NRI Capital Gains Tax Rules on Property and Shares in India (2025)
- Rashmita Choudhary
- 5 days ago
- 9 min read
Capital gains tax for Non-Resident Indians (NRIs) applies to income earned from selling capital assets located in India, such as property and shares. The latest updates from Union Budget 2025 have refined how these gains are classified, taxed, and reported. With changes in tax rates, indexation rules, and TDS compliance, understanding these provisions is crucial for accurate reporting and timely filing. NRIs must also comply with repatriation and exemption rules under the Income Tax Act to optimize their tax liability.
Table of Contents
Understanding Capital Gains for NRIs
Capital gains for Non-Resident Indians (NRIs) arise when they sell capital assets such as property, shares, or mutual funds in India. These gains are categorized as either short-term or long-term, depending on the period of holding. For property, if held for more than 24 months, the gain is considered long-term, whereas for listed shares and equity mutual funds, the threshold is 12 months. The tax rates, exemptions, and TDS provisions for NRIs differ from those applicable to resident taxpayers, making it essential to understand the nuances before filing returns or repatriating funds abroad.
NRI Capital Gains Tax Rules on Property
When an NRI sells immovable property in India—such as land, building, or apartment—capital gains tax applies based on the holding period. Long-term capital gains (LTCG) are taxed at 20% with the benefit of indexation, while short-term gains (STCG) are taxed as per the applicable income tax slab. The buyer is required to deduct TDS at 20% (plus surcharge and cess) on LTCG or 30% on STCG under Section 195. NRIs can also claim exemptions under Sections 54, 54EC, or 54F by reinvesting the capital gains in another property or specified bonds within the prescribed period.
NRI Capital Gains Tax Rules on Shares
For NRIs investing in listed shares or equity mutual funds, the period of holding determines tax liability. Gains from shares held for less than 12 months are treated as short-term and taxed at 15% under Section 111A, while gains from holdings beyond 12 months are taxed at 10% under Section 112A if they exceed ₹1 lakh in a financial year. For unlisted shares, LTCG is taxed at 10% without indexation, and STCG is taxed at the applicable slab rate. NRIs must also ensure that TDS is deducted by the broker or company at the time of sale.
TDS on Sale of Property and Shares by NRIs
TDS is a mandatory deduction for NRIs selling property or shares in India. In the case of property, the buyer must deduct TDS at 20% on long-term gains or 30% on short-term gains before making the payment. For shares, TDS applies at 15% for short-term and 10% for long-term gains. NRIs can apply to the Assessing Officer under Section 197 for a lower or nil TDS certificate if their actual tax liability is lower than the standard deduction. Once deducted, the TDS credit can be claimed while filing the income tax return in India.
Exemptions Available to NRIs on Capital Gains
NRIs can reduce or eliminate their capital gains tax by availing exemptions under the Income Tax Act. Under Section 54, long-term gains from the sale of a residential property can be exempt if reinvested in another residential property within two years (purchase) or three years (construction). Section 54EC allows exemption up to ₹50 lakh by investing in specified bonds of NHAI or REC within six months of sale. Additionally, Section 54F offers exemption on long-term gains from other capital assets if the proceeds are invested in a residential property.
Repatriation of Sale Proceeds by NRIs
After paying taxes and fulfilling compliance requirements, NRIs can repatriate sale proceeds to their overseas bank accounts. The repatriation process requires submission of Form 15CA and Form 15CB, which certify that taxes have been duly paid. The funds are transferred from the NRO (Non-Resident Ordinary) account to the NRE (Non-Resident External) account or directly abroad, subject to Reserve Bank of India (RBI) limits. Generally, up to USD 1 million per financial year can be repatriated, provided documentary evidence of tax payment and property ownership is submitted.
Reporting and Filing Capital Gains in ITR
Reporting and filing capital gains correctly in an Income Tax Return (ITR) is an important compliance requirement for Non-Resident Indians (NRIs). Any capital gain arising from the sale of assets such as property, shares, or mutual funds in India must be declared, even if the transaction was executed from abroad. The Income Tax Act mandates that such income be reported in India if the asset is located within the country, irrespective of where the seller resides.
