Tax on Capital Gains for NRIs: Property, Stocks & Mutual Funds (2026)

Last Thursday, an NRI in New York called us in panic. He'd just sold his parents' Mumbai flat for ₹2.3 crore. The buyer's CA said they'd deduct ₹46 lakh as TDS (20% of sale price).

"Ankur, I bought this property in 2008 for ₹42 lakh. After inflation adjustment, my actual gain is maybe ₹60 lakh. Why are they deducting TDS on the full ₹2.3 crore? And how much tax will I actually owe? My friend said something about indexation and Section 54. I'm completely lost."

We see this panic constantly at Belong.

NRIs sell India property, redeem mutual funds, or exit stock positions. Suddenly they're hit with massive TDS deductions and tax calculations involving indexation, holding periods, and exemption sections they've never heard of.

Your buyer deducts 20% TDS on your property sale. Your mutual fund AMC deducts 20% on redemption.

Your stock broker sends you capital gains statements with LTCG, STCG, and numbers that don't match what you expected.

Meanwhile, you're sitting in Dubai, London, or New York, wondering: Is this TDS my final tax? Can I claim exemptions? What's indexation? Will I get a refund or owe more?

Here's what we've learned helping hundreds of NRIs navigate capital gains at Belong: the tax isn't as brutal as the TDS makes it seem. Indexation reduces your taxable gains significantly on property.

Exemptions can make tax zero if you reinvest. And most times, you get substantial refunds because TDS is calculated on gross sale price, not actual gains.

This guide breaks down capital gains tax for every asset type NRIs typically sell. We'll cover property, stocks, mutual funds, tax rates, indexation, exemptions, and how our team ensures you never overpay.

The foundation: What are capital gains?

Before we dive into tax rates, let's understand the basics.

What counts as capital gains

Capital gains = Sale price - Purchase price (adjusted)

When you sell any asset (property, stocks, mutual funds, gold) for more than you paid, that profit is a capital gain.

Example:

You bought a flat for ₹35 lakh in 2010. You sold it for ₹1.2 crore in 2026.

Capital gain: ₹1.2 crore - ₹35 lakh = ₹85 lakh (before indexation).

Two types: LTCG and STCG

Long-term capital gains (LTCG): Asset held for more than the specified period.

Short-term capital gains (STCG): Asset held for less than the specified period.

Holding period differs by asset type:

Why this matters:

LTCG gets preferential tax treatment (lower rates, indexation benefits). STCG is taxed more heavily (slab rates or higher fixed rates).

👉 Tip: Before selling any India asset, calculate your holding period. One extra month can change your tax from 30% (STCG at slab rate) to 20% with indexation (LTCG). We've helped NRIs time asset sales to qualify for LTCG and save ₹3-8 lakh in taxes.

Understand capital gains taxation basics.

Capital gains on property: The complete breakdown

Property sales are usually the largest capital gains transactions NRIs face.

LTCG on property (held >24 months)

Tax rate: 20% with indexation benefit.

What is indexation?

Indexation adjusts your purchase price for inflation. You don't pay tax on inflation, only on real gains.

How indexation works:

The government publishes a Cost Inflation Index (CII) every year.

Formula:

Indexed cost = Original cost × (CII of sale year ÷ CII of purchase year)

LTCG = Sale price - Indexed cost - Sale expenses

Tax = 20% of LTCG

Real property example with indexation

Your situation:

Bought flat in Pune in April 2010 for ₹28 lakh. Sold in January 2026 for ₹1.35 crore. Sale expenses (broker, legal): ₹3 lakh.

Step 1: Find CII values

CII for FY 2010-11 (purchase year): 167. CII for FY 2025-26 (sale year): 363 (example, check actual CII).

Step 2: Calculate indexed cost

Indexed cost = ₹28 lakh × (363 ÷ 167) = ₹60.9 lakh

Step 3: Calculate LTCG

Sale price: ₹1.35 crore. Less indexed cost: ₹60.9 lakh. Less sale expenses: ₹3 lakh. LTCG: ₹71.1 lakh.

Step 4: Calculate tax

Tax at 20%: ₹14.22 lakh.

TDS deducted by buyer: 20% of ₹1.35 crore = ₹27 lakh.

When you file ITR: Actual tax: ₹14.22 lakh. TDS: ₹27 lakh. Refund: ₹12.78 lakh.

Key insight: Without indexation, your gain would be ₹1.04 crore and tax would be ₹20.8 lakh. Indexation saved you ₹6.58 lakh.

