The rules got a major overhaul on 23 July 2024. Indexation benefits disappeared for most long-term assets, and tax rates were restructured across equity, debt, and property. Many NRIs are still catching up.
Common questions we hear: Which rate applies to my sale? How much TDS will actually get deducted before the money reaches my NRO account? Are there any exemptions left after the reform?
This guide walks through current capital gains tax rates, TDS rules, and legitimate exemptions NRIs can use in FY 2025-26.
Key Takeaways
- STCG on equity/mutual funds is taxed at 20%; LTCG at 12.5%, above a ₹1.25 lakh exemption
- Property and other long-term assets face a flat 12.5% tax (no indexation), plus surcharge and cess
- TDS applies upfront on every NRI capital gain; a valid PAN avoids penal withholding
- Sections 54, 54F, 54EC, and CGAS let NRIs defer or eliminate tax via reinvestment
- DTAA relief and Form 13 help NRIs cut TDS and avoid double taxation
What is Capital Gains Tax for NRIs?
Capital gains tax is the tax on profit made from selling an asset. For NRIs, the trigger is location, not residency. Section 9(1)(i) of the Income Tax Act deems income from transferring a capital asset situated in India to arise in India, no matter where the seller lives or banks.
Say an NRI bought a flat in Pune for ₹60 lakh in 2018 and sold it in 2025 for ₹95 lakh. That ₹35 lakh gain is taxable in India, whether the sale proceeds land in an NRO account or get wired straight to a bank in London.
Assets That Attract Capital Gains Tax for NRIs
The following categories routinely generate taxable gains for NRIs:
- Residential and commercial real estate
- Listed shares of Indian companies
- Unlisted shares of Indian companies
- Mutual funds and ETFs
- Debt instruments, bonds, and debentures
Here's the practical catch: TDS on most of these gains gets deducted before the money even reaches your NRO account. Understanding the applicable rate before you sign the sale deed matters far more than reviewing it after the fact.
Classification depends on how long the NRI held the asset. Immovable property and unlisted shares need a 24-month holding period for long-term treatment; listed securities require just 12 months, determining which tax rate applies later in this guide.
Why NRIs Face Different Tax Treatment
Chapter XII-A (Sections 115C-115I) of the Income Tax Act creates special provisions for NRIs holding "foreign exchange assets," meaning assets bought using convertible foreign exchange, such as shares, debentures, and government securities.
On top of this, Section 195 requires TDS on every rupee of chargeable capital gains paid to an NRI. There's no minimum threshold that might exempt a small transaction, unlike some payments to resident taxpayers. This is the single biggest reason NRIs see larger upfront deductions than resident sellers on comparable transactions.
Short-Term vs Long-Term Capital Gains: Rates & TDS for NRIs (Post-23 July 2024 Rules)
How long you've held an asset decides everything that follows: which tax rate applies, and how much TDS gets withheld at source. Get the holding period wrong, and you'll either overpay or trigger a notice.
Holding Period Rules by Asset Type
| Asset Type | Long-Term Threshold |
|---|---|
| Listed equity shares / equity mutual funds | More than 12 months |
| Real estate (land, buildings) | More than 24 months |
| Unlisted shares | More than 24 months |
| Listed debt securities | More than 12 months |
One nuance worth remembering: if you inherited or received an asset as a gift, the previous owner's holding period carries forward to you under Section 2(42A). This is a separate provision from the cost of acquisition rule under Section 49.
So if your father held a stock for 15 months before gifting it to you, and you sell it a week later, it still counts as long-term.
Capital Gains Tax Rates After the July 2024 Reforms
The Finance (No.2) Act, 2024 rewrote the rate structure for any transfer on or after 23 July 2024:
| Gain Type | Rate | Notes |
|---|---|---|
| STCG on listed equity/equity MF (Sec 111A) | 20% | Flat rate |
| LTCG on listed equity/equity MF (Sec 112A) | 12.5% | Above ₹1.25 lakh exemption; no indexation |
| STCG on property/other assets | Slab rate | Up to 30% depending on total income |
| LTCG on property/other assets (Sec 112) | 12.5% | No indexation for NRIs |
A critical point many NRIs miss: the option to choose the lower of 12.5% (no indexation) or 20% (with indexation) for pre-23 July 2024 property purchases is available only to resident individuals and HUFs. NRIs don't get this comparison relief — it's a flat 12.5%, period.
Surcharge and 4% health and education cess apply on top of these base rates. Surcharge on tax from equity/property capital gains is capped at 15%, even if your total income surcharge slab is higher, per the CBDT's FAQ on the new capital gains regime.
TDS Rates for NRIs on Capital Gains
TDS rates broadly mirror the tax rates but aren't identical, since withholding happens before your final tax liability is computed:
- Listed equity LTCG: 12.5% base TDS
- Listed equity STCG: 20% base TDS
- Property sales: withheld under Section 195, often calculated on the full sale value rather than just the gain, unless you've secured a lower deduction certificate
- Unlisted shares/debt instruments: can attract withholding up to 30%, since these often fall under the "other income" bucket for non-residents
Quoting a valid PAN isn't optional. Without one, Section 206AA can push your TDS rate to 20% or higher, regardless of what the standard rate would have been.
