

Capital gains are profits earned from the sale of assets like real estate, stocks, or mutual funds. The type of asset and the duration you held it determine whether the profit from selling assets is taxable as capital gains^#.

Factors such as the type of asset and its holding period may affect the taxation^#. For NRIs, there may be capital gains tax if they dispose of or transfer their assets within India. What applies in terms of taxation will depend on the asset and the type of gain.

There is also residential status since it determines the extent of income that is taxable^#. Residential status is determined as per the residential status rules that apply for the relevant year.

Case-Based Scenario

An NRI invests in a property in India worth ₹40 lakh and then proceeds to sell it for ₹80 lakh. The resultant gain of ₹40 lakh will be subject to Indian capital gains taxation^#.

In addition, if an NRI makes a profit from the sale of Indian stocks or units of mutual funds, the gain will be subject to capital gains tax under Indian law^#.

Thus, the status of the NRI with regard to residency influences the wider ambit of the tax liability in India. The nature of the asset and holding period determines the taxation^#.

Types of Capital Gains for NRIs

There are two types of capital gains, which are short-term capital gains (STCG) and long-term capital gains (LTCG). Let us understand how LTCG and STCG apply to NRIs along with their holding period in more detail:

1. Short-Term Capital Gains for NRIs

STCG is made on the sale of a capital asset when it has been held for a short-term period as per the provisions of tax laws. The holding period and the tax rate vary according to the asset type^#.

Holding Period Thresholds

Asset Type	Treated as Short-Term if held for
Listed equity shares / equity-oriented mutual funds / units of business trust (STT-paid)	12 months or less
Other listed securities, zero-coupon bonds	12 months or less
Unlisted shares, immovable property, other capital assets	24 months or less
Other movable capital assets (e.g., jewellery)	36 months or less
Debt-oriented mutual funds / Market Linked Debentures (acquired on/after 1-4-2023)	Always taxed as STCG at slab/applicable rates, irrespective of holding period#

 

For instance, if you purchase shares worth ₹1 lakh and then sell them at ₹1.5 lakh, then a ₹50,000 gain will be STCG as it has been sold during the applicable short-term period.

There might be some instances where there is a higher STCG tax rate^# for certain financial assets. Hence, it is important to understand the concept of short-term gains as per the asset type.

Applicable STCG Tax Rates for NRIs

The rate of tax^# on STCG for an NRI depends on the nature of the underlying asset, and is not uniform across asset classes:

Nature of Asset	STCG Rate
STT-paid listed equity shares / equity-oriented MF / business trust units	20% (flat, concessional)
Other capital assets (unlisted shares, immovable property, non-STT instruments, etc.)	Slab rates / rates in force applicable to non-residents
Securities held via FII/FPI route (if applicable)	20% (STT-paid) or 30% (others)


For NRIs, STCG tax rates differ depending on the type of financial asset. Listed equity and equity mutual funds on which STT is paid are taxed at 20%, while other assets may attract slab rates of up to 30%, plus surcharge and cess. Therefore, identifying the correct asset category is important to determine the applicable holding period and tax rate^#.

For NRIs, STCG is generally subject to TDS at the time of sale or redemption under Section 393(2) of the Income-tax Act, 2025 [Section 195 of the Income-tax Act, 1961] ^#. The tax deducted may be higher than the actual tax payable, particularly where lower slab rates or DTAA benefits apply. NRIs may apply for a lower or nil TDS certificate or claim a refund of excess TDS through their income-tax return^#.

2. Long-Term Capital Gains for NRIs

LTCG comes from the sale of a capital asset held for a period exceeding the long-term holding period. In the case of NRIs, the same holding period applies as for resident taxpayers:

Asset Type	Treated as Long-Term if held for more than
Listed equity shares / equity-oriented mutual funds / units of business trust (STT-paid)	12 months
Other listed securities, zero-coupon bonds	12 months
Unlisted shares, immovable property, other capital assets	24 months
Other movable capital assets	36 months


Note: Debt-oriented mutual funds/Market Linked Debentures acquired on or after 1-4-2023 are always treated as short-term, irrespective of holding period, and hence never qualify for LTCG.

