Capital Gains Tax for NRIs – The Complete Authority Guide

Introduction: Why NRIs Overpay Capital Gains Tax

Capital gains tax is the single biggest source of financial leakage for NRIs. Not because tax rates are unfair — but because the system is poorly explained, and most advice is reactive instead of proactive.

This guide breaks down capital gains taxation for NRIs in a practical, scenario-based way so you can plan *before* you sell, not after.

What Is Capital Gains Tax?

Capital gains tax is levied on profit arising from the sale of a capital asset in India, such as:

• Property
• Equity shares
• Mutual funds
• Bonds

For NRIs, property transactions are the most consequential.

Step 1: Identify the Asset Type

Different assets are taxed differently. This guide focuses on immovable property, where stakes are highest.

Step 2: Determine Holding Period

• Long-Term Capital Asset (LTCA): Held > 24 months
• Short-Term Capital Asset (STCA): Held ≤ 24 months

*Note: Holding period is calculated from date of acquisition (Registration) to date of sale agreement.*

Step 3: Compute Capital Gains

Capital Gain = Sale Price – (Indexed Cost of Acquisition + Indexed Cost of Improvement + Transfer Expenses)

• Indexed Cost: Adjusts your purchase price for inflation using the Cost Inflation Index (CII).
• Expenses: Brokerage, legal fees, stamp duty paid during purchase.

Step 4: Tax Rates for NRIs

• LTCG: 20% + Surcharge + Cess (Effective ~23-24%)
• STCG: Taxed at your applicable income tax slab rates (often 30%+)

*Note: For NRIs, the buyer deducts TDS at the highest rate (20-30%) unless a Lower TDS certificate is obtained.*

Exemptions to Save Tax (Long Term Only)

1. Section 54 (Residential Property)

• Reinvest capital gains in another residential property in India.
• Purchase within 1 year before or 2 years after sale, or construct within 3 years.

2. Section 54EC (Bonds)

• Invest up to ₹50 Lakhs in specified bonds (NHAI/REC).
• Lock-in period: 5 years.
• Invest within 6 months of sale.

Filing Requirements

Even if tax is deducted at source, NRIs must file an Income Tax Return (ITR) in India to:

• Report the gain
• Claim refunds if excess TDS was deducted
• Carry forward losses