There's a workaround, though: Rule 37BC lets you avoid this penal rate if you submit your Tax Residency Certificate, foreign tax ID, and contact details in the prescribed format.
Exemptions NRIs Can Claim to Reduce Capital Gains Tax
NRIs aren't broadly exempt from capital gains tax. But several reinvestment-based provisions can substantially cut, or fully eliminate, what you owe, provided you follow the timelines exactly.
Section 54 – Reinvestment in Residential Property
If you're selling a residential house and booked a long-term gain, you can claim exemption by:
- Buying another residential house in India within 1 year before or 2 years after the sale
- Constructing a new residential house within 3 years of the sale
- Capping your exemption at the lower of the gain or ₹10 crore of eligible new-house cost
- Opting for a one-time exception to invest in two houses instead of one, if total LTCG stays under ₹2 crore
Section 54F – Reinvestment of Proceeds from Other Assets
This covers gains from assets other than a residential house, think shares, gold, or a plot of land.
- Reinvest the entire net sale consideration, not just the profit, in one residential house in India
- Follow the same 1-year-before/2-year-after purchase window, or the 3-year construction window
- Claim proportional exemption for partial reinvestment: exemption = LTCG × (new house cost ÷ net sale consideration)
- Confirm you don't already own more than one other residential house on the date of transfer
Section 54EC – Investment in Specified Bonds
For NRIs who'd rather not buy another property, this route works with long-term gains from land or buildings only:
- Invest within 6 months of the sale in NHAI, REC, PFC, or IRFC bonds
- Cap your exemption-eligible investment at ₹50 lakh
- Hold the bonds through their 5-year lock-in; selling early or borrowing against them cancels the exemption
Capital Gains Account Scheme (CGAS)
Haven't decided where to reinvest yet? Park the unutilised gain in a CGAS account at an authorised bank before your ITR filing deadline. This preserves your exemption eligibility under Sections 54 or 54F while you finalise a property purchase or construction plan. Funds withdrawn must be used for the stated purpose within the statutory window, or the exemption gets reversed and the gain becomes taxable. Since these deadlines span property purchases, bond investments, and CGAS deposits, many NRIs bring in a tax-efficient planning advisor to keep each exemption on track across jurisdictions.
How to Reduce, Reclaim & Plan Your Capital Gains Tax
Even after TDS is deducted, you're not done. A few practical steps can recover money or prevent overpayment altogether.
- File an Indian ITR (ITR-2 or ITR-3): If TDS was deducted on the full sale value instead of your actual net gain, especially common in property sales, filing a return lets you claim a refund of the excess.
- Apply for Form 13 before the sale: A Lower Deduction Certificate from the Assessing Officer lets the buyer withhold tax at a reduced rate, so TDS on the full sale value doesn't lock up your property sale proceeds for months.
- Use DTAA relief: A Tax Residency Certificate from your country of residence, combined with Form 10F, lets you claim foreign tax credit or exemption so the same gain isn't taxed twice.
Juggling Form 13 timelines, DTAA documentation, and reinvestment deadlines while sitting in a different time zone is genuinely difficult.
Cambridge Wealth works with NRI investors on the sequencing and documentation that surround a sale — lower-deduction certificate applications, reinvestment timing under Sections 54, 54F and 54EC, and the records each route requires. Its goal-linked distribution process starts from your stated goals, timelines and liquidity needs, so a capital gains event is considered in the context of your wider portfolio rather than in isolation.
Frequently Asked Questions
What is the TDS rate for capital gains tax for NRIs?
TDS varies by asset type and holding period, typically ranging from 12.5% on long-term equity gains to 30% on short-term property or debt gains. Without a valid PAN, rates can climb even higher under Section 206AA.
How are capital gains calculated for NRIs?
Capital gain equals the sale price minus the cost of acquisition, improvement costs, and transfer expenses. For shares or debentures originally bought in foreign currency, Section 48 requires special currency conversion rules to compute the gain.
Are NRIs exempt from capital gains tax?
No, NRIs aren't broadly exempt. However, Sections 54, 54F, 54EC, and the Capital Gains Account Scheme can reduce or fully eliminate tax liability if the reinvestment conditions and timelines are met.
What is the capital gains tax rate for NRIs selling property in India?
Short-term gains (property held 24 months or less) are taxed at slab rates up to 30%. Long-term gains face a flat 12.5% rate without indexation, plus applicable surcharge and cess.
Can NRIs avoid double taxation on capital gains earned in India?
Yes. DTAA provisions, combined with a Tax Residency Certificate and Form 10F, allow NRIs to claim foreign tax credit or exemption in their country of residence for tax already paid in India.
Do NRIs need to file an income tax return if TDS has already been deducted on capital gains?
Often, yes. Filing ITR-2 or ITR-3 lets you claim a refund of excess TDS, carry forward capital losses, or formally report income even when tax has already been withheld at source.
