Why This Matters to You as an NRI Investor
If you hold Indian equity shares, equity oriented mutual funds, ETFs, or even units of InvITs and REITs, the Indian government considers your gains "Indian sourced income." That means India taxes you on those gains regardless of where you live, regardless of whether the money sits in a repatriable or non repatriable account, and regardless of whether you actually bring the money out of India.
The Finance (No. 2) Act 2024, effective from July 23, 2024, changed the rates meaningfully. Since no further reversal happened in Budget 2025, these rates hold firm for FY 2025 26 (Assessment Year 2026 27). Let us break it all down.
The New Tax Rates at a Glance
Short Term Capital Gains (STCG)
You trigger STCG when you sell listed equity shares or equity oriented mutual fund units that you held for 12 months or less.
| What Changed | Old Rate (Before July 23, 2024) | New Rate (FY 2025 26) | |---|---|---| | STCG on listed equities and equity mutual funds (where STT was paid) | 15% | 20% |
On top of the 20 percent, you pay a 4 percent health and education cess plus a surcharge that depends on your total income bracket.
Long Term Capital Gains (LTCG)
You trigger LTCG when you sell listed equity shares or equity oriented mutual fund units that you held for more than 12 months.
| What Changed | Old Rate | New Rate (FY 2025 26) | |---|---|---| | LTCG on listed equities and equity mutual funds | 10% | 12.5% | | Annual exemption threshold | 1 lakh rupees | 1.25 lakh rupees |
So the first 1.25 lakh rupees of your long term gains in any financial year attract zero tax. Only the amount above that threshold gets taxed at 12.5 percent (plus cess and surcharge).
Unlisted Equity Shares
If you hold unlisted equity shares (think pre IPO allotments, private company stakes, or ESOP shares in unlisted startups), the holding period for LTCG is more than 24 months. The LTCG rate is also 12.5 percent, but there is no annual exemption threshold here.
Indexation Is Gone for Financial Assets
This is a big deal. Before July 23, 2024, you could use the Cost Inflation Index to adjust your purchase price upward and reduce your taxable gain on certain assets. For equity shares and mutual funds, indexation no longer applies. Your gain is simply the sale price minus the actual purchase price.
Note that real estate has a transitional provision for properties bought before July 2024, but for stocks and mutual funds, the change is clean and absolute.
How Surcharge Works on Your Gains
The surcharge applies based on your total income in India (including capital gains). Here is the surcharge slab structure:
| Total Income in India | Surcharge Rate | |---|---| | Up to 50 lakh rupees | Nil | | 50 lakh to 1 crore rupees | 10% | | 1 crore to 2 crore rupees | 15% | | 2 crore to 5 crore rupees | 25% | | Above 5 crore rupees | 37% |
So if you are a high net worth NRI with significant Indian income, your effective tax rate on capital gains can climb noticeably above the headline 12.5 or 20 percent.
TDS: The Tax Deducted Before You Even See the Money
As an NRI, your broker or Asset Management Company (AMC) must deduct TDS before releasing your sale proceeds. The TDS rates for NRIs are:
| Type of Gain | TDS Rate | |---|---| | LTCG on equity shares and equity mutual funds | 10% on gains exceeding 1.25 lakh rupees | | STCG on equity shares and equity mutual funds | 15% |
You might notice the TDS rates do not perfectly match the actual tax rates (for example, STCG TDS is 15 percent but the actual tax is 20 percent). This means you will likely owe additional tax when you file your income tax return. Conversely, if too much TDS was deducted, you can claim a refund.
Getting a Lower TDS Certificate
If your actual tax liability will be lower than the standard TDS rate (perhaps because your total income falls in a lower bracket or you have losses to set off), you can apply to the Assessing Officer for a Lower Deduction Certificate under Section 197. Your broker or AMC will then deduct TDS at the reduced rate specified in that certificate.
What Budget 2025 Added
The Union Budget announced around July 2025 did not change the capital gains rates. However, it brought a few refinements that matter:
1. Better AIS and Form 26AS reporting: The Annual Information Statement now captures more granular details of your capital transactions. This means the tax department already knows about your trades before you file your return, so accuracy in reporting is more important than ever. 2. Reaffirmed reinvestment exemptions: Sections 54 and 54F (which let you save tax by reinvesting proceeds into residential property) remain available, though they apply more to real estate gains than to equity or mutual fund gains. 3. Eased TDS compliance tracking: The systems that brokers and AMCs use to track and report TDS for NRI accounts have been streamlined, which should reduce errors and delays in your Form 26AS.
Investment Angle: What This Means for Your Portfolio Strategy
The Cost of Short Term Trading Went Up
With STCG jumping from 15 to 20 percent, the tax drag on frequent trading increased significantly. If you are an NRI who actively trades Indian stocks or switches between equity mutual fund schemes within a year, you now keep less of each rupee of profit. This nudges the math toward holding positions for at least 12 months whenever your investment thesis supports it.
