The NRI’s Guide to Capital Gains Taxes in India

July 25, 2025

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The NRI’s Guide to Capital Gains Taxes in India
For the millions of Non-Resident Indians (NRIs) who maintain financial ties to their homeland, investing in the Indian market is both an emotional and a strategic decision. India’s growth story offers compelling opportunities, from a booming stock market to a robust real estate sector. 

However, when it comes time to sell these assets, NRIs are confronted with a tricky set of taxation laws, especially the Capital Gains Tax. Understanding these rules is a crucial component of successful wealth planning, as a misunderstanding could lead to excessive TDS deductions, blocked refunds, or missed exemptions.

Understanding Capital Gains Tax in India

The foundation of the tax system in India for selling assets is the 'capital gains' concept—the profit you achieve by selling a capital asset. For taxation purposes, gains are classified based on the holding period of an asset, which fundamentally changes their treatment. A profit is a Short-Term Capital Gain (STCG) if the asset is sold within a short time, while holding it for a longer duration makes it a Long-Term Capital Gain (LTCG). This distinction is the single most important factor that determines your tax liability.

STCG vs LTCG Holding Periods (FY 2025–26)


Capital Gains Tax Rates for NRIs

The tax rates for STCG are often linked to your income tax slab, whereas LTCG rates are typically flat and more favourable. The table below summarises the latest rates applicable to NRIs. A significant recent change affects property taxation: for properties acquired before July 23, 2024, taxpayers have the option to choose between two tax treatments for LTCG.

Current Capital Gains Tax Rates for NRIs (FY 2025–26)


TDS and Other Things to Watch Out For

One of the biggest practical challenges for an NRI selling a property is the steep rate of Tax Deducted at Source (TDS). Crucially, this is calculated on the entire sale price, not just the profit. This often results in a situation where the tax deducted is far greater than the actual tax owed, locking up your funds until you file a tax return.

TDS on Capital Gains for NRIs (FY 2025-26)

It's also important to note that if an NRI buys a property in India valued over ₹50 lakh from a resident, the NRI buyer is responsible for deducting 1% TDS on the sale price.

Tax Exemptions on Capital Gains for NRIs in India

Luckily, the Income Tax Act offers strong channels for NRIs to legally minimise their LTCG liability. These exemptions are meant to prompt reinvestment in the country.

● Capital Gains Tax on Property for NRI: Section 54 is for property holders. It enables you to claim a full exemption on the LTCG from selling a residential house, as long as you reinvest the capital gain amount in buying (within 1 year before or 2 years after sale) or constructing (within 3 years after sale) another residential house in India. The new property must be held for 3 years.

● NRI Capital Gains Tax on Shares and Other Assets: Section 54F provides more flexibility. It applies to LTCG from the sale of any asset other than a house (like shares or gold). You must reinvest the entire net sale proceeds in a new residential property in India within the same timelines to get a full exemption.

● Capital Gains Tax for NRI through Bonds: Section 54EC offers a choice for those who do not wish to reinvest in real estate. You can save LTCG from the sale of a property by investing the capital gain amount (up to ₹50 lakh) in specified government bonds (like NHAI, REC) within six months. These bonds have a 5-year lock-in period.

● Avoiding High TDS on Property Sale - Application for Lower or Nil TDS Certificate (Form 13): To preempt the high TDS problem, an NRI can apply to the Income Tax Department using Form 13. An assessing officer will scrutinise the transaction and can issue a certificate instructing the buyer to deduct tax at a lower rate, preventing your funds from being unnecessarily blocked.

A Note on NRE and NRO Account Taxation

It's also important to understand the tax implications of NRI bank accounts. Interest earned in a Non-Resident External (NRE) account is completely tax-free in India. In contrast, interest earned in a Non-Resident Ordinary (NRO) account is taxable at your applicable income tax slab rates, and banks will deduct TDS on it accordingly.

Tax Planning Suggestions for NRIs

● Plan Ahead for Sale: Know your asset's acquisition date and type to understand the holding period and correct tax treatment.
● Apply for Form 13 Early: If you plan to sell property, initiate the lower TDS certificate process months in advance.
● Don’t Skip Filing Returns: Even if TDS is deducted, you must file your Indian Tax Return (ITR) to claim eligible refunds and report exemptions correctly.

Final Thoughts

Investing successfully as an NRI is about navigating India's tax system with an informed strategy. Understanding capital gains tax, claiming rightful exemptions, and optimising TDS can significantly improve your net returns. As laws evolve, staying updated is key. If you need help navigating these complexities, seeking personalised advice from a financial advisor with expertise in NRI taxation is highly recommended.

-Suman Dan & Akshit Bajaj

-Dayco India

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