STCG on property (held ≤24 months)

Tax rate: Your income tax slab rate (5%, 10%, 20%, or 30%).

No indexation benefit.

Example:

You bought a flat in 2024 for ₹80 lakh. You sold in 2025 for ₹95 lakh (held for 18 months).

STCG: ₹15 lakh.

Tax at 30% slab: ₹4.5 lakh.

This is why holding property for 24+ months is crucial.

Exemptions on property capital gains

This is where you can reduce tax to zero.

Section 54: For residential property

Exemption: If you sell one residential property and buy another residential property, LTCG is exempt.

Conditions:

New property purchased within 1 year before sale or 2 years after sale. OR New property constructed within 3 years after sale. You cannot sell the new property for 3 years.

Example:

You sold Delhi flat with LTCG of ₹80 lakh. You bought Bangalore flat for ₹1.2 crore within 1 year.

LTCG tax: ₹0 (full exemption under Section 54).

Partial exemption:

If you invest only ₹60 lakh (not full ₹80 lakh gain), exemption is proportional.

Exemption: (₹60 lakh ÷ ₹80 lakh) × ₹80 lakh = ₹60 lakh exempt. ₹20 lakh taxable at 20% = ₹4 lakh tax.

Section 54F: For any capital asset

Exemption: If you sell any capital asset (not just residential property) and invest entire sale proceeds in residential property, LTCG is exempt.

Conditions:

You don't own more than one residential property (apart from the new one). You invest entire sale proceeds in new property. Purchase within 1 year before or 2 years after, or construct within 3 years.

Example:

You sold a commercial shop with LTCG ₹50 lakh. Sale price: ₹1.5 crore. You bought a residential flat for ₹1.6 crore.

LTCG tax: ₹0 (full exemption under Section 54F because you invested more than sale proceeds).

Section 54EC: Invest in specified bonds

Exemption: If you invest LTCG in specified government bonds (NHAI, REC) within 6 months, up to ₹50 lakh is exempt.

Lock-in: 5 years.

Example:

LTCG from property: ₹65 lakh. You invest ₹50 lakh in NHAI bonds.

Exempt: ₹50 lakh. Taxable: ₹15 lakh at 20% = ₹3 lakh tax.

👉 Tip: Most NRIs use Section 54 exemption (buying another property). We've helped dozens of NRIs structure property transactions to claim full exemption and save ₹10-25 lakh in taxes.

Our team ensures exemption conditions are met correctly and documented properly for tax department scrutiny.

TDS on property sale

Buyer must deduct TDS: 20% of sale consideration (if property value exceeds ₹50 lakh).

This creates huge upfront TDS even though actual tax may be much lower (or zero with exemptions).

Example:

Sale price: ₹1.8 crore. TDS deducted: ₹36 lakh. Actual LTCG after indexation: ₹55 lakh. Tax: ₹11 lakh. Exemption claimed (Section 54): Full exemption. Final tax: ₹0. Refund: ₹36 lakh.

Getting this ₹36 lakh refund requires filing ITR correctly and claiming exemption properly.

We've recovered ₹15-40 lakh in property sale TDS refunds for NRIs by filing accurate ITRs with proper exemption claims.

Capital gains on stocks: Equity investments

Stock investments have simpler (but different) capital gains rules than property.

LTCG on equity stocks (held >12 months)

Tax rate: 12.5% on gains above ₹1.25 lakh per year.

No indexation benefit (unlike property).

Example:

You bought Reliance shares in 2020 for ₹8 lakh. You sold in 2026 for ₹15 lakh.

LTCG: ₹7 lakh.

Tax calculation: First ₹1.25 lakh: Exempt. Remaining ₹5.75 lakh: Taxed at 12.5%. Tax: ₹71,875.

TDS: Broker may deduct 20% TDS on entire ₹7 lakh = ₹1.4 lakh.

When you file ITR: Actual tax: ₹71,875. TDS: ₹1.4 lakh. Refund: ₹68,125.

STCG on equity stocks (held ≤12 months)

Tax rate: 20% (fixed rate, not slab rate).

Example:

You bought TCS shares for ₹5 lakh in March 2025. You sold for ₹6.5 lakh in November 2025 (8 months).

STCG: ₹1.5 lakh. Tax at 20%: ₹30,000.

TDS on stock sales

Broker deducts TDS if:

Your total stock sale proceeds exceed ₹1 crore in a year. OR You haven't linked PAN with broker.

TDS rate: 20%.

