Capital Gains Tax for NRIs on Indian Shares and Mutual Funds: The Rates, the Traps Residents Never See, and How to Pay Less

A Dubai-based reader sold Rs 40 lakh of Indian equity mutual funds last year, his fund house deducted tax, and he assumed that was the end of it. It was not. He had overpaid by claiming nothing under the treaty he was entitled to, missed the Rs 1.25 lakh exemption because the redemption straddled two financial years awkwardly, and separately sold an inherited flat where the buyer withheld 12.5% on the entire sale price instead of on the gain, freezing Rs 9 lakh of his money for fourteen months. Every one of those was avoidable.

The 30-second answer: An NRI's gains on listed Indian shares and equity mutual funds are taxed under Section 115AD: short-term (held 12 months or less) at 20%, long-term at 12.5% on gains above Rs 1.25 lakh a year, both for transfers on or after 23 July 2024, plus cess and a surcharge that is capped at 15% on these gains. Debt and most non-equity funds bought on or after 1 April 2023 are taxed at slab rates with no long-term benefit. Property held over 24 months is long-term at 12.5% with no indexation, and unlike residents, NRIs get no option to use the old 20%-with-indexation method. TDS is deducted at source, often too much, and a DTAA can cut the rate to zero for UAE residents on shares.

This guide assumes you already know what an NRE or NRO account is and what your residency status means; if not, read the residency guide first. What follows is the part that costs real money: how Section 115AD actually computes your bill, the three places NRIs pay more than residents on identical gains, and the two levers (Section 197 and your treaty) that bring it back down.

Your gains run through Section 115AD, and that changes the surcharge

Residents are taxed on listed-equity gains under Sections 111A (short-term) and 112A (long-term). As an NRI you are taxed under Section 115AD, the regime written specifically for non-residents and foreign investors holding Indian securities. The rates are the same numbers, 20% short-term and 12.5% long-term, but routing through 115AD matters for one thing people consistently miss: surcharge.

Surcharge is an extra percentage on top of your income tax, rising with income: 10% above Rs 50 lakh, 15% above Rs 1 crore, and historically 25% and 37% above Rs 2 crore and Rs 5 crore. Here is the relief almost no blog states plainly: on capital gains taxed under 111A and 112A (and on dividends), surcharge is capped at 15%, no matter how large the gain. The 25% and 37% bands simply do not apply to these gains. Under the new tax regime the top surcharge is 25% anyway, but the 15% cap on capital gains still binds and still saves high-value sellers a meaningful amount.

So your effective long-term rate on a large equity gain is 12.5%, plus at most 15% surcharge on that tax, plus 4% cess on the total: a ceiling of roughly 14.95%, not the scary 17%-plus a naive reading of the surcharge table would give you.

Put real numbers on that. Take Meera, an NRI, who sells equity mutual funds held for three years with a long-term gain of Rs 30,00,000 and has other Indian income that pushes her into surcharge territory above Rs 1 crore.

The first Rs 1,25,000 is exempt. The taxable gain is Rs 28,75,000. Tax at 12.5% is Rs 3,59,375.

Because her total income crosses Rs 1 crore, 15% surcharge applies: Rs 53,906. Add 4% cess (Rs 16,531) and the bill is about Rs 4,29,812.

Now the counterfactual that shows why the cap matters. Suppose her total income crossed Rs 2 crore, which normally triggers 25% surcharge. On the capital-gains tax the surcharge is still held at 15%, not 25%. Without the cap she would pay 25% surcharge of Rs 89,844 plus cess, about Rs 4,67,234. The cap saves her roughly Rs 37,000 on this single gain. The lesson: a high earner's capital gains are taxed more gently than their salary, and you should not let a tax preparer apply the slab surcharge to them.

The basic-exemption trap that only hits NRIs

Here is the first place you pay more than a resident on an identical gain. A resident whose total income is below the basic exemption limit can set the unused portion of that exemption against their 111A and 112A gains. A retired resident with Rs 2 lakh of other income and a Rs 6 lakh long-term gain can absorb part of the gain into the unused exemption.

An NRI cannot. Section 115AD and the provisos to 111A and 112A deny non-residents the benefit of adjusting the basic exemption limit against these special-rate gains. Your equity LTCG is taxed from the first rupee above the Rs 1.25 lakh threshold, regardless of how low your other Indian income is. For an NRI with little other Indian income, this quietly adds tax that an otherwise identical resident would never pay. It is not a position you can argue around; it is written into the section. Plan for it by timing realisations and using the Rs 1.25 lakh annual exemption deliberately rather than wasting it.

