Capital Gains Tax for NRIs in India: Rules, Rates & Exemptions

If you live abroad but own a house, shares, mutual funds or other investments in India, you have probably wondered whether selling them creates an Indian tax liability. The answer is yes in many cases, but NRI capital gains tax is not based on one universal rate. In this guide, you will learn how STCG and LTCG work, which rates apply, how gains are calculated, what changed from 23 July 2024, how Section 195 TDS works and which exemptions may be available.

Key Takeaways

• Capital gains earned by NRIs from taxable Indian capital assets can be subject to Indian income tax when those assets are transferred.

• STCG and LTCG treatment depends on the asset and its holding period, so the same holding period does not apply to every investment.

• For transfers on or after 23 July 2024, LTCG is generally taxed at 12.5% without indexation, subject to asset-specific provisions and exemptions.

• Section 112A LTCG on specified listed equity shares, equity-oriented mutual funds and business trusts is generally taxed at 12.5% on gains exceeding ₹1.25 lakh, subject to applicable conditions.

• An NRI selling immovable property in India can trigger TDS under Section 195, and the withholding should not automatically be treated as the final tax liability.

• Indexation generally does not apply to an NRI for transfers on or after 23 July 2024, although specific transitional rules can affect certain resident taxpayers and assets.

• DTAA, exemptions and reinvestment provisions can affect the final tax outcome, so NRIs should assess these before completing a major sale.

What Are Capital Gains for NRIs?

Capital gains are profits arising from the transfer of a capital asset, such as Indian property, shares, securities or eligible investment units. For an NRI, capital gains from taxable Indian assets can be subject to income tax in India.

First, a capital gain generally arises when you transfer an asset for more than its relevant tax cost. For example, if an NRI purchased an Indian property for ₹40 lakh and later sells it for ₹80 lakh, the ₹40 lakh difference is the starting point for determining the capital gain, subject to applicable acquisition costs, transfer expenses, exemptions and other rules.

Moreover, not every asset is taxed in exactly the same way. The asset category, acquisition date, transfer date, holding period and applicable tax provision can all change the calculation.

Common Indian capital assets held by NRIs include:

• Residential and commercial property

• Land and buildings

• Listed equity shares

• Unlisted shares

• Equity-oriented mutual funds

• Debt-oriented mutual funds and other securities

• Bonds and debentures

• Certain units and investment assets

Why Capital Gains Tax Matters for NRIs

Capital gains tax matters because an NRI can have an Indian tax liability even when the NRI is living and earning abroad. The location of the taxpayer does not by itself eliminate Indian tax on taxable gains arising from Indian assets.

For example, an NRI living in the United States may sell an apartment located in Mumbai and realise a substantial gain. The sale can create an Indian capital-gains tax and TDS obligation even though the seller's primary residence is outside India.

At the same time, TDS and final capital-gains tax are different concepts. TDS is tax withheld during the transaction, while final tax liability is determined after applying the correct capital-gains computation, applicable tax rate, exemptions, losses, surcharge and cess.

This distinction is especially important for property sales. A large amount deducted as TDS does not automatically mean that the same amount is the NRI's final tax liability.

How Are STCG and LTCG Different for NRIs?

Short-term capital gains (STCG) are gains from assets that are treated as short-term under the applicable holding-period rules, while long-term capital gains (LTCG) arise when the asset qualifies as long-term. The holding period is determined by the type of asset and the law applicable to the transfer.

For example, the Income Tax Department states that listed equity shares and specified securities can generally become long-term after a 12-month holding period, while immovable property has a 24-month long-term threshold. Unlisted shares also generally use a 24-month threshold.

What Holding Period Makes an Asset Long-Term?

The holding period required for LTCG depends on the asset rather than the taxpayer's NRI status.

For example, if an NRI purchases a qualifying listed equity share and sells it after 15 months, the gain can generally fall under the long-term regime, subject to the specific conditions applicable to that security.

Why STCG and LTCG Produce Different Tax Results

STCG and LTCG can have significantly different tax rates. For specified STT-paid equity transactions, Section 111A provides a special rate, while qualifying LTCG under Section 112A has its own rate and exemption threshold.

Importantly, the tax rate cannot be selected simply because an asset was held for a particular number of months. The asset must first be classified correctly under the applicable provisions.

What Are the Current NRI Capital Gains Tax Rates in India?

NRI capital-gains tax rates depend on the asset, transaction date and applicable section. For transfers made on or after 23 July 2024, the general LTCG rate is 12.5% without indexation, subject to asset-specific rules.

For major asset categories, the broad framework is:

The Income Tax Department's current return validation framework reflects 20% for Section 111A STCG and 12.5% for specified LTCG categories, including Section 112A and certain non-resident securities provisions.

How Section 112A Works for NRIs

Section 112A applies to qualifying long-term gains from specified listed equity shares, equity-oriented mutual funds and business trusts where the required conditions are satisfied. For qualifying Section 112A gains, the 12.5% rate applies to the portion exceeding the ₹1.25 lakh threshold.

