If you are a non-resident Indian (NRI) who has sold property, shares, or mutual fund units in India, you owe tax on the gain — and the rate, the TDS obligation on your buyer, and the availability of treaty relief all depend on exactly what you sold and how long you held it. This is not a single rule but a set of layered rules, and getting any one of them wrong can result in excess TDS deducted at source, refund claims that take years, or — worse — a notice for underpayment. This post maps out the NRIs capital gains tax framework clearly so you know where you stand before you act.
Quick answer
NRI capital gains tax depends on the asset type and holding period. For listed equity, the rate is 12.5% for long-term gains (above ₹1.25 lakh) and 20% for short-term, both effective from July 23, 2024. For property, it is 12.5% without indexation for long-term gains. Your buyer is legally required to deduct TDS at source, and you may be able to reduce that rate through a lower-deduction certificate or a DTAA claim.
Before acting, check:
- Whether your asset qualifies as equity-oriented, property, or debt — the rates differ sharply.
- Whether India has a Double Tax Avoidance Agreement (DTAA) with your country of residence, and whether capital gains are covered.
- Whether you qualify for reinvestment exemptions under Section 54, 54F, or 54EC of the Income Tax Act 1961 before paying tax on long-term property gains.
Understanding NRIs Capital Gains Tax: The Basics
For income tax purposes, an NRI is an individual whose residential status under the Income Tax Act 1961 is “non-resident” for a given financial year — broadly, someone who has spent fewer than 182 days in India during the year (or fewer than 60 days, in certain cases). NRIs are taxable in India on income that accrues or arises in India, which includes capital gains on Indian assets.
Capital gains are classified as either short-term or long-term, depending on the holding period of the asset. The applicable rate then depends on both the classification and the type of asset. The Finance Act 2024 (effective July 23, 2024) revised several rates, so the figures below reflect the post-July 2024 position.
One important note for NRIs: the choice between the old tax regime and the new tax regime — which matters for salaried individuals — does not meaningfully alter capital gains rates. Special capital gains rates under Sections 111A, 112, and 115AD of the Income Tax Act 1961 apply irrespective of which regime the NRI opts for. Also note: the Section 87A tax rebate (which eliminates tax up to ₹12,500 or ₹25,000 depending on the regime) is not available to NRIs.
Under the Income Tax Act 2025, which applies from AY 2026-27 onward, the capital gains framework has been substantially preserved. Section references under the 2025 Act should be confirmed against the current bare Act, as provisions have been renumbered.
Equity Shares and Equity Mutual Funds
For listed equity shares and equity-oriented mutual funds held in India, the rate an NRI pays is the same as a resident, but the operative section is different. NRIs are taxed on these gains under Section 115AD of the Income Tax Act 1961, not Section 112A (which applies to residents). The rate and threshold are aligned, so the tax you pay is the same, but the section you cite in your return differs.
Long-term capital gains (LTCG): If held for more than 12 months, gains exceeding ₹1.25 lakh per financial year are taxed at 12.5%, without indexation. The ₹1.25 lakh annual exemption applies in aggregate to listed equity and equity mutual fund gains.
Short-term capital gains (STCG): If held for 12 months or fewer, gains are taxed at 20% (under Section 111A), provided Securities Transaction Tax (STT) has been paid — which is the case for exchange-traded equity and equity mutual funds.
A point NRIs must not miss: unlike residents, an NRI cannot use any unused portion of the basic exemption limit to offset these special-rate gains. The full gain (above the ₹1.25 lakh LTCG threshold) is taxable. Also, TDS does apply to NRI equity gains — typically deducted on redemption or sale — at 12.5% for long-term and 20% for short-term gains, before you receive the proceeds. You must still report these gains in your Indian income tax return (ITR-2 or ITR-3) and reconcile against the TDS already deducted.
Meet Arjun, an NRI living in Dubai. During the financial year, he sells listed Indian shares he had held for more than two years (so these are long-term gains) and makes a profit of ₹3 lakh. He has no other income in India that year.
The basic exemption point. A resident Indian gets a basic exemption limit (say ₹2.5 lakh under the old regime) — income up to that level is untaxed. A resident with only a small amount of other income can sometimes use the unused part of that limit to shelter some of their special-rate capital gains. Arjun, as an NRI, cannot do this. Even though he has no other Indian income to “use up” the exemption, he gets no benefit from it against his ₹3 lakh gain.
What he actually pays. His long-term equity gain gets the ₹1.25 lakh annual exemption that everyone gets on listed equity. So:
- Gain: ₹3,00,000
- Less the ₹1.25 lakh exemption: ₹1,75,000 is taxable
- Tax at 12.5%: about ₹21,875 (plus cess)
A resident in Arjun’s exact position — no other income — might have paid less, because they could have absorbed part of the gain into their unused basic exemption. Arjun cannot, so he pays on the full ₹1.75 lakh.
Immovable Property: Houses, Plots and Commercial Units
Long-term capital gains (LTCG): If the property has been held for more than 24 months, the gain is taxed at 12.5% without indexation (following the Finance Act 2024). For properties purchased before July 23, 2024, the taxpayer may opt for the more beneficial of 20% with indexation or 12.5% without indexation.
