India is a key investment destination for Non-Resident Indians (NRIs), especially in equity markets, real estate, and mutual funds. However, one of the most common questions that arises is: How are NRIs taxed on capital gains in India?
This article provides a comprehensive guide on the taxation of capital gains for NRIs under the Indian Income-tax Act, 1961, with focus on the latest provisions applicable for Assessment Year 2025–26.
1. What Are Capital Gains?
Capital gains refer to the profit or gain arising from the sale or transfer of a capital asset such as property, equity shares, mutual funds, or bonds.
Capital gains are classified as:
- Short-Term Capital Gains (STCG)
- Long-Term Capital Gains (LTCG)
The holding period and nature of asset determine the classification.
2. STCG & LTCG – Applicable Rules for NRIs
|
Asset Type |
Short-Term if held < |
Long-Term if held ≥ |
|
Listed equity shares, equity mutual funds |
12 months |
12 months |
|
Real estate, debt funds, gold |
24 months / 36 months |
24 months / 36 months |
3. Tax Rates for NRIs
|
Type of Gain |
Section |
Tax Rate |
|
STCG on listed equity (with STT) |
111A |
15% |
|
LTCG on listed equity (above ₹1L) |
112A |
10% |
|
Other LTCG (e.g., real estate) |
112 |
20% (with indexation) |
|
Other STCG (e.g., property) |
Slab rate |
Based on income slab |
Note: For NRIs, basic exemption limit (₹2.5L) is not available against STCG u/s 111A, but can be adjusted against LTCG u/s 112A and other income.
4. Can NRIs Claim Basic Exemption Limit?
Yes, but with limitations:
- NRIs can claim the basic exemption limit (₹2.5 lakhs) only against income taxable at slab rates, like interest or business income.
- For LTCG under Section 112A, NRIs can use unutilized exemption limit after exhausting it on other income.
- However, for STCG under Section 111A, the benefit of the exemption limit is only available to resident individuals and HUFs, as explicitly stated in the law.
So, NRIs cannot reduce their STCG (111A) using the basic exemption — even if their total income is below ₹2.5 lakhs.
5. Tax Deduction at Source (TDS) for NRIs
The Indian tax system mandates TDS on capital gains earned by NRIs, which includes:
- Equity STCG / LTCG – Generally, brokers do not deduct TDS for listed equity gains. NRIs are expected to pay self-assessment tax.
- Real Estate – Buyer must deduct TDS @ 20% (LTCG) or 30% (STCG) on sale proceeds payable to NRI seller.
6. Tax Filing Obligations
NRIs must file Income Tax Returns in India if:
- Their total income (before TDS) exceeds the basic exemption limit, or
- They want to claim refund of excess TDS, or
- They want to claim DTAA benefit (e.g., on dividends or capital gains)
7. Example Scenarios
Example 1:
NRI earns ₹50,000 (interest) + ₹1,00,000 STCG (111A) + ₹2,00,000 LTCG (112A)
- Basic exemption of ₹2.5L is applied to ₹50K (interest) and ₹1.5L of LTCG
- LTCG after ₹1L exemption and basic limit = ₹0
- STCG taxable fully @ 15% = ₹15,000 + cess
Example 2:
NRI earns only ₹1,00,000 as dividend
- Taxed @ 20% u/s 115A + 4% cess = ₹20,800
- No exemption or rebate applicable
8. Double Taxation Avoidance Agreement (DTAA)
NRIs can benefit from DTAA provisions, which often provide:
- Lower tax rates on capital gains and dividends
- Credit for taxes paid in India in their country of residence
To claim this benefit, the NRI must submit:
- Tax Residency Certificate (TRC) from the foreign country
- Form 10F
- A declaration of beneficial ownership
Conclusion
Capital gains taxation for NRIs in India is well-defined but nuanced. While NRIs can invest and earn returns in India, they must be aware of:
- Specific provisions like Section 111A and 112A
- Restrictions on using basic exemption limits
- Proper TDS compliance and DTAA claims
To avoid pitfalls and ensure tax efficiency, it's always advisable to consult a qualified tax advisor or Chartered Accountant familiar with NRI taxation.