Example:

You sold stocks worth ₹1.2 crore during the year. Capital gains: ₹15 lakh (₹8 lakh LTCG, ₹7 lakh STCG).

Broker deducts TDS: 20% on total gains = ₹3 lakh.

Actual tax:

• LTCG: 12.5% on (₹8 lakh - ₹1.25 lakh) = ₹84,375

• STCG: 20% on ₹7 lakh = ₹1.4 lakh

• Total: ₹1.48 lakh

Refund: ₹3 lakh - ₹1.48 lakh = ₹1.52 lakh.

PIS account and stock investment limits

NRIs must use PIS (Portfolio Investment Scheme) account to buy/sell Indian stocks.

Investment limit: USD 250,000 per financial year.

Tax: Same LTCG/STCG rates apply.

Understand PIS accounts for NRIs.

Capital gains on mutual funds: Most common for NRIs

Mutual fund redemptions are the most frequent capital gains scenario we handle.

Equity mutual funds (held >12 months)

Tax rate: 12.5% on gains above ₹1.25 lakh per year.

Same as equity stocks.

Example:

You invested ₹12 lakh in equity mutual fund in 2019. You redeemed in 2026 for ₹22 lakh.

LTCG: ₹10 lakh.

Tax calculation: First ₹1.25 lakh: Exempt. Remaining ₹8.75 lakh: Taxed at 12.5%. Tax: ₹1.09 lakh.

TDS: AMC deducts 20% TDS on entire ₹10 lakh = ₹2 lakh.

Refund when filing ITR: ₹2 lakh - ₹1.09 lakh = ₹91,000.

Equity mutual funds (held ≤12 months)

Tax rate: 20% (STCG).

Example:

Invested ₹8 lakh in equity fund. Redeemed after 10 months for ₹9.5 lakh.

STCG: ₹1.5 lakh. Tax: ₹30,000 (20%).

Debt mutual funds (any holding period)

Tax rate: Slab rate (5%, 10%, 20%, or 30% based on your total income).

No LTCG benefit or indexation (post-2023 Budget change).

Example:

Invested ₹10 lakh in debt fund. Redeemed after 3 years for ₹13.5 lakh.

Capital gain: ₹3.5 lakh.

If your tax slab is 30%: Tax = ₹1.05 lakh.

This is why debt mutual funds lost their tax advantage post-2023.

Hybrid/balanced funds

Tax treatment depends on equity allocation:

Equity-oriented (>65% in equity): Taxed like equity funds (12.5% LTCG, 20% STCG).

Debt-oriented (<65% in equity): Taxed at slab rate.

TDS on mutual fund redemption

AMC deducts 20% TDS on capital gains for NRIs.

Example:

You redeemed equity fund with ₹6 lakh LTCG.

TDS deducted: ₹1.2 lakh (20% of ₹6 lakh).

Actual tax: 12.5% on (₹6 lakh - ₹1.25 lakh) = ₹59,375.

Refund: ₹1.2 lakh - ₹59,375 = ₹60,625.

This is why filing ITR is critical even when TDS was deducted.

Understand mutual fund taxation for NRIs.

GIFT City advantage: Zero capital gains tax

Here's where GIFT City changes everything for NRIs.

Why GIFT City is capital-gains-tax-free

GIFT City investment returns are exempt from Indian tax under Section 10(4D).

This includes capital gains from:

• GIFT City mutual funds (equity and debt)

• GIFT City bonds

• GIFT City structured products

Tax rate: 0% (regardless of holding period or amount).

Real comparison: Regular MF vs GIFT City MF

Scenario: You invest ₹15 lakh in India equity funds.

Option A: Regular Indian equity mutual fund

After 7 years: ₹32 lakh (₹17 lakh LTCG).

Tax: 12.5% on (₹17 lakh - ₹1.25 lakh) = ₹1.97 lakh.

Net proceeds: ₹30.03 lakh.

Option B: GIFT City equity mutual fund

After 7 years: ₹32 lakh (₹17 lakh LTCG).

Tax: ₹0 (Section 10(4D) exemption).

Net proceeds: ₹32 lakh.

GIFT City saves ₹1.97 lakh.

For resident Indians: GIFT City for global investing

If you're a resident Indian wanting global equity exposure:

Traditional route: Buy US stocks via LRS. Gains taxed at slab rate (potentially 30%). Complex compliance (Schedule FA, DTAA).

GIFT City route: Invest in GIFT City global equity funds. Gains tax-free (Section 10(4D)). Simpler compliance.