For example, suppose an NRI has ₹3 lakh of qualifying Section 112A LTCG for the year. Ignoring other adjustments, the amount above ₹1.25 lakh is ₹1.75 lakh. At 12.5%, the basic tax on that portion would be ₹21,875 before applicable cess and other considerations.

Why the Transfer Date Matters

The date of transfer is important because the capital-gains regime changed from 23 July 2024. Current ITR validation rules distinguish the applicable treatment for transactions affected by the post-23 July 2024 regime.

For example, an NRI selling an asset in June 2024 may need a different calculation from an NRI selling an otherwise similar asset in August 2024. The acquisition date can also matter for specific transitional provisions.

Important: Do not apply a flat 12.5% rate to every NRI capital gain. Certain assets, STCG provisions, Section 112A conditions, DTAA provisions and transaction-specific rules can produce a different outcome.

How Are Capital Gains Calculated for an NRI?

Capital gain is generally calculated by comparing the transfer value with the relevant cost and allowable transfer-related expenses. A simplified calculation is: Capital Gain = Sale Consideration − Cost of Acquisition − Eligible Transfer Expenses, subject to the applicable capital-gains rules.

For example, assume an NRI sells an Indian property for ₹90 lakh. The acquisition cost was ₹55 lakh, and eligible transfer expenses were ₹2 lakh. A simplified calculation would be:

₹90 lakh − ₹55 lakh − ₹2 lakh = ₹33 lakh capital gain

The actual taxable gain can differ if exemptions, special provisions, previous ownership, improvement costs, deemed consideration rules or other statutory adjustments apply.

Property Sale Example

Suppose an NRI purchased an Indian residential property for ₹50 lakh and sells it for ₹1 crore after holding it for more than 24 months.

First, the property would generally qualify as a long-term capital asset because immovable property uses a 24-month threshold.

Second, for a post-23 July 2024 transfer, an NRI generally cannot simply apply old-style indexation to arrive at the taxable gain. Current CBDT ITR validation rules specifically state that indexation should not be allowed for non-residents in the relevant post-23 July 2024 calculation.

Therefore, if the relevant acquisition cost and eligible expenses total ₹52 lakh, the simplified LTCG before exemptions would be ₹48 lakh. The applicable tax would then depend on the relevant provision, rate, surcharge, cess and any eligible exemption.

Equity Example

Suppose an NRI purchased qualifying listed equity shares for ₹4 lakh and sells them for ₹7 lakh after 18 months.

The gain is ₹3 lakh. If the transaction satisfies Section 112A conditions, it can be treated as qualifying LTCG, with the ₹1.25 lakh threshold considered before applying the 12.5% rate.

Thus, a simplified taxable amount for the Section 112A rate calculation would be ₹1.75 lakh, before considering other applicable provisions.

Does Indexation Apply to NRI Capital Gains After 23 July 2024?

Indexation generally does not apply to an NRI for relevant post-23 July 2024 transfers. Current CBDT ITR validation rules expressly state that indexation should not be allowed in the relevant non-resident capital-gains calculation.

Previously, indexation could increase the tax cost of certain long-term assets by adjusting historical acquisition cost for inflation. For example, a property bought many years ago could have a higher indexed cost than its original purchase price.

However, the post-23 July 2024 regime changed the treatment of LTCG, including the general rate moving to 12.5% and the removal of indexation for relevant transactions.

That being said, NRIs should not assume that every historical property transaction receives identical treatment. The acquisition date, transfer date, taxpayer status and specific statutory provision must be checked.

What TDS Applies When an NRI Sells Property in India?

TDS applies differently when the seller is a non-resident. When an NRI sells immovable property in India, the buyer generally has a Section 195 withholding obligation rather than the resident-seller property TDS mechanism under Section 194-IA.

The Income Tax Department confirms that payments to non-residents that are chargeable to Indian income tax fall within the Section 195 framework.

For example, an Indian buyer purchasing property from an NRI generally needs to consider Section 195 TDS rather than treating the seller like a resident property seller.

The applicable withholding should be determined based on the nature of the capital gain and relevant tax provisions. The TDS deducted from an NRI property sale is not automatically the final tax liability.

If excessive TDS is deducted compared with the NRI's final liability, the difference may potentially be claimed as a refund through the income-tax return, subject to the applicable rules.

The Income Tax Department also states that where the seller or deductee is a non-resident, the applicable TDS statement is Form 27Q rather than the resident-property forms.

Can NRIs Claim Capital-Gains Exemptions?

NRIs can claim eligible capital-gains exemptions when the relevant statutory conditions are satisfied. Capital-gains exemptions generally depend on the asset sold, the nature of reinvestment, the amount reinvested and the prescribed time limits.