NRIs are required to use the appropriate ITR form based on their income profile. Generally, ITR-2 is used when the individual earns capital gains along with salary or other income sources but does not have business income. However, if there is income from business or profession in addition to capital gains, ITR-3 becomes applicable. The capital gain details need to be filled under the “Schedule Capital Gains” section of the return. This section includes information about the nature of the asset sold, acquisition cost, sale consideration, holding period, and applicable exemptions under sections like 54, 54EC, or 54F, if any.
Accurate reporting of TDS (Tax Deducted at Source) is equally important, especially for NRIs. When an Indian buyer purchases a property from an NRI, TDS is typically deducted under Section 195 at rates applicable to long-term or short-term capital gains. The NRI seller must verify that this TDS is properly reflected in Form 26AS or AIS (Annual Information Statement) and claim credit while filing the return. Any mismatch between TDS data and reported income can delay refund processing or trigger notices from the Income Tax Department.
NRIs must also maintain comprehensive documentation to support their capital gains computation. Essential records include the property sale deed, purchase agreement, proof of acquisition cost, improvement expenses, and details of stamp duty or registration fees paid. These documents serve as evidence in case of scrutiny or reassessment.
The process of calculating capital gains can be complex, as it requires determining the indexed cost of acquisition and adjusting for exemptions, if applicable. Using reliable digital platforms like TaxBuddy can make this easier. TaxBuddy automatically imports AIS and Form 26AS data, identifies applicable deductions, and computes the capital gain liability with precision. It also assists in selecting the correct ITR form and ensures that all capital gain schedules are completed accurately, minimizing errors and ensuring compliance with Indian tax laws.
Filing through such platforms helps NRIs avoid manual errors, ensures smooth processing, and guarantees that every eligible deduction and TDS credit is correctly claimed. This results in a faster refund process and a more efficient tax filing experience, no matter where the taxpayer is based.
Key Budget 2025 Updates Impacting NRI Taxation
The Union Budget 2025 introduced several refinements impacting NRIs. Notably, clarity was provided on taxation of digital and overseas assets held by NRIs in India. The government also eased TDS compliance for property sales and revised reporting rules under AIS and Form 26AS to ensure accurate tracking of capital transactions. Moreover, the new budget reaffirmed that exemptions under Sections 54 and 54F continue to apply to NRIs, making it easier to reinvest in India’s real estate sector while benefiting from capital gains relief.
Common Errors NRIs Should Avoid While Filing
NRIs often make mistakes while reporting capital gains, leading to tax notices or delayed refunds. Common errors include failing to declare TDS deducted under Section 195, mismatching details with Form 26AS, claiming ineligible exemptions, or omitting repatriation-related disclosures. Using incorrect ITR forms or forgetting to mention the acquisition cost with indexation are also frequent errors. Filing through TaxBuddy’s expert-assisted platform minimizes such risks by ensuring that all details match AIS data and relevant exemptions are correctly applied.
Conclusion
Understanding capital gains taxation is essential for NRIs to manage their tax liabilities effectively and repatriate funds legally. By following the prescribed TDS, exemption, and reporting rules, NRIs can optimize their returns while staying compliant with Indian tax laws. Platforms like TaxBuddy simplify the process by offering expert support, accurate computation of long-term and short-term gains, and automatic validation of AIS and TDS data.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. What qualifies as capital gains for NRIs? Capital gains for Non-Resident Indians (NRIs) arise when they sell capital assets located in India, such as real estate, listed shares, mutual funds, or bonds. The profit earned on the sale is treated as capital gain and taxed under the Income Tax Act. The duration of holding determines whether the gain is classified as short-term or long-term. For example, a property held for more than 24 months or listed shares held for more than 12 months qualify as long-term capital assets, eligible for lower tax rates and indexation benefits.
Q2. How is capital gains tax different for NRIs and residents?
While both NRIs and residents are subject to capital gains tax in India, the key difference lies in tax collection. Residents usually pay tax on self-assessment when filing their ITR, but NRIs face mandatory Tax Deducted at Source (TDS) under Section 195. This means that when an NRI sells a property or shares, the buyer must deduct tax before making the payment. NRIs can later claim refunds or adjust the TDS amount when filing their return.
