Capital Gains Tax for NRIs in 2026: Property and Mutual Funds

Selling a flat in India or redeeming mutual funds can trigger a sizeable tax bill for overseas Indians. Capital gains tax for NRIs in 2026 needs careful planning because TDS may be higher than the final tax payable.

This article explains the broad rules for FY 2026-27, subject to final forms, notified provisions and facts of each case. From 1 April 2026, the Income-tax Act, 2025 applies to tax years beginning on or after that date. Older references such as Sections 54, 54F, 54EC and 195 are still widely used, but taxpayers should map them to the new Act while filing returns. This is educational guidance, not a substitute for advice from a Chartered Accountant or tax lawyer.

Capital gains tax for NRIs in 2026: key rules

India generally taxes NRIs on capital gains arising from assets situated in India. This includes residential property, land, commercial property and Indian mutual fund units.

A capital gain is the profit on transfer of a capital asset. Broadly, it is calculated as sale consideration minus transfer expenses, acquisition cost and eligible improvement cost.

The tax treatment depends on whether the gain is short-term capital gain, or STCG, and long-term capital gain, or LTCG. STCG means gain from an asset sold within the prescribed holding period. LTCG means gain from an asset held beyond that period.

For transfers on or after 23 July 2024, many long-term capital gains are taxed at 12.5% without indexation. Indexation means adjusting cost for inflation. This change is important because earlier indexed calculations often reduced taxable gains on older property.

The Income Tax Department’s capital gains guidance confirms the broad 12.5% LTCG framework and the revised equity rates. You can check the official capital gains page here.

NRI property capital gains tax and TDS

For Indian immovable property, such as land, building or a flat, the holding period is generally 24 months. If an NRI sells property after holding it for more than 24 months, the gain is usually LTCG. If sold within 24 months, it is generally STCG and taxed at normal slab rates applicable to the individual.

For post-23 July 2024 transfers, LTCG on property is generally taxed at 12.5% without indexation, plus surcharge and 4% Health and Education Cess. The limited grandfathering option for certain old land or buildings is not a general benefit for NRIs, so it should not be assumed.

The bigger practical issue is TDS, or tax deducted at source. When an NRI sells Indian property, the buyer generally deducts tax under the non-resident payment provisions. The resident property TDS rule is not the normal rule for an NRI seller.

The Income Tax Department has stated that, for a non-resident individual or firm, TDS on long-term immovable property transfers after 23 July 2024 is generally 12.5%, while short-term gains may attract 30%, before surcharge and cess. See the official FAQ here.

However, TDS is only an advance tax collection. It is not always the final tax. If the buyer deducts tax on the gross sale value, the deduction may exceed the actual capital gains tax for NRIs after considering cost, expenses, exemptions or losses. In such cases, the NRI may apply for a lower or nil TDS certificate before the transaction and claim refund later through the income-tax return.

NRI mutual fund capital gains tax rates

Mutual fund taxation depends on the scheme classification. Do not apply one rule to every fund.

For qualifying equity-oriented mutual funds, units held for more than 12 months generally become long-term. STCG on eligible equity-oriented mutual funds is taxed at 20% for transfers on or after 23 July 2024. LTCG is taxed at 12.5% on aggregate qualifying gains above ₹1.25 lakh in a year.

Debt and non-equity funds need closer review. Many non-equity mutual fund units may follow a 24-month holding period, but specified debt-oriented mutual funds covered by special rules can be treated as STCG regardless of holding period. Such gains may be taxed at normal slab rates, not at the 12.5% LTCG rate.

For NRIs, AMCs or registrars may deduct TDS at the time of redemption. The final liability should be reconciled with the capital gains statement, Form 26AS and Annual Information Statement, or AIS. Treaty documents such as a Tax Residency Certificate and Form 10F may help where Double Taxation Avoidance Agreement, or DTAA, relief is available.

Key documents NRIs should keep ready:

• PAN, passport and residential status proof
• Sale deed, purchase deed and improvement bills for property
• Mutual fund capital gains statement and account statement
• TDS certificate, Form 26AS and AIS
• Lower or nil TDS certificate, if obtained
• Tax Residency Certificate, Form 10F and foreign tax records where DTAA or foreign tax credit is claimed

Capital gains tax exemptions for NRIs

Capital gains tax for NRIs can be reduced if the taxpayer satisfies specific exemption provisions. These are rule-based benefits, not automatic deductions.

Section 54 may apply when an individual or HUF sells a long-term residential house and reinvests in another residential house in India. The new house must generally be purchased within one year before or two years after the transfer. Construction is usually allowed within three years.

Section 54F may apply when an NRI sells a long-term asset other than a residential house, such as land, commercial property or eligible mutual fund units, and invests the net consideration in one residential house in India. For full exemption, the law focuses on net sale consideration, not just the capital gain.

Section 54EC applies to eligible LTCG from land or building if the taxpayer invests in specified bonds within six months. The investment limit is generally ₹50 lakh, and the bonds carry a five-year lock-in.

If reinvestment is not completed before the return filing due date, the Capital Gains Account Scheme may be relevant. Missing the deadline can result in denial or withdrawal of exemption.

DTAA relief and foreign tax credit also matter. India usually taxes gains from Indian immovable property, but treaty treatment for mutual funds or securities can vary by country. Tax paid in India may be available as credit overseas, depending on the foreign country’s law and treaty terms.

Capital gains tax for NRIs: what this means for you

NRIs should not treat TDS as the end of compliance. You still need to compute the correct gain, claim eligible exemptions, reconcile TDS and file the appropriate ITR, commonly ITR-2 where there is no business or professional income.

Also remember that tax payment and repatriation are separate matters. RBI rules and authorised dealer bank requirements may apply when moving sale proceeds from an NRO account to an overseas account. The RBI’s immovable property guidance refers to conditions and the general USD 1 million per financial year facility for eligible remittances. Check the RBI circular here.

The takeaway is simple. Capital gains tax for NRIs in 2026 is manageable if planned before the sale or redemption. Confirm the asset type, holding period, rate, TDS position, exemption eligibility and DTAA impact early. For high-value property, inherited assets, joint ownership or foreign tax credit claims, take professional advice before signing the transaction documents.