Grandfathering: your pre-2018 shares are cheaper to sell than you think

If you have held Indian equity since before 1 February 2018, you benefit from grandfathering under Section 112A, and it materially lowers the gain. Your cost of acquisition is taken as the higher of (a) what you actually paid and (b) the lower of the fair market value on 31 January 2018 and your sale price.

Here is what that does in practice. Rahul, an NRI, bought listed shares in 2012 for Rs 4,00,000. Their value on 31 January 2018 was Rs 12,00,000. He sells in 2026 for Rs 20,00,000.

Without grandfathering, his gain looks like Rs 20,00,000 minus Rs 4,00,000, or Rs 16,00,000. With grandfathering, his cost becomes the higher of Rs 4,00,000 (actual) and Rs 12,00,000 (the lower of the 31 January 2018 value and the sale price), so Rs 12,00,000. His taxable gain is Rs 20,00,000 minus Rs 12,00,000 = Rs 8,00,000, less the Rs 1.25 lakh exemption, leaving Rs 6,75,000 taxed at 12.5%, about Rs 84,375 plus cess. Grandfathering cut his taxable gain in half. If your broker's statement shows the raw 2012 cost, it is overstating your tax; the gain on pre-2018 holdings must be recomputed.

Debt, gold and international funds: the long-term benefit is mostly gone

This is where outdated advice does the most damage. For specified mutual funds, broadly those investing 65% or more in debt, units bought on or after 1 April 2023 are covered by Section 50AA: every gain is treated as short-term and taxed at your slab rate, no matter how long you hold, with no 12.5% long-term rate and no indexation. For an NRI that means slab rates apply and TDS follows.

Units of such funds bought before 1 April 2023 still follow the older logic, and after the 23 July 2024 changes a genuine long-term holding (over 24 months) is taxed at 12.5% without indexation. Gold funds, international funds and funds holding 35% to 65% debt have their own holding-period rules after the 2024 overhaul. The practical takeaway for an NRI building a portfolio: do not assume any non-equity fund gives you a soft long-term rate. Check the fund's debt percentage and your purchase date before you count on it, and read the mutual fund eligibility guide for the US and Canada PFIC overlay that can make these moot.

Property: why you pay more than the resident next door

Sell a flat held over 24 months and the gain is long-term at 12.5%. When Finance Act 2024 cut the rate from 20% to 12.5% it also removed indexation, the adjustment that inflated your cost for inflation and shrank the gain. To soften the blow for property bought before 23 July 2024, the law gave sellers a choice: pay 20% with indexation or 12.5% without, whichever is lower.

The catch, and it is a real NRI-specific penalty: that choice was granted to resident individuals and HUFs only. As a non-resident you do not get the option. You pay 12.5% without indexation, full stop, even on a flat you have owned for fifteen years where indexation would have wiped out most of the gain. On a long-held, modestly-appreciating property, a resident can come out far ahead of an NRI selling the identical unit in the same building.

The gap is easiest to see on a single flat in two different hands. A flat bought in 2010 for Rs 50,00,000 sells in 2026 for Rs 1,50,00,000. Assume an indexed cost, had indexation applied, of about Rs 1,15,00,000.

A resident can choose: 12.5% on the unindexed gain of Rs 1,00,00,000 is Rs 12,50,000; or 20% on the indexed gain of Rs 35,00,000 is Rs 7,00,000. The resident picks the lower and pays about Rs 7,00,000 plus surcharge and cess.

An NRI has no choice: 12.5% on the unindexed gain of Rs 1,00,00,000 is Rs 12,50,000 plus surcharge and cess. On the same flat, the NRI pays roughly Rs 5.5 lakh more than the resident, purely from being denied the indexation option. This is the most expensive NRI-specific quirk in the capital gains code, and it should change how you think about whether to sell Indian property at all versus let it out. See selling property as an NRI for the exemptions (Sections 54, 54EC, 54F) that can offset this.

TDS: the buyer over-withholds, and you fund the government's float

On listed shares and equity mutual funds sold through the exchange or redeemed with a fund house, TDS under Section 195 read with 115AD is deducted on the gain: 12.5% long-term, 20% short-term, plus surcharge and cess. That is broadly fair.