Short-term capital gains (STCG): If held for 24 months or fewer, the gain is added to other income and taxed at slab rates applicable to the NRI.
TDS obligation on the buyer: This is where many transactions go wrong. Under Section 195 of the Income Tax Act 1961, any person (including another NRI or a resident Indian) who purchases property from an NRI must deduct TDS at source before making payment. The applicable TDS rates are 12.5% for LTCG and 30% for STCG (plus applicable surcharge and 4% health and education cess). This obligation sits with the buyer, not the seller, and failure to deduct creates liability for the buyer.
The NRI seller can apply in advance for a lower or nil TDS deduction certificate under Section 197 of the Income Tax Act 1961, by filing an application to the Assessing Officer. Where the actual tax liability is lower than the TDS rate (for example, because a reinvestment exemption reduces it to zero), this certificate prevents over-deduction and avoids a refund claim.
Reinvestment exemptions — dual-Act treatment: The Income Tax Act 1961 provides three key exemptions for NRIs selling long-term property:
Under Section 54, if an NRI sells a residential house property (LTCA) and reinvests the long-term capital gains in purchasing or constructing another residential property in India within the specified time limits, the gains are exempt. The reinvestment limits are capped at ₹10 crore.
Under Section 54F, if an NRI sells any long-term capital asset other than a residential house and reinvests the net sale consideration in a residential property in India, a proportional exemption is available. This is particularly useful for NRIs selling commercial property, plots, or unlisted shares.
Under Section 54EC, an NRI can invest up to ₹50 lakh of long-term capital gains from property in specified bonds issued by NHAI or REC within six months of the sale. The invested amount is exempt from capital gains tax, and the bonds carry a five-year lock-in.
Under the Income Tax Act 2025, these reinvestment exemptions have been carried forward. The specific section numbers under the 2025 Act should be verified against the current bare Act before filing, as renumbering has occurred in the new legislation.
Debt Mutual Funds
Debt fund taxation has changed more than once, so the rule depends on when you bought the units. Units of specified mutual funds (broadly, funds investing predominantly in debt) acquired on or after April 1, 2023 are treated as short-term regardless of holding period and taxed at your applicable slab rate — there is no long-term benefit and no indexation. This follows the Finance Act 2023 amendment, and the definition of a “specified mutual fund” was further refined by the Finance (No. 2) Act 2024 with effect from FY 2025-26, so the exact classification of a given fund should be confirmed.
For units purchased before April 1, 2023, the pre-amendment treatment continues for those units. Because debt-fund taxation is both fund-specific and date-specific, do not assume a single blanket rate — check the acquisition date and the fund’s classification before computing the gain. TDS for NRIs on debt fund redemptions is deducted under Section 195.
DTAA: When Your Treaty Country Changes the Picture
India has Double Tax Avoidance Agreements (DTAAs) with over 90 countries. For NRIs, the DTAA between India and their country of residence can significantly alter the capital gains position:
For immovable property, most DTAAs preserve India’s right to tax gains — so the Indian domestic rate applies regardless of treaty.
For shares and securities, the treatment varies. Some treaties (for example, India-UAE for individuals) allocate the taxing right exclusively to the country of residence, potentially making Indian-sourced equity gains exempt in India. Others allow both countries to tax, with a credit mechanism to prevent double taxation.
To claim DTAA relief, the NRI must hold a valid Tax Residency Certificate (TRC) issued by the tax authority of their country of residence, and submit Form 10F (a self-declaration) along with the ITR filing. Without these, the domestic Indian rate applies.
Under Section 195 of the Income Tax Act 1961 and its counterpart in the Income Tax Act 2025 (section reference to be confirmed against the current Act), the payer deducting TDS must apply the lower of the domestic rate or the DTAA rate. The NRI seller should provide the TRC and Form 10F to the buyer before the TDS deduction is made.
How to Handle NRI Capital Gains Step by Step
- Identify the asset and holding period. Categorise the asset as equity, property, debt, or other. Confirm whether it is long-term or short-term based on the applicable threshold.
- Check treaty availability. If you are resident in a country with which India has a DTAA, review whether capital gains on your asset type are covered, and at what rate.
- Apply for lower TDS (if selling property). If the effective tax is lower than the TDS deduction rate, apply for a certificate under Section 197 before the sale closes.
- Check reinvestment exemptions. Before paying tax on property LTCG, verify whether Sections 54, 54F, or 54EC can reduce or eliminate the liability.
- File ITR in India. File ITR-2 (or ITR-3 if applicable) disclosing the capital gains. Claim TDS credit, reinvestment exemptions, and DTAA relief in the return. Pay advance tax if the gain is large enough to attract advance tax obligations.
When You Should Not Rely on DTAA Alone
The DTAA rate is not automatic. Many NRIs assume that because their country has a favourable treaty with India, TDS will be deducted at the lower treaty rate. It is not. The buyer or payer will apply the domestic rate unless the NRI provides a valid TRC and Form 10F before the payment is made. By the time a higher-rate TDS has already been deducted, the NRI is left filing for a refund — a process that can take one to three years.