Q3. What is the TDS rate for NRIs selling property in India?
The TDS rate depends on whether the capital gain is short-term or long-term. For long-term capital gains (property held for more than 24 months), the applicable TDS rate is 20% plus surcharge and cess. For short-term capital gains, the rate increases to 30% plus applicable surcharge and cess. The buyer of the property is responsible for deducting this amount at the time of payment and depositing it with the Income Tax Department using Form 26QB.
Q4. Can NRIs claim exemption under Section 54 on reinvestment in another property?
Yes, NRIs can claim exemption under Section 54 of the Income Tax Act if they reinvest the long-term capital gains from the sale of a residential property into another residential property in India. The reinvestment must be made within one year before or two years after the date of sale (or within three years if constructing a new property). The new property should be located in India to qualify for the exemption.
Q5. Are capital gains on shares taxable for NRIs?
Yes, capital gains from the sale of shares or equity mutual funds by NRIs are taxable. Short-term capital gains (if held for less than 12 months) on listed shares are taxed at 15% under Section 111A, while long-term capital gains (held for more than 12 months) exceeding ₹1 lakh in a financial year are taxed at 10% under Section 112A, without indexation. TDS is applicable on such gains when funds are remitted outside India.
Q6. Can NRIs repatriate sale proceeds from property?
Yes, NRIs are allowed to repatriate sale proceeds of property in India, but certain conditions apply. After paying all applicable taxes and obtaining a Chartered Accountant’s certificate in Form 15CB and Form 15CA, NRIs can repatriate up to USD 1 million per financial year. The funds must be credited to a Non-Resident External (NRE) or Foreign Currency Non-Resident (FCNR) account for outward remittance.
Q7. Are indexation benefits available to NRIs?
Yes, NRIs can avail indexation benefits on long-term capital gains from assets such as property, bonds, and debt mutual funds. Indexation adjusts the purchase price of an asset for inflation, thereby reducing the taxable gain and the tax burden. However, indexation is not applicable to long-term gains on equity shares or equity mutual funds taxed under Section 112A.
Q8. What documents are required for claiming capital gains exemptions?
NRIs must maintain proper documentation to claim capital gains exemptions or deductions. These include the sale deed, purchase agreement, TDS certificates, Form 26AS records, and proof of investment in new property or capital gain bonds. For exemption under Sections 54 or 54EC, evidence of investment within the specified time frame is essential. Keeping all documents updated ensures smooth verification during tax filing or scrutiny.
Q9. Can an NRI avoid double taxation on capital gains?
Yes, NRIs can avoid double taxation by using the Double Taxation Avoidance Agreement (DTAA) signed between India and their country of residence. Under DTAA, they can either claim tax credit in their home country for taxes paid in India or be exempted from paying tax twice on the same income. The process requires documentation like a Tax Residency Certificate (TRC) and Form 10F.
Q10. How should NRIs report capital gains in their ITR?
NRIs must report capital gains in the appropriate sections of their Income Tax Return form—usually ITR-2 or ITR-3. Details of the asset type, sale price, purchase cost, and indexed cost (if applicable) should be mentioned under Schedule Capital Gains. Additionally, all related TDS deductions should match the entries in Form 26AS and the Annual Information Statement (AIS) to avoid mismatches or notices from the department.
Q11. How does TaxBuddy assist NRIs with capital gains filing?
TaxBuddy simplifies the filing process for NRIs by automating capital gain calculations and applying relevant exemptions under Sections 54, 54EC, and 112A. The platform matches sale data with AIS and 26AS, identifies eligible DTAA benefits, and ensures TDS credits are properly adjusted. With expert-assisted filing, NRIs can easily manage property sale proceeds, claim refunds, and remain fully compliant with Indian tax laws.
Q12. Are capital gains under the new tax regime treated differently for NRIs?
Capital gains for NRIs are governed by specific provisions of the Income Tax Act and are largely unaffected by the new tax regime. However, deductions and exemptions available under Chapter VI-A (such as 80C, 80D, etc.) are not allowed in the new regime. Therefore, while the rate of tax on capital gains remains the same, NRIs opting for the new regime may lose other income-based deductions, making the old regime more beneficial for most investors.
Comments