NRI Capital Gains Tax 2026: How Your India Shares & Property Are Taxed

If you're an NRI who still holds shares, mutual funds, or a flat back in India, you've probably felt that uneasy moment when a fund redemption hits your NRO account and a big chunk has already vanished as TDS. Or when a buyer's lawyer tells you they must deduct over 20% before releasing your property sale proceeds. It feels like your own money is being held hostage — and in a way, it is.

Here's a number that surprises most people: on the sale of a long-held property, a buyer is often required to deduct TDS at more than 20% on the entire sale value, not just your actual gain. On a ₹1.5 crore flat, that can mean ₹30+ lakh withheld — even if your real taxable gain is a fraction of that. The good news? A large part of that is recoverable if you plan correctly. That gap between what gets deducted and what you actually owe is where most NRIs lose money — either by overpaying or by scrambling at the last minute.

This guide breaks down NRI capital gains tax India 2026 in plain language: how your equity shares, mutual funds, and property are taxed, what TDS applies, how DTAA benefits work, and exactly how to claim your refund. We'll walk through real ₹ examples so you can see the math yourself.

Key Takeaways

• Equity shares and equity mutual funds held over 12 months are long-term; LTCG above ₹1.25 lakh is taxed at 12.5%. Short-term equity gains are taxed at 20%.
• Property held over 24 months is long-term; LTCG is taxed at 12.5% without indexation (with a grandfathering option for pre-July-2024 purchases).
• Buyers must deduct TDS on property bought from an NRI — often ~20%+ surcharge and cess on the full sale value — unless you get a Lower Deduction Certificate.
• You can reclaim excess TDS by filing an Indian income tax return (ITR). Refunds are common.
• Reinvesting in another house (Section 54) or in specified bonds (Section 54EC) can legally cut your capital gains tax to near zero.
• DTAA can prevent double taxation between India and your country of residence — but you must submit a Tax Residency Certificate (TRC) and Form 10F.

Who counts as an NRI for capital gains tax purposes?

Your residential status under the Income Tax Act — not your passport or visa — decides how you're taxed. Broadly, you're a Non-Resident Indian (NRI) for a financial year if you stay in India for less than 182 days (with additional 120/60-day conditions for certain higher-income individuals visiting India).

This matters because:

• NRIs are taxed in India only on income that arises or accrues in India — which includes capital gains on Indian shares, mutual funds, and property.
• NRIs generally cannot claim the basic exemption limit against capital gains that residents can adjust. In practice, the ₹1.25 lakh LTCG exemption on equity still applies to everyone.
• NRIs face mandatory TDS at higher rates on many transactions, which residents don't.

If your status flips between resident and non-resident across years (common for people who recently moved abroad), get it confirmed before you transact. The tax outcome can differ dramatically.

How are NRI capital gains on shares and mutual funds taxed in 2026?

Capital gains split into two buckets based on holding period and asset type.

Equity shares and equity mutual funds (listed)

• Short-term (held ≤ 12 months): taxed at 20%.
• Long-term (held > 12 months): gains above ₹1.25 lakh in a financial year are taxed at 12.5% (no indexation).

Debt mutual funds and other assets

For debt funds bought after 1 April 2023, gains are added to income and taxed at slab rates regardless of holding period. For older units and other capital assets like gold or unlisted shares, long-term treatment kicks in after 24–36 months and is taxed at 12.5%.

Worked example: Priya's equity mutual fund redemption

Priya, an NRI in Dubai, invested ₹10,00,000 in an Indian equity mutual fund via SIP over several years. She redeems the entire holding after five years for ₹18,50,000.

1. Total gain = ₹18,50,000 − ₹10,00,000 = ₹8,50,000
2. All units held over 12 months, so this is long-term.
3. Exempt slice = ₹1,25,000
4. Taxable LTCG = ₹8,50,000 − ₹1,25,000 = ₹7,25,000
5. Tax at 12.5% = ₹90,625 (plus applicable surcharge and 4% cess)

Now here's the catch for NRIs: the fund house/AMC will deduct TDS at 12.5% on the full LTCG (often without giving you the ₹1.25 lakh exemption benefit at source). So TDS deducted may be ₹8,50,000 × 12.5% = ₹1,06,250. Priya's actual liability is only ₹90,625 (plus cess). The difference of roughly ₹15,000+ is refundable when she files her return.

Before you redeem, run the projected corpus through our SIP Calculator and estimate the tax hit with the Income Tax Calculator so there are no surprises.

How is NRI property sale taxed and why is the TDS so high?

Property is where NRIs get hit hardest — not because the tax is high, but because the TDS mechanism is aggressive.