Example:

You invest ₹10 lakh in global equity. After 5 years: ₹16 lakh (₹6 lakh gain).

Traditional US stocks: Tax at 30% slab = ₹1.8 lakh. GIFT City global fund: Tax = ₹0.

GIFT City saves ₹1.8 lakh.

We've helped hundreds of NRIs and resident Indians restructure portfolios to use GIFT City funds, saving ₹80,000-3 lakh annually in capital gains tax.

GIFT City tax benefits explained.

GIFT City for resident Indians.

👉 Tip: If you're investing for 5+ years (NRI or resident Indian), GIFT City funds offer the same exposure as regular funds but with zero tax on gains. This isn't a loophole—it's government policy to develop GIFT City as a financial hub.

How to calculate and report capital gains in ITR

Here's the step-by-step process.

Step 1: Gather documents

For property sale:

Sale deed. Purchase deed. Improvement receipts (if any). Broker/legal expense bills. TDS certificate (Form 16B from buyer).

For stocks/mutual funds:

Capital gains statement from broker/AMC. Purchase and sale contract notes. TDS certificate (if applicable).

Step 2: Calculate indexed cost (for property LTCG)

Find CII for purchase year and sale year. Indexed cost = Original cost × (CII sale year ÷ CII purchase year). LTCG = Sale price - Indexed cost - Sale expenses.

CII values are published by Income Tax Department annually.

Step 3: File ITR-2

ITR-2 is the form for capital gains.

Section: Schedule CG (Capital Gains)

For each asset sold, enter: Type (LTCG/STCG). Asset category (property, equity, debt). Sale value. Purchase value (indexed for property LTCG). Capital gains calculated. Tax calculated.

Step 4: Claim exemptions (if applicable)

If claiming Section 54/54F:

Fill details of new property purchased. Date of purchase/construction. Investment amount.

System calculates exempt LTCG.

Step 5: Report TDS deducted

TDS details pre-filled from Form 26AS. Verify amounts match your calculations.

Step 6: Calculate refund/additional tax

Total tax on capital gains. Less TDS already deducted. = Refund (if TDS > tax) or Additional payment (if tax > TDS).

Step 7: File and verify

File ITR electronically. Verify within 30 days (Aadhaar OTP/net banking). Wait for refund processing (2-6 months).

We've helped NRIs recover ₹8-45 lakh in capital gains TDS refunds by filing ITRs with accurate calculations and proper exemption claims.

Learn how to file ITR as NRI.

Common capital gains tax mistakes

We see these errors constantly.

Mistake 1: Not claiming indexation on property

The mistake: Calculating LTCG as (Sale price - Purchase price) without indexation.

Reality: You're entitled to indexation. It reduces taxable gains by 40-70% typically.

Example of loss: Purchase ₹30 lakh (2010), Sale ₹1.2 crore (2026). Without indexation: Gain ₹90 lakh, Tax ₹18 lakh. With indexation: Gain ���55 lakh, Tax ₹11 lakh.

You overpaid ₹7 lakh by not claiming indexation.

Mistake 2: Not claiming Section 54 exemption

The mistake: Paying tax on property LTCG when you bought another property (eligible for exemption).

Fix: If you bought/constructed residential property within the timeline, claim Section 54 exemption.

We filed a revised return for a Dubai NRI who paid ₹16 lakh tax on property sale. He'd bought another flat 6 months later. We claimed Section 54 exemption and recovered full ₹16 lakh.

Mistake 3: Assuming TDS is final tax

The mistake: Not filing ITR because TDS was deducted, thinking that's the end.

Reality: TDS is calculated on gross proceeds (property) or gross gains (stocks/MF), often at flat 20%. Actual tax depends on indexation, exemptions, and specific rates.

Refund left unclaimed: ₹5-25 lakh in many cases.

Mistake 4: Selling just before 12-month/24-month threshold

The mistake: Selling stock after 11 months or property after 23 months.

Reality: One more month would qualify as LTCG with better tax treatment.

Example: Sold equity fund after 11 months with ₹8 lakh gain. STCG tax at 20%: ₹1.6 lakh. If held one more month: LTCG tax at 12.5% on (₹8 lakh - ₹1.25 lakh): ₹84,375.

Saved ₹75,625 by waiting one month.

We advise clients on optimal sale timing to minimize taxes.

Mistake 5: Not reporting GIFT City gains correctly

The mistake: Reporting GIFT City capital gains as taxable and paying 12.5% LTCG tax.