However, the taxes depend on various factors like the nature of the asset and, importantly, on whether the asset qualifies as a "foreign exchange asset.". Some long-term capital gains may be eligible for concessional taxes under certain conditions^#.

Applicable LTCG Tax Rates for NRIs

Category	Rate	Exemption Available
STT-paid listed equity shares / equity-oriented MF / business trust units	12.5%	₹1.25 lakh per annum (per taxpayer)#
Other capital assets (unlisted shares, immovable property, non-STT instruments)	12.5% (without indexation)	None
"Foreign exchange assets" — shares/debentures/deposits in Indian companies or specified Government securities, acquired by an NRI in convertible foreign exchange	Flat 12.5%	₹1.25 lakh exemption not available; entire gain taxed at 12.5%#
Securities held through FII/FPI route	12.5%	₹1.25 lakh exemption if falling within listed equity category

 

For instance, an NRI acquires listed shares for ₹1.5 lakh (funded through NRE/NRO remittance, not necessarily convertible foreign exchange as a "foreign exchange asset") and sells them for ₹2 lakh after holding them for a period exceeding the long-term holding period, the resulting gain of ₹50,000 would qualify as LTCG. Since this gain is within the ₹1.25 lakh annual exemption threshold applicable to STT-paid listed equity shares (assuming no other LTCG from this category during the year), it would ordinarily not attract any tax, subject to no other listed-equity LTCG being earned by the NRI in the same tax year^#.

By contrast, where the shares were specifically acquired by the NRI in convertible foreign exchange and qualify as a "specified asset" under the special NRI regime, the entire gain of ₹50,000 would be taxed at a flat 12.5%^#, without the benefit of the ₹1.25 lakh exemption, since that exemption is available only under the general LTCG provision and not under the special foreign-exchange-asset regime.

NRIs may save tax on LTCG from foreign exchange assets by reinvesting the sale proceeds in specified assets within six months, subject to a three-year lock-in. TDS is generally deducted on LTCG, but excess tax can be claimed as a refund^#.

NRIs can also invest in ULIPs. These have separate tax rules, and their tax benefits depend on the policy's issue date and premium limits^#.

Many Non-Resident Investors consider a ULIP for NRIs to have effective capital growth with life cover.

Capital Gains Taxation for NRIs on Immovable Property

The NRI capital gains tax on property^# should be considered while selling immovable property like land or a building or both. It will be classified into LTCG and STCG according to the below holding periods:

1. Short-Term Capital Gains on Property

If NRIs sell immovable property after holding it for less than 24 months from the date of purchase, they have to pay STCG tax on it^#. The gains are taxable as per the applicable slab rates, which range between 5% and 30% under the applicable regime opted^#.

For NRIs, tax on property gains is charged at applicable slab rates, along with surcharge and 4% cess. When an NRI sells property, the buyer generally deducts TDS^# on the entire sale consideration. NRIs can apply for a lower or nil TDS certificate to avoid excess deduction. No reinvestment exemption is available for short-term capital gains (STCG) from property sales.

2. Long-Term Capital Gains on Property

If NRIs sell immovable property after holding it for more than 24 months from the date of purchase, they have to pay LTCG tax on it.

For an NRI, long-term capital gains arising from the transfer of immovable property on or after July 23, 2024 are generally taxable at 12.5% without indexation, subject to applicable surcharge and cess^#.

For land/building acquired before 23 July 2024, a transitional relief permits the taxpayer to pay tax at the lower of (i) 12.5% without indexation, or (ii) 20% with indexation. However, this indexation-based option is available only to Resident Individuals and HUFs, and is not available to NRIs. Accordingly, an NRI is taxed at a flat 12.5% without indexation on LTCG from property, regardless of when the property was originally acquired^#.

The buyer is generally required to deduct TDS from the sale consideration when an NRI sells property. Surcharge and 4% health & education cess may also apply. An NRI can apply for a lower/nil TDS certificate to avoid excess deduction and claim a refund for any excess TDS.

3. TDS on Sale of Property by NRIs

In cases where an NRI sells immovable property in India, the party purchasing such immovable property is bound to deduct TDS from the amount paid to the seller.