Long Term Investing Still Gets Favorable Treatment
At 12.5 percent (up from 10 percent), long term gains tax is still considerably lower than the short term rate. Combined with the 1.25 lakh rupee annual exemption, a patient investor who accumulates gains over multiple years and harvests them strategically can keep the effective rate quite low.
Tax Loss Harvesting Becomes More Valuable
Because the rates went up, the value of offsetting gains with losses also went up. If you hold positions that are underwater, selling them to book short term capital losses (which you can set off against short term gains) or long term capital losses (which you can set off against long term gains) saves you more tax per rupee of loss than it did before July 2024.
Sectoral Opportunities Still Shine
India's PLI (Production Linked Incentive) schemes across electronics, semiconductors, pharmaceuticals, and defence continue to channel government support into listed companies. Infrastructure spending through the National Infrastructure Pipeline and energy transition investments in solar, green hydrogen, and EV supply chains create long term growth stories. As an NRI investor, the higher capital gains tax does not change the fundamental attractiveness of these sectors. It simply means you should factor in the updated tax cost when calculating your expected post tax returns.
Filing Your Return: The Compliance Checklist
1. Use ITR 2 or ITR 3: NRIs with capital gains must file ITR 2 (if no business income) or ITR 3 (if you have business or professional income in India). 2. Fill Schedule CG carefully: Report each transaction with acquisition date, sale date, cost, sale price, and computed gain or loss. The AIS pre fills much of this, but verify every entry. 3. Claim TDS credit: Cross check your Form 26AS and AIS to ensure every rupee of TDS deducted by your broker or AMC shows up. Mismatches delay refunds. 4. Claim DTAA relief if applicable: If you live in a country that has a Double Taxation Avoidance Agreement with India (the US, UK, Canada, UAE, Singapore, Australia, Germany, and many others do), you can either claim a Foreign Tax Credit in India or claim relief in your country of residence. The mechanism varies by treaty, so check the specific DTAA that applies to you. 5. File even if your income is below the basic exemption limit: If TDS was deducted, you need to file a return to claim your refund.
Repatriation Rules Remain Unchanged
The Reserve Bank of India and FEMA regulations still allow NRIs to repatriate up to 1 million US dollars per financial year from their NRO accounts (after paying all applicable taxes). Capital gains proceeds flow into your NRO account first, TDS gets deducted, and then you can transfer the post tax amount to your overseas bank account within the annual limit. If you need to repatriate more, you apply to an authorized dealer bank with supporting documentation.
Reinvestment Exemptions Worth Knowing
While these apply more to property gains, they are worth mentioning because some NRIs sell shares to fund a home purchase:
1. Section 54EC: Invest long term capital gains (up to 50 lakh rupees) in specified bonds issued by NHAI or REC within six months of the sale, and you can exempt those gains from tax. The bonds have a five year lock in. 2. Section 54: If you sell a residential property (not shares) and buy or construct another residential property in India, you can exempt the LTCG. NRIs can use this, but the conditions around timelines and number of properties are strict.
Common Mistakes NRIs Make
1. Using old tax rates: Many online calculators and even some advisory platforms still show the pre July 2024 rates of 15 percent STCG and 10 percent LTCG. Always confirm you are using the current 20 percent and 12.5 percent figures. 2. Ignoring surcharge: The headline rate is just the starting point. If your Indian income crosses 50 lakh rupees, the surcharge adds meaningfully to your bill. 3. Forgetting to report foreign assets: If you are filing an Indian return, you must also disclose your foreign bank accounts and assets in Schedule FA. Missing this triggers penalties under the Black Money Act. 4. Not coordinating with your country of residence: Capital gains taxed in India may also be taxable where you live. Without proper DTAA planning, you could end up paying tax twice on the same gain.
Quick Reference Summary
| Item | Detail | |---|---| | STCG rate (listed equity, equity MFs) | 20% plus cess plus surcharge | | LTCG rate (listed equity, equity MFs) | 12.5% plus cess plus surcharge | | LTCG exemption threshold | 1.25 lakh rupees per financial year | | Holding period for STCG (listed) | 12 months or less | | Holding period for LTCG (listed) | More than 12 months | | Holding period for LTCG (unlisted equity) | More than 24 months | | Indexation for equity and MFs | Not available | | TDS on LTCG for NRIs | 10% on gains above 1.25 lakh | | TDS on STCG for NRIs | 15% | | Repatriation limit from NRO | 1 million USD per financial year | | ITR form | ITR 2 or ITR 3 |
Stay on top of your AIS, file on time, and coordinate your Indian and overseas tax positions. The rates may have gone up, but India's equity markets continue to offer compelling long term opportunities for NRI investors who plan their taxes well.