The capital gains tax itself

• Short-term (held ≤ 24 months): gain added to income, taxed at slab rates.
• Long-term (held > 24 months): taxed at 12.5% without indexation. For property purchased before 23 July 2024, resident-status taxpayers can opt for the older 20%-with-indexation method if it's lower — a valuable grandfathering choice worth comparing.

The TDS problem

When a resident buys property from an NRI seller, they must deduct TDS under Section 195 — and this applies to the entire sale consideration, not just your gain, unless you obtain a Lower/Nil Deduction Certificate.

• Long-term sale: TDS at 12.5% + surcharge + 4% cess, effectively around 13–14.95% depending on sale value.
• Short-term sale: TDS at higher slab-based rates plus surcharge and cess.

Surcharge scales up sharply on high-value transactions, which is why the "20%+" figure gets quoted for large properties.

Common mistake: Many NRIs assume TDS is only on their profit. It's not — it's on the full sale price. On a ₹1 crore flat where your actual gain is only ₹20 lakh, the buyer may still withhold ₹13–15 lakh. Always apply for a Lower Deduction Certificate (Form 13) from the Income Tax Department before the sale, so TDS is deducted on your real gain, not the whole amount. This single step saves lakhs in blocked cash.

Worked example: Arjun sells his Pune flat

Arjun (NRI in the UK) bought a flat in 2015 for ₹45,00,000 and sells it in FY 2025-26 for ₹1,10,00,000.

1. Sale value = ₹1,10,00,000
2. Cost of acquisition = ₹45,00,000 (plus registration/improvement costs, say ₹5,00,000)
3. Total cost = ₹50,00,000
4. Long-term capital gain = ₹1,10,00,000 − ₹50,00,000 = ₹60,00,000
5. Tax at 12.5% = ₹7,50,000 (plus surcharge and 4% cess)

But if Arjun does not get a Lower Deduction Certificate, the buyer must deduct TDS on the full ₹1.10 crore at ~13% = roughly ₹14–15 lakh — nearly double his real liability. That extra ₹7 lakh sits with the government until he files his ITR and claims a refund, which can take months.

Use our ROI Calculator to compare your net return after tax, and the Inflation Calculator to sanity-check whether the appreciation actually beat inflation.

How can NRIs legally reduce capital gains tax on property?

Two sections do the heavy lifting.

Section 54 — reinvest in another residential house

If you reinvest the capital gain from a residential house into another residential property in India (within 1 year before or 2 years after the sale, or 3 years for construction), the gain is exempt to the extent reinvested. If Arjun reinvests his full ₹60 lakh gain into a new flat, his LTCG tax can drop to zero.

Section 54EC — invest in specified bonds

Invest the capital gain (up to ₹50 lakh per financial year) in specified bonds (like NHAI/REC/PFC) within 6 months of the sale. These bonds carry a lock-in of 5 years. This is ideal when you don't want to buy another property.

Section 54F — for non-house assets

If your gain came from selling shares or gold (not a house) and you invest the net sale consideration into a residential house, Section 54F offers exemption subject to conditions.

Pro tip: If you can't reinvest before the ITR filing deadline, park the gain in a Capital Gains Account Scheme (CGAS) account at a bank before the due date. This preserves your exemption while you finalise the new property. Missing this deadline forfeits the exemption entirely.

How does DTAA protect NRIs from double taxation?

India has Double Taxation Avoidance Agreements (DTAA) with 90+ countries including the UAE, USA, UK, Singapore, and Australia. The principle is simple: you shouldn't pay full tax twice on the same income.

Depending on the treaty, capital gains may be taxable only in one country, or you may get a foreign tax credit in your country of residence for tax paid in India. To claim DTAA benefits, keep these ready:

• Tax Residency Certificate (TRC) from your country of residence.
• Form 10F filed on the Indian income tax portal.
• A self-declaration of no permanent establishment in India where applicable.

UAE residents, for example, often benefit significantly because there's no personal income tax there — making correct Indian-side planning even more important.

Old vs new: how do the tax scenarios compare?

Here's a side-by-side of common NRI capital gains situations for FY 2025-26 (excluding surcharge and cess for simplicity).

Scenario	Holding Period	Classification	Tax Rate	Notes
Listed equity shares	14 months	LTCG	12.5% above ₹1.25L	₹1.25L exemption per FY
Equity mutual fund	8 months	STCG	20%	No exemption slice
Residential property	3 years	LTCG	12.5% (no indexation)	Sec 54/54EC can reduce to nil
Debt mutual fund (post-2023)	Any	Slab-rate gain	Your slab	No LTCG benefit
Unlisted shares	30 months	LTCG	12.5%	Higher TDS at source common

Step-by-step: how do NRIs claim their TDS refund?