TDS deduction depends upon whether the property is considered a short-term or long-term capital asset. The buyer must deduct TDS at the appropriate rate along with any surcharges and cesses, if any.

TDS deduction does not indicate the total tax liability of the NRI seller. The NRI seller can claim the credit and refund in their income-tax return, if any excess tax has been deducted^#.

The TDS is to be withheld on the entire sale consideration by the buyer as below:

• For less than 24 months (STCG): 30% plus applicable surcharge and education cess

• For more than 24 months (LTCG): 12.5% plus applicable surcharge and education cess

Proper management of the sale of property will help one to make capital available for investing in other retirement & pension plans in future.

NRI Capital Gains Tax on Shares and Equity Investments

1. Tax on Short-Term Equity Gains

For NRIs, the gains from the sale of listed shares will be categorised as STCG since the shares are sold within 12 months after acquisition. The gain that accrues from the sale of shares will thus be subject to the STCG tax provisions^#. For transfers on or after 23 July 2024, STCG tax rate for NRIs on listed shares is 20% plus applicable surcharge and cess under Section 196 of the Income Tax Act, 2025 (corresponding to Section 111A of the Income Tax Act, 1961) ^#.

2. Tax on Long-Term Equity Gains

For NRIs, any income from the sale of equity shares that are listed on recognised stock exchanges will be considered as LTCG if the holding period is more than 12 months from the date of acquisition.

As per Section 198 of the Income Tax Act, 2025 (corresponding to Section 112A of the Income Tax Act, 1961), LTCG up to ₹1.25 lakh will be exempt from tax during the financial year^#. However, the amount exceeding ₹1.25 lakh shall be taxable at 12.5%, for the transfers made on or after 23 July 2024^#.

3. Taxation on Equity Mutual Funds

Profit from the sale of units in mutual funds that invest in equities will be the STCG if the holding period is within 12 months.

The profit on such units sold by NRIs is generally taxable at the STCG rate for NRIs, which is 20% plus surcharge and cess applicable under Section 196^#. However, the profit from such units that have been held for more than 12 months is LTCG.

Where the income from such sales falls under Section 198, LTCG beyond ₹1.25 lakh is generally taxable at 12.5%^#.

The analysis of equity returns along with the fixed income instruments is an essential step in examining various types of pension plans.

Capital Gains Tax on Other Investments for NRIs

Apart from shares and properties, NRIs should also know the capital gains taxation on other assets^#. The comparison of various investment types will also help individuals to analyse the types of pension plans and tax benefits. Here is the taxation for NRIs on other investments:

1. Debt Mutual Funds

Whether debt mutual funds are taxable or not depends on whether the rules of Specified Mutual Fund (SMF) cover the fund^#.

For an SMF which is subject to the special rules, gains on units purchased on or after 1 April 2023 are treated as short-term capital gains, regardless of the holding period, and are taxable at the individual’s applicable slab rates^#. Therefore, they are not subject to the 12.5% LTCG rate.

For debt mutual funds not covered by any special rules, or purchased before 1 April 2023, normal capital gains provisions may apply, where units are held for more than 24 months tax may be applicable at 12.5% LTCG without indexation if the gain is long-term^#.

2. Physical or Digital Gold

The rate of capital gains tax for NRIs for digital and physical gold is the same. For a holding period of less than 24 months, the STCG is taxable at the individual’s applicable income tax slab rates. While holding the gold for more than 24 months, the LTCG is taxable at 12.5% without indexation^#.

3. Unlisted Bonds and Debentures

According to the Income Tax Department, capital gains from unlisted bonds and debentures on redemption, transfer, or maturity on or after 23 July 2024 are taxable as STCG at the NRIs’ applicable tax rates without any concessional rate benefit under Section 76 of the Income Tax Act, 2025 (corresponding to Section 50AA of the Income Tax Act, 1961)^#.

Tax Rates Applicable on Capital Gains for NRIs

The capital gains tax for NRIs in India depends entirely on the type of asset and the holding period. The tax regime uses different holding periods to distinguish between short-term and long-term gains: 12 months for listed equity and 24 months for immovable property, unlisted shares and physical assets^#.