Reality: GIFT City gains are exempt under Section 10(4D). Should be reported under "Exempt Income."

Fix: Report in Schedule EI (Exempt Income), not Schedule CG (taxable gains).

If you invest through Belong's GIFT City platform, we handle this automatically in your tax filing.

How Belong's tax filing service handles capital gains

Let's talk about how we ensure you never overpay on capital gains.

What we do for you

1. Accurate capital gains calculation

We calculate indexed cost for property LTCG (using correct CII values). We identify LTCG vs STCG correctly based on holding period. We apply correct tax rates for each asset type.

2. Exemption identification

We check if you're eligible for Section 54/54F (property reinvestment). We verify timeline and documentation requirements. We claim maximum legal exemptions.

Real result: We saved a USA-based NRI ₹22 lakh by identifying Section 54F eligibility his previous CA missed.

3. TDS reconciliation

We download Form 26AS showing all TDS deducted (property, MF, stocks). We match against actual transactions. We claim refund of every excess rupee.

4. Multi-asset consolidation

If you sold property, redeemed mutual funds, and sold stocks in same year, we consolidate all capital gains. We optimize tax across asset types. We file single comprehensive ITR.

5. GIFT City advantage

If you invest through Belong's GIFT City platform: We pre-fill GIFT City gains as exempt income. We ensure zero tax is calculated. We simplify your entire ITR.

Result: You never overpay capital gains tax. You claim all eligible exemptions. You get maximum legal refunds.

Simple ITR (one capital gains transaction): ₹4,500. Complex ITR (property + exemptions, or multiple assets): ₹7,500.

Book Belong's NRI tax filing service.

Your action plan: Optimize capital gains tax this year

Step 1: Review your asset sales

List every India asset sold in FY 2025-26 (Apr 2025-Mar 2026): Property, stocks, mutual funds.

Step 2: Calculate holding period

Property: >24 months = LTCG, ≤24 months = STCG. Equity stocks/MF: >12 months = LTCG, ≤12 months = STCG.

Step 3: Check exemption eligibility

Did you buy another property (Section 54/54F)? Did you invest in bonds (Section 54EC)? Gather documentation.

Step 4: Collect TDS certificates

Form 16B (property). Broker/AMC capital gains statement. Form 26AS (consolidated TDS view).

Step 5: Consider GIFT City for future investments

NRIs: For India equity exposure, use GIFT City funds (tax-free) vs regular MF (12.5% LTCG tax).

Resident Indians: For global exposure, use GIFT City global funds (tax-free) vs direct US stocks (30% slab tax).

Or let our team handle everything.

We calculate gains accurately (with indexation). We identify all exemptions. We file ITR correctly. We claim maximum refunds.

Book Belong's tax filing service.

Frequently Asked Questions

What's the capital gains tax rate for NRIs vs residents?

Same rates. NRIs and residents pay identical capital gains tax on India assets. The difference is only in what income gets taxed (NRIs only on India assets, residents on global assets).

Do I pay capital gains tax in both India and my country of residence?

Potentially yes, but DTAA (tax treaty) prevents double taxation. You pay tax in both countries but claim foreign tax credit to avoid paying twice on the same gain.

Is indexation available for stocks and mutual funds?

No. Indexation is only for property LTCG (and some other assets like gold). Equity stocks and equity mutual funds don't get indexation benefit.

Can I claim Section 54 exemption if I buy property abroad?

No. Section 54/54F exemption applies only if you buy residential property in India. Foreign property doesn't qualify.

Are GIFT City capital gains really tax-free?

Yes, in India. Section 10(4D) exempts capital gains from specified IFSC funds. Check tax treatment in your country of residence (many countries also don't tax it due to tax treaty structure).

GIFT City taxation explained.

What if buyer didn't deduct TDS on property sale?

You're still liable for the tax. Report the sale in ITR and pay tax. Buyer may face penalties for not deducting TDS, but that doesn't reduce your tax liability.

How long does capital gains TDS refund take?

Typically 2-6 months after ITR filing and verification. Larger refunds (₹10 lakh+) may take longer and might trigger scrutiny (but usually routine verification, not a problem if filing is accurate).

Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Capital gains tax rates, indexation rules, exemption provisions, and CII values are subject to change. Consult a qualified chartered accountant before making decisions on asset sales or tax planning. Belong (getbelong.com) is a SEBI-registered investment advisor offering GIFT City-based investment products under IFSCA regulation and professional NRI tax filing services.