Capital Gains Tax for NRIs: How It Works, Rates, and Key Rules in India

Why Capital Gains Tax Matters for NRIs

Many NRIs invest in India through property, mutual funds, shares, or other financial assets. While these investments can generate strong long-term returns, profits earned from selling them are subject to capital gains tax in India. For NRIs, capital gains taxation often feels complex due to overlapping tax rules, higher tax deduction at source (TDS), and documentation requirements.

Understanding how capital gains tax applies helps NRIs plan exits better, avoid surprises at the time of sale, and stay compliant with Indian tax laws.

What Are Capital Gains?

Capital gains refer to the profit earned when a capital asset is sold for more than its purchase price. In India, capital assets include:

• Residential or commercial property
• Equity shares and mutual funds
• Bonds and debentures
• Land and other specified assets

Capital gains are taxed in the year in which the asset is sold.

This classification determines the tax rate and available exemptions.

Capital Gains Tax Rates for NRIs

Property

• Short-term capital gains (STCG): Taxed as per applicable income tax slab rates
• Long-term capital gains (LTCG): Taxed at 20% with Indexation benefits

Equity Shares and Equity Mutual Funds

• STCG: Taxed at 15% (if securities transaction tax applies)
• LTCG: Taxed at 10% on gains above INR 1 lakh, without indexation

Other Assets

• Tax rates vary based on asset type and holding period

Source: Income Tax Department – Tax Rateshttps://www.incometax.gov.in/iec/foportal/help/individual/tax-rates

TDS on Capital Gains for NRIs

One of the biggest differences NRIs face compared to resident Indians is higher TDS at the time of sale.

For NRIs:

• TDS is deducted at source by the buyer
• TDS applies to the entire sale value, not just the gain
• Rates may be as high as 20–30% plus surcharge and cess

NRIs can later claim refunds by filing an income tax return in India.

Exemptions Available to NRIs

NRIs may reduce capital gains tax through exemptions, subject to conditions.

Common exemptions include:

• Section 54: Reinvestment of property gains into another residential property
• Section 54EC: Investment in specified bonds
• Section 54F: Sale of non-residential assets reinvested into property

Each exemption has timelines, limits, and compliance requirements.

Double Taxation Avoidance Agreement (DTAA)

India has DTAA agreements with multiple countries to prevent double taxation. While capital gains are usually taxed in India for Indian assets, DTAA provisions may help:

• Avoid taxation on the same income in the country of residence
• Claim tax credit for taxes paid in India

Claiming DTAA benefits may require a Tax Residency certificate(TRC).

Common Mistakes NRIs Make

NRIs often face issues due to:

• Not accounting for high TDS at sale
• Missing exemption timelines
• Incorrect holding period calculation
• Not filing tax returns to claim refunds

Early planning helps avoid cash flow issues and penalties.

FAQs: Capital Gains Tax for NRIs

Do NRIs pay higher capital gains tax than residents?Tax rates are similar, but NRIs face higher upfront TDS, which can later be refunded.

Is indexation available to NRIs?Yes. Indexation benefits apply to long-term capital gains on property and certain assets.

Is filing a tax return mandatory for NRIs after selling property?Yes, especially to reconcile TDS and claim refunds or exemptions.

Can NRIs claim DTAA benefits on capital gains?In some cases, yes. DTAA provisions depend on the asset and country of residence.

What happens if TDS deducted is higher than actual tax?NRIs can claim a refund by filing an income tax return in India.

Final Thoughts

Capital gains taxation is a critical consideration for NRIs investing in India. Understanding holding periods, tax rates, TDS obligations, and available exemptions allows NRIs to plan asset sales more efficiently and remain compliant.

With proper planning and timely compliance, NRIs can optimise returns while navigating India’s capital gains tax framework with confidence.

Sources & Disclaimer

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