Equity gains are taxable at flat, ring-fenced rates, and short-term property gains are taxable at your individual slab rate, treated as ordinary business, profession or personal income^#.

Let us break down the LTCG and STCG tax for NRIs:

Applicability of Surcharge and Cess

The above table shows the baseline rates. However, you need to calculate the statutory additions to get your final tax liability:

• Health and Education Cess: A cess of 4% is levied on the tax plus surcharge amount calculated^#.

• Surcharge: It is a progressive tax which is levied on the total taxable income that you have earned in India. The maximum surcharge on all LTCG and listed equity STCG for NRIs is capped at 15%^#.

According to the Income Tax Department, other short-term gains taxable at slab rates can theoretically attract surcharges of up to 25% (under the New Regime) and 37% (under the Old tax regime) depending on the volume of income^#.

TDS Rules on Capital Gains for NRIs

If an NRI disposes of an asset which was received as a gift, the capital gain arising from such disposal may be taxable in India. Usually, it is tax-free to gift an asset from a specified relative, but there could be tax and TDS implications if the asset is sold in future^#.

NRIs may also be liable for TDS on certain property and investment transactions. The TDS applicable is usually the responsibility of the buyer or other deductor to deduct and deposit. If the TDS deducted exceeds the NRI’s actual tax liability, the excess amount can usually be claimed as a refund while filing the income-tax return^#.

This will also ensure that you follow withholding tax rules while funding your retirement account through your PRAN.

Exemptions Available on Capital Gains Tax for NRIs

Understanding the exemptions on capital gains tax for NRIs is crucial. Certain articles of the Income Tax Act allow you to claim the following exemptions^#:

• Exemption Under Section 82 of the Income Tax Act, 2025 (corresponding to Section 54 of the Income Tax Act, 1961)

Long-term capital gains tax for NRIs may be waived under Section 82 if you sell a residential property and use the proceeds to buy another property in India within a certain time frame, subject to the prescribed time limits and conditions^#.

• Exemption Under Section 85 of the Income Tax Act, 2025 (corresponding to Section 54EC of the Income Tax Act, 1961)

You can use Section 85 to claim exemption from capital gains tax on property for NRIs if you have invested up to ₹50 lakh in bonds within six months of selling a property^#. LTCG funds must be used to make the investment, which must be held for five years.

• Exemption Through Capital Gains Account Scheme

If the investment cannot be made within the prescribed time limit for any reason, the amount can be parked temporarily in a specially created account under the CGAS scheme, if the same is used for making investments within the prescribed period.

How DTAA Helps NRIs Avoid Double Taxation?

A Double Taxation Avoidance Agreement (DTAA) is a tax treaty between India and another country to avoid the same income being taxable twice, once in India and once again in the NRI’s country of residence. Depending on the treaty, an NRI can claim a tax credit for tax paid in India or, in some cases, get an exemption^#.

For example, an NRI who earns rental income from a property in India can look up the relevant provisions of the DTAA to determine where the income is taxable and whether the tax paid in India can be claimed as a credit abroad^#.

It will also help NRIs to manage global investments along with investing in cross-border solutions like the life insurance plans for NRIs.

Step-by-Step Process to Calculate Capital Gains for NRIs

To calculate the capital gains for NRIs, you need to follow the steps below:

1. Determine the Sale Value of the Asset

Sale consideration is the amount received or receivable from the sale of a capital asset. The full value of consideration is generally arrived at based on the actual sale price for the calculation of capital gains, although tax rules may prescribe a different value instead of the actual sale price in certain circumstances^#.

You can deduct transaction expenses, such as broking and certain transfer expenses, in determining the taxable capital gain, provided you meet any applicable conditions^#.

2. Calculate the Cost of Acquisition

The Cost of Acquisition (CoA) for an NRI normally comprises the original purchase price of the property or asset, plus any incidental expenses incurred in acquiring the same.

Certain other capital improvement costs incurred at a later date may also be included, subject to applicable tax rules^#. This expense helps to calculate the capital gain on the sale of the asset.

3. Deduct Exemptions and Calculate Taxable Gain

Taxable capital gains are usually calculated by subtracting eligible transfer costs and the cost of acquisition or improvement from the sale consideration. The eligible capital gain exemption amount is then deducted from the capital gain to calculate the final taxable capital gain, as per the rules and regulations^#.

