NRI LTCG Tax Rules in India FY 2025-26: What Non-Residents Must Know

NRI investors in Indian equity face the same 12.5% LTCG rate as resident Indians -- but the mechanics are different. TDS applies at source, DTAA treaties may reduce the effective rate, and there are specific account requirements that affect how gains are repatriated. This guide covers every aspect of NRI LTCG on Indian stocks and mutual funds for FY 2025-26.

LTCG Rate for NRIs: Same as Residents

Under Section 112A, LTCG on listed equity shares and equity mutual funds is taxed at 12.5% for NRIs -- the same rate as resident Indians. The ₹1.25 lakh annual exemption also applies to NRIs, subject to the income threshold condition explained below.

This parity with residents on the rate itself is often misunderstood. The difference for NRIs is in the mechanism of tax collection (TDS) and the requirements for filing to claim benefits.

TDS on NRI Capital Gains: Section 195

The significant difference for NRIs: TDS (Tax Deducted at Source) applies on capital gains at the time of sale. Under Section 195, the buyer (or the NRI's broker/depository) is required to deduct tax before remitting proceeds.

Default TDS rates on NRI capital gains from equity:

Type	Default TDS Rate	Actual Tax Rate	Likely Refund?
LTCG on listed equity (held 12+ months)	20% (Section 195 default)	12.5%	Yes -- 7.5% typically refunded
STCG on listed equity (held under 12 months)	20%	20%	No (if fully applicable)

The 20% TDS default rate for LTCG often results in excess deduction since the actual tax is only 12.5%. NRIs need to file an ITR to claim the refund of excess TDS, plus the ₹1.25L exemption that was not accounted for at source.

How to Claim TDS Refund as an NRI

Steps to claim refund of excess LTCG TDS:

1. File ITR-2 in India for the relevant assessment year (before December 31 of the assessment year for NRIs)
2. Report all capital gains from Indian equity in Schedule CG -- include both LTCG and STCG
3. Report TDS deducted in Schedule TDS/TCS -- cross-check against Form 26AS (available on the Income Tax portal)
4. Claim refund if TDS exceeds tax liability -- the ITR will compute the refund automatically
5. Refund arrives in the NRI's NRO bank account (refunds are credited to the NRO account, not NRE)

Time to process: typically 2-6 months after ITR filing and verification. Use Aadhaar-based OTP or EVC (Electronic Verification Code) for ITR verification without visiting India.

DTAA: How Tax Treaties Reduce NRI Tax Burden

India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. For equity capital gains, the relevant question is whether the DTAA allows India to tax the gain or whether the country of residence has exclusive taxing rights.

India's standard position in DTAA treaties is that capital gains on Indian shares are taxable in India (the source country). However, the tax paid in India is typically credited against tax due in the country of residence.

Key country-specific rules:

Country of NRI Residence	DTAA Position on India Equity Gains	Practical Implication
USA	India has right to tax; US credits India tax against US liability	Pay India LTCG at 12.5%; take credit in US filing. No double tax.
UK	Similar to US -- source country (India) taxes first	India tax credited in UK. Net effective rate = higher of two rates.
UAE	UAE has no income tax; India taxes fully	Pay India LTCG at 12.5%. No credit needed in UAE.
Singapore	India has right to tax; Singapore exempts foreign income generally	India tax at 12.5%, no Singapore tax on India-source gains.
Canada	India taxes at source; Canada credits	Similar to US treatment.

Always verify with a tax professional for your specific country of residence -- DTAA terms change and country-specific provisions vary significantly.

NRI Demat Account Requirements

NRIs can hold Indian equity through two types of accounts:

• NRE Demat Account (PIS Account): Linked to NRE bank account. Equity purchased through this account is "repatriable" -- the principal and gains can be freely transferred abroad. Requires Portfolio Investment Scheme (PIS) permission from the Reserve Bank of India (RBI) via the NRI's designated bank. Most major Indian banks offer PIS accounts to NRIs.
• NRO Demat Account: Linked to NRO bank account. Funds in NRO account are "non-repatriable" up to USD 1 million per year. Capital gains remain in India until repatriated within this limit. No PIS permission needed.

For tax purposes, both account types are subject to the same LTCG rules and TDS rates. The difference is in repatriation -- NRE-route is more freely repatriable.

The ₹1.25L Exemption for NRIs: A Clarification

NRIs are technically entitled to the ₹1.25L LTCG exemption under Section 112A. However, the benefit is subject to the basic exemption limit rule:

• NRIs whose total Indian income (excluding LTCG) is below ₹2.5 lakh: the shortfall from ₹2.5L can be set off against LTCG before calculating tax. This is effectively an additional deduction on top of the ₹1.25L.
• NRIs whose total Indian income (including all sources) exceeds ₹2.5 lakh: the ₹1.25L exemption applies as normal to LTCG.

In practice, most NRIs with significant equity portfolios will have total Indian income exceeding ₹2.5 lakh (including rental income, interest, etc.), so the standard ₹1.25L exemption applies.

Practical Steps for NRIs to Manage India LTCG Tax

A year-round checklist for NRIs with Indian equity portfolios:

1. Track holding periods: Use your broker's P&L report to identify which positions have crossed 12 months and qualify for LTCG treatment.
2. Plan sales to stay within exemption: If your LTCG for the year will be below ₹1.25L, file ITR to claim full refund of any TDS deducted.
3. File ITR-2 every year: Even if you think you have no tax liability due to the exemption or DTAA credits, filing allows you to claim TDS refunds and carry forward capital losses.
4. Apply for lower TDS certificate (Form 13): If you expect LTCG below ₹1.25L and therefore zero tax, you can apply to the Indian tax department for a lower TDS certificate, which instructs your broker to deduct at the correct (zero or lower) rate rather than the default 20%.
5. Engage a CA with NRI specialisation: DTAA treaty positions, NRE vs NRO planning, and advance tax calculations for NRIs have enough complexity to justify professional advice.

LTCG Calculator for NRIs

stoicHQ's LTCG Calculator at stoichq.in/tools/ltcg-calculator-india works for NRI gain calculations as well. Enter your purchase price, holding period, and sale price to compute the 12.5% LTCG liability and compare against TDS deducted to estimate your ITR refund.