Property and off-market deals are where money gets trapped. The buyer of property from an NRI must deduct TDS under Section 195, and the correct base is the capital gain, but a buyer with no way to compute your gain, and a cautious CA, routinely deducts 12.5% on the entire sale value. On a Rs 1.5 crore flat that is roughly Rs 19 lakh withheld against a true liability that might be Rs 6 lakh, with the rest refunded only after you file a return months later. The fix is a lower-deduction certificate under Section 197 (Form 13), applied for before the sale, which tells the buyer the exact amount to deduct. On any property sale it is worth the few weeks it takes. The mechanics are in TDS for NRIs and how to claim refunds and the lower-TDS certificate guide.

Your DTAA can take the Indian tax to zero on shares

The fact that most surprises NRIs: your country of residence can override India's right to tax your share gains entirely. Under the India-UAE treaty, gains on shares (other than shares deriving their value mainly from Indian property) are taxable only in the country of residence. The UAE has no personal capital gains tax, so a genuine UAE tax resident can face zero Indian tax on listed-share gains, provided they hold a Tax Residency Certificate, file Form 10F, and meet the treaty's substance and limitation-of-benefits conditions.

This does not generalise. The US, UK and Canada treaties let India tax these gains, so those NRIs pay the Indian rate and claim a foreign tax credit at home via Form 67 to avoid double tax. And the treaty advantage applies to shares and securities, not to Indian property, which every treaty leaves taxable in India. Singapore and Mauritius, once the famous zero-tax routes, were grandfathered out for shares acquired after 1 April 2017. So the honest position is country-specific: powerful for the Gulf, neutral for the West, and never available on real estate. The documentation steps are in DTAA mechanics.

A decision table for what you actually hold

What you are selling	Long-term after	NRI long-term rate	The thing to watch
Listed equity / equity MF	12 months	12.5% above Rs 1.25 lakh	Surcharge capped at 15%; no basic-exemption set-off
Debt fund bought on/after 1 Apr 2023	Any period	Slab rate (no LTCG)	Section 50AA; long-term benefit removed
Debt/other fund bought before 1 Apr 2023	24 months	12.5%, no indexation	Check the fund's debt percentage
Property	24 months	12.5%, no indexation	No 20%-indexed option for NRIs; use 54/54EC/54F
Unlisted shares	24 months	12.5%, no indexation	TDS on full value risk; get Section 197

Edge cases

Splitting a redemption across financial years. The Rs 1.25 lakh equity exemption resets each financial year. A large redemption split deliberately across 31 March and 1 April captures the exemption twice and can keep you under a surcharge threshold in each year. An accidental straddle that wastes one year's exemption is the more common, costlier event.

Buy-backs and the 2024 shift. Since 1 October 2024, company share buy-back proceeds are taxed in the shareholder's hands as a deemed dividend rather than as capital gains, which changes the maths for NRIs holding shares of companies announcing buy-backs. Treat a buy-back as dividend income, not a capital gain.

The Rs 1.25 lakh exemption under 115AD was historically debated. Older commentary argued non-residents taxed under 115AD did not get the Rs 1 lakh (now Rs 1.25 lakh) exemption that 112A gives residents. The return utilities now apply it to NRIs, but if you are filing a very large or unusual gain, have your CA confirm the position for your year rather than assume.

The closing read

The honest read is that capital gains is where being an NRI quietly costs you, and where a little planning pays for itself many times over. Three NRI-specific facts should drive your decisions: you cannot set the basic exemption against equity gains, you get no indexation option on property, and your treaty may hand you zero tax on shares. So for most NRIs: harvest up to Rs 1.25 lakh of equity gains tax-free every financial year and never waste that allowance; think hard before selling long-held Indian property, because the no-indexation rule makes the tax heavier for you than for a resident, and route any sale through a Section 197 certificate so you are not financing the government for a year; and if you are a Gulf resident, get your TRC and Form 10F in place before you sell shares, because the India-UAE treaty is worth more than any other move on this list. If your situation is a large property sale or a buy-back, that is the point to pay a CA, not to rely on a blog, this one included.

Related guides

• NRI residency and RNOR rules
• ITR filing for NRIs: AY 2026-27 master guide
• Capital gains exemptions: Sections 54, 54EC and 54F
• Selling property in India as an NRI
• TDS for NRIs and how to claim refunds
• The lower-TDS certificate (Form 13, Section 197)
• DTAA relief for NRIs
• DTAA mechanics: TRC, Form 10F and Section 90
• Foreign tax credit and Form 67
• NRI mutual fund eligibility and the PFIC trap
• Capital loss set-off and carry-forward
• All Taxation guides

This guide is educational and general in nature. It is not individual tax advice. Capital gains outcomes depend on your exact holdings, dates, residency and treaty, and several rules here changed on 23 July 2024 and may change again, so confirm your specific position with a qualified chartered accountant before you sell.