Introduction
It is a well-known fact that NRIs are only liable to pay taxes on income generated from Indian sources. This income may come from sources such as real estate, stocks, bank deposits, etc. But for NRIs, understanding the extent of tax implications can seem overwhelming, especially considering the recent changes introduced in the Union Budget 2024.These changes made several updates that affect how NRIs manage their investments and income earned within India.
Out of these changes, a major implication reflected on tax rates for both short-term and long-term capital gains. In this blog, we will explore in detail the latest taxation policies on capital gains for non-resident Indians.
What Are Capital Gains?
Capital Gains are taxes imposed on NRIs for profits made from selling capital assets in India. As for what capital assets refer to, they can involve assets such as Real Estate properties, Shares and Securities, Units of Mutual Funds, Jewellery, etc. There are two major types of capital gains: Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
Short-term Capital Gains arise when assets are sold within a short holding period (typically between 12 and 24 months, depending on the type of asset)
Long-Term Capital Gains arise when assets are held and sold within a longer period (typically for more than 24 months).
Who Needs to Pay Capital Gains Tax in India?
Taxability depends on the residential status of an individual. For NRIs, capital gains tax provisions are similar to those for resident individuals except for the applicability of TDS provisions. NRIs need to pay a higher TDS when they are selling off their assets like property, stocks, mutual funds, gold etc.
Capital Gains Tax Rules for NRIs
Tax Rules for Capital Gains are based on three major factors: Residential Status, Duration of Held Assets, and Asset Type. For NRIs however, these rules are slightly different from those of residents, due to TDS obligations and fewer exemptions. To understand more about the different types of capital gains tax rules, refer to the below table:
Asset type | TDS on Short Term Capital Gains | TDS on Long Term Capital Gains | Who deducts it, on what amount and when |
Sale of Listed assets – Stocks, Bonds, Equity Mutual Funds, REITs and InvITs | 20% | 12.5% | TDS deducted by broker on capital gains at the time of settlement |
Sale of Non-Equity FOFs/ Gold and Silver ETFs/ Gold Funds/ Overseas FOFs | 20% | 12.5% | TDS deducted by Mutual Fund on capital gains at the time of sale of MF units |
Sale of Debt-oriented Mutual Funds | 30% | 30% | TDS deducted by Mutual Fund on capital gains at the time of sale of MF units |
Sale of Unlisted stocks/ Foreign Equity/Debt | 30% | 12.5% | TDS deducted by the buyer on the total sale consideration at the time of payment |
Sale of Unlisted Bonds | 30% | 30% | TDS deducted by the buyer on the total sale consideration at the time of payment |
Sale of Physical Gold | 30% | 12.5% | TDS deducted by the buyer on the total sale consideration at the time of payment |
Sale of Physical Real Estate | 30% | 12.5% | TDS deducted by the buyer on the total sale consideration at the time of payment |
Rental Income | 30% | 30% | TDS deducted by the tenant every month when transferring rent |
Consultant/ Professional Income | 30% | 30% | TDS deducted by the client whenever payment is made against the invoice raised |
TDS on Capital Gains for NRIs
The table above shows the applicable TDS rates on capital gains across different assets for NRIs. The TDS rates change during the union budget every year. The table above shows the TDS rates according to the latest union budget of 2024. The 2025 budget did not have any changes for NRIs.
How NRIs Can Save Tax on Capital Gains
To save on taxation for capital gains generated in India, NRIs can benefit from the following tax exemptions that applies to specific circumstances (these are especially relevant for long-term capital gains):
If you are reinvesting in a home, and the entire capital gain is used to purchase/construct a new residential property within the specified timeframe. This timeframe is one year before or two years after the sale of the property. There’s a cap of Rs. 10 crore on the capital gains (introduced in the finance act of 2023). If capital gains exceed this amount, gains will be taxed.
If you have invested in bonds issued by the National Highways Authority of India (NHAI) or the Rural Electrification Corporation (REC) within a period of six months after the sale. However, this is limited to capital gains on a maximum investment of 50 Lakhs in a financial year. These bonds have a lock-in period of five years and are non-transferable.
- Planning your investments in stock markets like the holding periods of stocks, mutual funds and property will help you save taxes in the short term capital gains.
These exemptions primarily come under Section 54 and Section 54EC of the Income Tax Act. These sections allow NRIs to save taxes by reinvesting long-term capital gains into residential property in India.
Using DTAA to Avoid Double Taxation
DTAA is an agreement between two or more countries to prevent the income generated across different countries from being taxed multiple times in different jurisdictions. India has entered into DTAA agreements with 80+ countries (predominantly the ones with the highest population of the Indian diaspora) to provide relief for NRIs from double taxation.
DTAA agreements provide double taxation relief from various types of income including salaries, dividends, interest, royalties, etc. As an NRI you can utilise these agreements to be exempted from taxation on foreign income (for instance, if you are an NRI living in UAE, you are not liable to pay taxes on the income generated there, thanks to the India-UAE DTAA). These agreements also simplify the tax filing process for individuals and businesses with international dealings as it outlines clear rules on which country has the right to tax various types of income.
Example: NRI Selling Property in India
Consider an example of NRI, Rohan selling residential property while living and earning in the US. The residential property is a flat in Mumbai, bought in January 2015, and for which the purchase price was 80 Lakhs INR. And he has sold the property on the current day (April 2025) for a price of 2 Crore INR.
Since the holding period has exceeded 24 months, this gain qualifies a long-term capital gain. After adjusting the purchase price for inflation, his taxable gain is around Rs. 2 Crores. This gain will be taxed at 12.5% (as per LTCG tax rate). So he will owe around Rs. 25 lakhs in tax plus any surcharge or cess (which the buyer must deduct as TDS before paying him.
If Rohan wishes to save on taxes, he can reinvest the Rs. 25 lakhs in another home in India within two years or invest up to 50 Lakhs in government bonds like NHAI or REC within six months.
Conclusion
Understanding the rules and regulations regarding capital gains tax is a must for NRIs investing in India. Thanks to the recent changes introduced in the Union Budget 2024, this task is easier than done. Planning the holding periods and seeking professional advice from a chartered accountant is the best way to optimise for the returns received from your capital holdings.
