Taxation of NRI Capital explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A Non-Resident Indian is taxed in India on capital gains from Indian assets — shares, mutual funds and property. Rates differ for short vs long-term and equity vs other assets, TDS is deducted at sale, and DTAA relief plus reinvestment exemptions (sections 54/54EC) can reduce the burden.
Overview
Residential status decides the scope of Indian taxation. An NRI is taxed on income that accrues, arises or is received in India — which includes capital gains from a capital asset situated in India. So the location of the asset, not the NRI’s residence, drives Indian taxability. Relief may then be available under the DTAA between India and the NRI’s country of residence.
Types of Capital Gains
Gains are short-term or long-term depending on the holding period, and rates depend on the asset class:
| Asset | Long-term (holding) | Indicative rate |
|---|---|---|
| Listed equity shares / equity mutual funds | > 12 months | LTCG 12.5% above exemption (s.112A); STCG 20% (s.111A) |
| Immovable property | > 24 months | LTCG 12.5% (revised regime); STCG at slab rates |
| Unlisted shares / other assets | > 24 months | LTCG 12.5%; STCG at slab rates |
These reflect the revised capital-gains framework. Rates and the equity exemption limit are set by the Finance Act — verify the current figures before computing.
TDS on Sale by an NRI
When an NRI sells, the buyer deducts TDS under section 195 — not the 1% section 194-IA rule that applies to resident property sellers. TDS is on the taxable gain, but in practice buyers often deduct on a higher base unless the NRI obtains a lower/nil deduction certificate under section 197. Obtaining that certificate is the key planning step to avoid large refunds later.
Reinvestment Exemptions
- Section 54: exemption on LTCG from a residential house reinvested in another residential house in India.
- Section 54F: exemption on LTCG from any long-term asset reinvested in a residential house, subject to conditions.
- Section 54EC: exemption (capped at ₹50 lakh) on LTCG from land/building invested in specified bonds (NHAI/REC) within six months.
These are available to NRIs on the same terms as residents.
Chapter XII-A — Special NRI Regime
Chapter XII-A offers NRIs a concessional route for "specified assets" acquired in convertible foreign exchange (certain shares, debentures, deposits). It provides a special long-term rate and, where tax has been deducted and no other income arises, can relieve the NRI from filing a return. An NRI can elect out of this regime if the normal provisions are more beneficial.
Treaty Relief
The capital-gains article of the relevant DTAA governs which country may tax. Some treaties allocate taxing rights over shares to the country of residence, potentially exempting the gain in India; property gains are almost always taxable where the property is located. To claim treaty relief, furnish a TRC and Form 10F.
Worked Example
An NRI sells an Indian flat held for six years for ₹1,20,00,000 with an indexed/adjusted cost giving an LTCG of ₹30,00,000. LTCG is taxed at 12.5% = ₹3,75,000 (plus surcharge/cess). The buyer deducts TDS under section 195; the NRI can reduce this by obtaining a section 197 certificate and can further shelter the gain by investing in a new house (s.54) or ₹50 lakh of s.54EC bonds.
Common Pitfalls
- Buyers wrongly applying the 1% section 194-IA rate to an NRI seller.
- Not obtaining a section 197 lower-deduction certificate, leading to blocked funds.
- Overlooking the capital-gains article of the DTAA, which may reallocate taxing rights.