The excess TDS deducted is not lost — but you only get it back by filing a return. Here's the exact process.

1. Verify TDS in Form 26AS / AIS: Log in to the income tax portal and check that the deductor (fund house or property buyer) has actually deposited and reported the TDS against your PAN.
2. Compute your actual capital gains: Work out real gains after exemptions (₹1.25L for equity, Sections 54/54EC for property).
3. Choose the right ITR form: Most NRIs with capital gains file ITR-2.
4. Report exempt income and DTAA claims: Enter TRC/Form 10F details if claiming treaty relief.
5. Provide an NRO/NRE bank account for the refund: Refunds are credited only to a validated Indian bank account linked to your PAN.
6. File before the due date — typically 31 July following the financial year (verify each year, as extensions happen).
7. E-verify the return using Aadhaar OTP, net banking, or DSC. Unverified returns aren't processed.

Once processed, the refund (plus interest under Section 244A in many cases) lands in your account. Keep your contract note, purchase deeds, and improvement bills — the department may ask.

Planning multiple financial goals alongside this? Our free suite of calculators and the Goal Planner Calculator help you map out where the freed-up cash should go next.

What documents should NRIs keep ready?

• PAN card (mandatory for all transactions and TDS credit)
• Purchase deed / allotment letter and payment proofs for property
• Broker contract notes and mutual fund statements for shares/funds
• Bank statements of the NRO/NRE account used
• Form 26AS / AIS / TIS downloads
• TRC and Form 10F for DTAA
• Lower Deduction Certificate (Form 13), if obtained
• Reinvestment proofs (new property deed or 54EC bond certificates)

Frequently Asked Questions

Do NRIs pay capital gains tax on Indian mutual funds?

Yes. Gains on Indian mutual funds are Indian-source income and taxable in India. Equity funds attract 20% STCG or 12.5% LTCG (above ₹1.25 lakh), while post-2023 debt funds are taxed at slab rates. TDS is deducted by the AMC at redemption.

Can an NRI avoid TDS on property sale in India?

You can't fully avoid it, but you can reduce it. Apply for a Lower Deduction Certificate under Form 13 before the sale so TDS is calculated on your actual gain rather than the full sale price. This prevents lakhs of rupees being blocked unnecessarily.

How much LTCG is tax-free for NRIs on shares?

Long-term capital gains on listed equity shares and equity mutual funds are exempt up to ₹1.25 lakh per financial year. Gains above this are taxed at 12.5%. This exemption applies to residents and NRIs alike.

Which ITR form should an NRI use for capital gains?

Most NRIs reporting capital gains from shares, mutual funds, or property file ITR-2. You'll need to declare residential status, report gains under the capital gains schedule, and enter a valid Indian bank account for any refund.

Does DTAA reduce capital gains tax in India?

It can. Depending on the treaty with your country of residence, gains may be taxable only in one country or eligible for a foreign tax credit. To claim benefits, you must submit a Tax Residency Certificate and file Form 10F on the Indian portal.

Can NRIs invest in Section 54EC bonds to save tax?

Yes. NRIs can invest up to ₹50 lakh of long-term capital gains from property into specified 54EC bonds within 6 months of the sale, subject to a 5-year lock-in. This exempts the reinvested gain from tax.

Is TDS refundable if it's higher than my actual tax?

Absolutely. Excess TDS is fully refundable when you file your Indian income tax return. You may even earn interest under Section 244A on the refund. Ensure the TDS appears in your Form 26AS/AIS and provide a validated bank account.

Final word: plan before you transact, not after

The biggest mistake NRIs make with NRI capital gains tax India 2026 isn't paying too much tax — it's letting lakhs of rupees get stuck as excess TDS for a year because they didn't plan ahead. Get your Lower Deduction Certificate before selling property, keep your ₹1.25 lakh equity exemption in mind, use Sections 54/54EC where they fit, and file your ITR on time to claw back every rupee you're owed.

Run your projected gains through our Income Tax Calculator, model your reinvestment with the Lumpsum Investment Calculator, and if you're weighing a fresh property purchase back home, size the loan with our Home Loan EMI Calculator. For more tax-planning reads, see our guide on new income tax rules from April 1, 2026 and the walkthrough on Form 12BAA and cutting TDS.

Have a specific NRI scenario you're stuck on? Reach out to us or learn more about AlarmDaddy and the free tools we build to make Indian personal finance less painful.

This article is for general educational purposes and is not personalised tax advice. Tax rules and rates can change; verify current provisions with a qualified professional before acting.

Image credit: Scrabble Series Income Tax — ccPixs.com, via flickr (BY 2.0), sourced from Openverse.