For example, eligible long-term gains from the sale of a residential property may potentially qualify for relief where the taxpayer satisfies the conditions of the relevant reinvestment provision. Other provisions can apply to specified bonds or other assets.

However, an exemption should never be assumed merely because the seller reinvests the sale proceeds. The type of asset sold and the exact exemption section determine whether the reinvestment qualifies.

Before selling a high-value asset, an NRI should therefore check:

• Whether the gain is short-term or long-term.

• Which exemption section applies.

• Whether the replacement asset qualifies.

• The required investment period.

• The maximum eligible exemption.

• Whether the conditions must be maintained for a specified period.

Does DTAA Reduce Capital-Gains Tax for an NRI?

DTAA can affect an NRI's capital-gains tax position when India has a tax treaty with the country where the NRI is tax resident. The treaty may allocate taxing rights differently from domestic Indian law, but the result depends on the specific DTAA and the type of capital asset.

For example, an NRI who is tax resident in the United States cannot assume that the India-US DTAA automatically eliminates Indian tax on every Indian asset sale. The relevant treaty article and domestic provisions must be examined together.

Moreover, the taxpayer may need treaty documentation and must satisfy the conditions for claiming treaty benefits. Current Indian ITR documentation includes fields for non-residents claiming LTCG treatment under a DTAA, including the treaty country, treaty article and applicable rate.

For a broader explanation, see the guide on DTAA benefits for NRIs.

What Should an NRI Do After Selling an Indian Capital Asset?

An NRI should calculate the final taxable gain, reconcile TDS and report the transaction correctly in the Indian income-tax return. The correct process starts with identifying the asset and ends with reporting the net taxable result after applicable provisions.

A practical checklist is:

1. Identify the asset and transaction date. Determine whether the asset is property, equity, mutual funds, securities or another capital asset.

2. Determine the holding period. Apply the holding-period rule relevant to that asset.

3. Calculate the capital gain. Account for the sale consideration, eligible costs and applicable statutory adjustments.

4. Determine the applicable rate. Check whether Section 111A, Section 112A, Section 112 or another provision applies.

5. Reconcile TDS. Compare the amount deducted under Section 195 or another applicable provision with your estimated final liability.

6. Check exemptions and DTAA relief. Review eligible reinvestment provisions and treaty treatment before filing.

7. Report the gain in the appropriate ITR. NRIs generally need to use an ITR applicable to their income profile rather than resident-only simplified forms.

For detailed filing guidance, see NRI income tax filing and how to file ITR for NRIs.

Tools and Practical Application

An NRI capital-gains calculator can simplify the first stage of estimating a transaction's tax impact. A useful calculator should account for asset type, purchase date, sale date, purchase cost, sale value and applicable tax treatment rather than applying one generic rate.

For example, before selling a property, you can enter the acquisition cost and expected sale price to estimate the gain. You should then separately assess TDS, exemptions, surcharge, cess and DTAA treatment because a calculator estimate may not capture every transaction-specific provision.

Free resources from the Income Tax Department can also help with return forms and reporting requirements. Current ITR-2 resources are available through the department's e-filing portal, while the department's current guidance reflects the post-23 July 2024 capital-gains framework.

What's Next: How Should an NRI Plan a Capital-Asset Sale?

An NRI should calculate the expected tax before completing the sale rather than waiting until the ITR filing deadline. Pre-sale tax planning can help identify TDS exposure, available exemptions and the expected final liability before the transaction becomes irreversible.

First, collect the purchase agreement, sale agreement, payment records, improvement bills and transaction-related expenses. For shares and mutual funds, retain contract notes, broker statements and acquisition records.

Second, determine whether the transfer occurs before or after the relevant statutory change date and apply the correct asset-specific rules. The 23 July 2024 change is particularly important because the LTCG rate and indexation treatment changed.

Third, estimate TDS separately from final tax. This is especially important for NRI property transactions because Section 195 withholding can create a substantial cash-flow difference even when the final tax liability is lower.

Finally, if the transaction involves a large property, complex securities, inherited assets, multiple jurisdictions or DTAA claims, obtain professional tax advice before completing the transaction.

For assistance with NRI tax matters, you can explore NRI tax services. If the sale proceeds will subsequently be transferred abroad, review the separate requirements covered in the NRI repatriation guide.

Conclusion

Capital gains tax for NRIs depends on the asset, holding period, transfer date, applicable tax section and available exemptions, rather than on a single universal NRI rate. For transfers on or after 23 July 2024, the general LTCG framework uses a 12.5% rate without indexation, while specific provisions such as Section 111A and Section 112A can produce different treatment.

Most importantly, TDS is not the same as final tax liability. An NRI selling Indian property should separately calculate the capital gain, determine the correct tax rate, account for Section 195 withholding, evaluate exemptions and DTAA relief, and report the transaction correctly in the Indian ITR.

By checking these factors before selling, you can estimate the real tax cost of an Indian asset transaction and avoid relying on an incorrect flat-rate calculation.