Tax Implications on Capital Gains Earned by NRIs

NRIs must pay tax in India on capital gains earned from selling taxable Indian investments. The applicable rate depends on the type of asset, holding period, and prescribed transaction conditions.

• Gains from eligible listed equity held for up to 12 months are generally taxed at 20%.
• Gains from eligible listed equity held for more than 12 months are generally taxed at 12.5% after the annual exemption of ₹1.25 lakh.
• Gains from unlisted shares held for more than 24 months are generally treated as long-term capital gains.
• A 4% health and education cess applies to the tax amount.
• The surcharge on specified capital gains is generally capped at 15%.

• Tax may be deducted before payment when the applicable TDS rules for non-residents apply.

  
  

The revised equity tax rates apply to eligible transfers made on or after 23 July 2024.

NRI capital gains tax on shares is the tax payable on profits earned by non-resident Indians from selling shares in India. It may also apply to units of business trusts and equity-oriented mutual funds.

The tax treatment depends on how long the investment was held before the sale. Capital gains are generally divided into two categories:

• Short-term capital gains: Gains from eligible listed shares, business trust units, and equity-oriented mutual fund units held for up to 12 months are generally taxed at 20%. Applicable surcharge and a 4% health and education cess may also apply.
• Long-term capital gains: Gains from eligible listed shares, business trust units, and equity-oriented mutual fund units held for more than 12 months are generally taxed at 12.5%. This rate applies to eligible annual gains exceeding ₹1.25 lakh.

Before the Union Budget 2024 changes, eligible long-term equity gains above ₹1 lakh were taxed at 10%. The revised exemption limit is ₹1.25 lakh, while the tax rate is 12.5%.

For example, if an NRI earns eligible long-term equity gains of ₹1.75 lakh during a financial year, the first ₹1.25 lakh may be exempt. The remaining ₹50,000 is generally taxable at 12.5%.

The ₹1.25 lakh exemption applies to eligible listed equity shares, equity-oriented mutual fund units, and business trust units. It does not generally apply to unlisted shares.

Unlisted shares are generally treated as long-term capital assets when held for more than 24 months. Long-term gains on such shares are generally taxed at 12.5%, subject to the applicable provisions.

Indexation adjusts the purchase cost of an asset to account for inflation. However, indexation is not available when calculating eligible long-term equity gains taxed at 12.5%.

NRIs may also claim relief under a Double Taxation Avoidance Agreement between India and their country of residence. Treaty relief depends on the terms of the agreement and the required supporting documents.

Read more: India Budget 2026 

NRIs may claim capital gains exemptions when they reinvest the gains or sale proceeds in eligible assets. The exemption depends on the asset sold, amount invested, and prescribed timelines.

• Exemption for a long-term residential property: Under the provisions commonly associated with Section 54, an NRI may claim an exemption by reinvesting long-term gains from a residential house in another residential property in India. Investment in two houses may be allowed once in a lifetime if the eligible capital gain does not exceed ₹2 crore.

  
  

• Exemption for other long-term capital assets: Under the provisions commonly associated with Section 54F, an NRI may claim an exemption after selling an eligible long-term asset other than a residential house. The net sale consideration must be invested in a residential house in India. Conditions for exemption: The new house must generally be purchased within one year before or two years after the sale. It may also be constructed within three years after the transfer. Selling the property within the prescribed holding period may affect the exemption.

  
  

• Exemption through specified bonds: The provisions commonly associated with Section 54EC allow an exemption when long-term gains from land, a building, or both are invested in specified bonds. The maximum eligible investment is ₹50 lakh. This exemption does not generally apply to gains arising solely from shares.

  
  

• Capital Gains Accounts Scheme: An NRI may deposit the unutilised amount in an eligible account before the income tax return filing deadline. The money must later be used within the prescribed purchase or construction period.

  
  

The exemption may be limited to the amount reinvested. Ownership conditions, investment limits, and holding requirements must also be met.

Tax Deducted at Source is an advance collection of tax before certain payments are made to an NRI.

TDS does not apply in the same way to every sale of shares. The deduction depends on the investment, transaction route, intermediary, and the amount chargeable to tax in India.

Under the provisions commonly associated with Section 195, tax must generally be deducted when a payment to a non-resident includes an amount chargeable to income tax in India.

Where TDS provisions apply, the following capital gains rates may be relevant:

• Eligible short-term equity gains: The basic applicable tax rate is generally 20%.
• Eligible long-term equity gains: The basic applicable tax rate is generally 12.5% on gains exceeding ₹1.25 lakh.
• Health and education cess: A 4% cess applies to the tax and surcharge.
• Surcharge: The surcharge on specified capital gains is generally capped at 15%.

The 20% and 12.5% rates are capital gains tax rates. They should not be treated as automatic TDS rates on the entire sale proceeds.

The person making the payment may need to determine the portion that represents taxable income. The actual deduction can therefore depend on the capital gain, payment structure, and available transaction information.

TDS is not necessarily the final tax liability. The final amount may change after considering:

• Capital losses
• Available exemptions
• Tax treaty relief
• Acquisition cost
• Surcharge and cess

• Other taxable income

  
  

An NRI may apply for a lower or nil deduction certificate when the expected tax liability is lower than the amount likely to be withheld.

After TDS is deducted, the amount should be checked in Form 26AS, the Annual Information Statement, and the TDS certificate issued by the deductor.

Eligible TDS credit can be claimed while filing the Indian income tax return. A refund may be available if the tax deducted exceeds the final liability.

NRI capital gains tax on shares depends on the type of investment, holding period, and applicable transaction conditions. Eligible short-term equity gains are generally taxed at 20%, while eligible long-term gains above ₹1.25 lakh are taxed at 12.5%. NRIs may also claim eligible exemptions by meeting the prescribed reinvestment conditions. Since TDS may differ from the final tax liability, it is important to review the transaction carefully and claim the correct credit while filing the income tax return.