The treaty may not cover your asset. India’s DTAAs vary in how they treat capital gains. Some exclude capital gains from coverage entirely, meaning domestic Indian rates apply regardless of the treaty. Others carve out immovable property. Verify that your specific asset type is covered before assuming treaty protection.
Filing is still required even if tax is nil. If your total Indian income (after exemptions and DTAA relief) falls below the basic exemption limit, you may have no tax to pay. But if TDS has been deducted at source — which it will have been, in most property sales — you must still file an ITR to claim the refund. Not filing forfeits your right to the refund after the relevant deadline.
Reinvestment exemptions have conditions. Section 54 and 54F require the new property purchase or construction to be completed within specified time limits. Section 54EC bonds must be purchased within six months of the sale. Missing any of these deadlines disqualifies the exemption, and the gain becomes fully taxable.
Documents to Keep Ready
- ✅ Tax Residency Certificate (TRC) from your country of residence for the relevant year
- ✅ Form 10F (self-declaration for DTAA claim) — signed and filed with the ITR
- ✅ Sale deed and purchase deed for property (with registered dates, for holding period)
- ✅ Cost of acquisition and improvement records, with supporting receipts
- ✅ TDS certificate (Form 16A or Form 26AS) showing deductions made by the buyer
- ✅ Section 197 lower TDS certificate, if obtained in advance
- ✅ Proof of reinvestment (Section 54/54F/54EC) — new property documents or bond allotment letter
- ✅ DEMAT statements for equity gains, showing purchase and sale dates and prices
Final Takeaway
NRI capital gains tax is not one rule — it is a matrix of asset type, holding period, treaty country, and reinvestment choices. The rate on equity changed in July 2024. The indexation benefit on property was restructured. TDS falls on your buyer before you receive a rupee. And DTAA relief requires documentation you must arrange in advance, not after the transaction closes. The time to plan is before the sale, not after TDS has been deducted.
NRI capital gains questions or need help with the ITR filing, TDS certificate application, or DTAA claim? eTaxMate can review your situation, identify which rates and exemptions apply, and handle the compliance correctly.
This blog post is for general information only and does not constitute professional advice. Tax laws are subject to change and their application depends on individual facts and circumstances. Readers should consult a qualified professional before taking any action based on this content. eTaxMate accepts no liability for any action taken based on the information in this post.
Frequently Asked Questions
1. What is the capital gains tax rate for NRIs selling property in India?
For property held more than 24 months, long-term capital gains are taxed at 12.5% without indexation (effective July 23, 2024). For properties purchased before that date, you can opt for the more beneficial of 12.5% without indexation or 20% with indexation. Short-term gains (held 24 months or fewer) are taxed at slab rates. The buyer must deduct TDS at source before payment — at 12.5% for long-term and 30% for short-term gains.
2. Do NRIs pay capital gains tax on Indian shares?
Yes. Long-term capital gains on listed equity shares or equity mutual funds (held over 12 months) are taxed at 12.5% on gains above ₹1.25 lakh per year under Section 112A of the Income Tax Act 1961. Short-term gains are taxed at 20% under Section 111A. These rates apply from July 23, 2024 following the Finance Act 2024.
3. Can NRIs claim Section 54 or Section 54EC exemption on capital gains?
Yes. NRIs can claim Section 54 (reinvest gains in another residential property), Section 54F (invest net consideration in a residential property for gains from non-house assets), and Section 54EC (invest up to ₹50 lakh in NHAI or REC bonds within six months) to reduce or eliminate long-term capital gains tax on Indian property. The reinvestment must be completed within the prescribed time limits — missing a deadline forfeits the exemption.
4. How does DTAA reduce NRI capital gains tax in India?
If India has a Double Tax Avoidance Agreement with your country of residence, and that DTAA covers capital gains on your asset type, you may be able to pay tax at a lower treaty rate or claim credit in your resident country. To apply the DTAA rate, you must provide your buyer with a valid Tax Residency Certificate (TRC) and Form 10F before TDS is deducted. Without these, the domestic Indian rate applies regardless of the treaty.
5. Do NRIs need to file an ITR for capital gains in India?
Yes, if your India income after exemptions exceeds the basic exemption limit, or if TDS has been deducted and you want to claim a refund. NRIs file ITR-2 (or ITR-3 if applicable). Note that NRIs are not eligible for the Section 87A rebate, and — unlike residents — an NRI cannot adjust the basic exemption limit against special-rate capital gains under Section 111A or 115AD. Filing is also needed to carry forward capital losses.
6. What is the biggest mistake NRIs make with Indian capital gains tax?
Assuming DTAA protection is automatic. Many NRIs believe that because their country has a favourable tax treaty with India, TDS will be deducted at the treaty rate. It will not — unless the NRI provides a valid Tax Residency Certificate and Form 10F to the buyer before payment is made. Once TDS is deducted at the domestic rate, recovering the excess means filing an ITR and waiting for a refund, which can take one to three years.