Common Mistakes NRIs Should Avoid While Calculating Capital Gains Tax

While calculating capital gains tax^#, NRIs should avoid the common mistakes that are listed below:

1. Incorrect Holding Period

An incorrect holding period arises if an NRI makes an error in determining the exact time period for which he has held the assets and ends up classifying it as STCG or LTCG. As a consequence, he or she pays taxes at the incorrect rate^#.

To avoid it, NRIs must account for exact dates, check the threshold of assets, and consult tax professionals^#.

2. Overlooking TDS Implications

In case of sale of an asset by an NRI, such as property in India, the buyer is supposed to deduct TDS from the entire sale amount at very high non-resident rates as per Section 393 of the Income Tax Act, 2025^#.

NRIs base their calculation of tax on their net profits alone, and are taken aback when large portions of their gross income get withheld before anything else and create huge cash flow problems^#.

NRIs need to apply for an LDC and calculate precise capital gains early to avoid this mistake.

3. Missed Exemption Claim

However, NRIs may not be able to avail of capital gains tax exemptions in India since the purchasers will take TDS on the total transaction amount and not the net gain, or else due to their inability to fulfil the required criteria of re-investment^#.

In case you are unable to buy or construct a new property before filing your Income Tax Return (ITR), ensure that you deposit the remaining capital gains into a prescribed bank under the CGAS^#.

4. Misunderstanding DTAA

It is important to know that having a DTAA does not mean no taxation. DTAA ensures that you do not pay taxes twice on the same earnings by allocating jurisdictions to tax^#.

Conclusion

Understanding capital gains tax for NRIs is crucial since it dictates how much cash they can take home from selling Indian assets. The classification of gains, applicable tax rates, deductions, and exemptions can significantly affect the final tax liability and the amount available for reinvestment or retirement^#.

The capital gains of NRIs are taxable as per the LTCG and STCG rates, depending on their holding period. There are also tax exemptions on capital gains under Section 82, 85, and through CGAS. The DTAA also plays an effective role in avoiding double taxation for NRIs^#.

Careful tax planning, accurate calculation, timely filing, and compliance with Indian tax rules can help NRIs manage their tax liability effectively and avoid unnecessary complications^#. Understanding these classifications is very important while organising your total retirement planning.

FAQ's on Capital Gains Tax for NRIs

1. Is capital gains tax applicable to NRIs on inherited property?

Tax on capital gains does not apply when the NRI acquires or inherits the property, but rather applies when he sells the inherited property^#.

2. Can NRIs claim indexation benefits on long-term property gains?

No, NRIs cannot claim indexation benefits on LTCG from property gains in India.

3. Are NRIs required to file income tax returns after property sale?

Yes, NRIs do require an ITR filing in India in case of selling any property, when their overall taxable income, including capital gains, is more than the basic exemption limit, or they want to claim any refund in case of excess TDS^#.

4. How can NRIs reduce TDS on property transactions?

NRIs can avoid advance deductions from property transactions in India through issuance of a Lower Deduction Certificate (LDC) under Section 395(1) of the Income Tax Act, 2025 (corresponding to Section 197 of the Income Tax Act, 1961) through the TRACES portal by filing Form 128 (corresponding to Form 13 under Old Act) ^#.

5. Is capital gains tax different for commercial and residential property?

Yes, the capital gains tax for commercial and residential property is different. The holding period makes the difference.

6. Can NRIs reinvest capital gains outside India for tax exemption?

No, NRIs cannot reinvest their capital gains outside India to seek tax exemptions in India^#.

7. Do NRIs need PAN cards for capital gains taxation in India?

Yes, NRIs need a PAN card for capital gains taxation in India^#.

8. Is TDS refundable if the actual tax liability is lower?

Yes, if the total tax deducted is more than your tax liability, then TDS will be refunded to you in full^#.

9. How are gifted assets taxable for NRIs during sale?

If an NRI sells an asset received as a gift, capital gains tax will be applicable. However, a gift from a close relative is not taxable at the time of transfer. It attracts capital gains tax in India when you sell it later^#.