Tax on Capital Gains earned by NRI

If the income accrued in India from sources such as capital gains from investments in stocks, mutual funds, property rental, and term deposits exceeds the basic exemption limit as defined in the income tax Act, an NRI would have to file an income tax return.

The first and foremost point to be considered is, that, individuals must specify their Residential Status while filing their ITR.

Your residential status in India is determined by your period of stay in the given financial year. If you claim the status as an Indian resident, then, are required to pay tax on your global income, whereas non-residents are only taxed on income earned in India.

Taxability on Income from capital gains:

The capital gains tax provisions for NRIs are similar to those for the resident individuals except for the applicability of TDS provisions. Similarly to resident investors, the tax on capital gains for NRIs also depends on the holding period and the type of investments sold.

Capital assets like house property, shares, securities, gold, etc. If belong to India, then capital gain arising from the transfer of these capital assets shall be taxable in India only.

Capital gain on equity and related instruments by NRI

Let’s say you have units of equity-oriented funds and you plan to sell them. If you sold it after a holding period of more than 12 months then it is considered long-term capital gains Long Term Capital Gain Tax on Shares Section 112A - Learn by Quicko) (LTCG), which is taxable at 10%, exceeding Rs.1 lakh exemption and a securities transaction tax (STT) must be paid to sell these units. Remember that no indexation benefit on the cost of acquisition is allowed for equity-oriented investments.

Whereas, If you sold it after 12 months then would be treated as short-term capital gains (STCG), which is taxed at a flat 15%.

Capital gain on unlisted shares and immovable property by NRI

If you hold any unlisted shares or immovable property and sell it after a holding period of 24 months would be considered LTCG, while less than 24 months is treated as STCG.

Here, LTCG is taxable at 20% with indexation. Indexation increases the cost of assets, taking inflation into account.

Whereas, STCG on these assets will be added to other taxable income and taxed as per individual slab rate. For instance, if a person is falling under the 30% bracket then would be taxed at the same.

Capital Gains on Debt-funds and other capital assets

For debt-oriented funds, if an individual holding for a period of more than 36 months is treated as LTCG and less than that is considered as STCG.

LTCG on these investments will be taxed at a rate of 20% with indexation, whereas, STCG would be taxed at an individual’s tax slab.

TDS applicable on LTCG and STCG

Particulars TDS on Long-Term Capital Gains TDS on Short-term Capital Gains
Equity 10% 15%
Non-Equity 20% 30%

And just like residents, the NRIs are also allowed to claim tax exemption under sections 54, 54EC, and 54F on the long term capital gains.

Which ITR Form should NRI fill out to report Capital Gains?

NRI receiving income from salary, capital gains, or other sources, other than business or profession is required to file Form ITR-2. The return must be filed by July 31st of the following financial year.