NRI Shares & Mutual Fund Capital Gains Tax 2026: LTCG, STCG, TDS & DTAA Guide
An NRI in the USA sells Indian shares for a gain of ₹13 lakh. The broker automatically deducts ₹2.7 lakh in TDS. The actual tax liability — once correctly calculated with the ₹1.25 lakh exemption — is ₹1.53 lakh. The refund available: ₹1.17 lakh. But refunds do not come automatically — they require an ITR filing with correct Schedule CG entries, AIS reconciliation, and a pre-validated NRO bank account on the portal.
Many NRIs stop at the TDS deduction — they see the money reduced at source, assume that is the tax, and never file. Years of refunds go unclaimed. This guide covers the complete picture: capital gains tax rates (with the July 2024 changes that many NRIs have missed), how TDS works for NRIs vs residents, the Rahul case study with exact rupee figures, DTAA — what it can and cannot do for Indian equity gains, loss carry-forward rules, and the six mistakes that cost NRIs money every year.
1. Listed equity / equity MF STCG: now 20% (was 15%). Flat rate — not slab rate.
2. Listed equity / equity MF LTCG: 12.5% (was 10%) with ₹1.25L annual exemption (was ₹1L).
Both effective from July 23, 2024. If you or your CA is using old rates — calculations are wrong.
Complete Capital Gains Tax Rates — NRI 2026
| Asset Type | Holding Period | Tax Rate | TDS by Broker/AMC | Key Points |
|---|---|---|---|---|
| Listed Equity Shares | 12+ months (LTCG) | 12.5% | 20% + surcharge + cess | ₹1.25L annual exemption. No indexation. |
| Listed Equity Shares | Under 12 months (STCG) | 20% flat | 20% + surcharge + cess | Flat rate — NOT slab rate. Changed July 2024 from 15%. |
| Equity Mutual Funds | 12+ months (LTCG) | 12.5% | 20% + surcharge + cess | Same as listed equity. ₹1.25L exemption applies. |
| Equity Mutual Funds | Under 12 months (STCG) | 20% flat | 20% + surcharge + cess | Flat rate — changed July 2024. |
| Debt Mutual Funds | Any period | Slab rate (up to 30%) | 20% / 30% | No indexation. No separate LTCG/STCG rate. |
| Unlisted Shares | 24+ months (LTCG) | 12.5% | 20% | 24-month holding for LTCG (not 12). |
| Unlisted Shares | Under 24 months (STCG) | Slab rate | 30% | Slab rate applies (up to 30%). |
| Crypto / VDA | Any period | 30% flat | 1% TDS on sale | No exemption. Losses not set off against anything else. |
How TDS Works for NRIs — Key Differences from Residents
NRI equity TDS is significantly different from how it works for resident Indians:
| Aspect | Resident Investor | NRI Investor |
|---|---|---|
| TDS on equity gains | No TDS — pay advance tax quarterly | 20% TDS deducted by broker/AMC automatically at sale |
| Applies to | N/A | LTCG and STCG both — broker cannot distinguish at sale time |
| Rate applied | N/A | 20% flat — broker often does not apply ₹1.25L exemption |
| Surcharge and cess | N/A | Added on top — effective rate can be 20.8%+ |
| Form 16A | Not issued for equity | Issued by broker after each quarter |
| AIS visibility | Not shown as TDS credit | Shown as TDS credit — must match before ITR filing |
| ITR required? | Not mandatory if only equity income below threshold | Strongly recommended — only way to claim TDS refund |
Real Case — Rahul (USA NRI): Complete Calculation
Rahul is based in the USA. He sold listed Indian shares in March 2026 — purchased 18 months earlier.
| Item | Amount |
|---|---|
| Sale value | ₹28,00,000 |
| Purchase cost | ₹15,00,000 |
| Total capital gain | ₹13,00,000 |
| Holding period | 18 months — LTCG ✅ |
Actual Tax Calculation
| Total LTCG | ₹13,00,000 |
| Less: Annual LTCG exemption | −₹1,25,000 |
| Taxable LTCG | ₹11,75,000 |
| Tax at 12.5% | ₹1,46,875 |
| Add: 4% health and education cess | ₹5,875 |
| Actual tax liability | ₹1,52,750 |
TDS Deducted by Broker
| TDS at 20% on full gain ₹13,00,000 (broker does not apply ₹1.25L exemption) | ₹2,60,000 |
| Add: Surcharge and cess (approximately) | ₹10,400 |
| Total TDS deducted | ₹2,70,400 |
TDS deducted: ₹2,70,400
Actual tax liability: ₹1,52,750
Refund available: ₹1,17,650
This refund is only available through ITR filing. Rahul must: file ITR-2, declare the gain in Schedule CG, claim the ₹1.25L exemption, match TDS from AIS, and ensure NRO account is pre-validated on the portal. Without filing — ₹1.17 lakh stays with the government permanently.
DTAA Consideration for Rahul (USA)
A common question: can Rahul use the India-USA DTAA to reduce Indian tax on these gains? For Indian-listed equity shares — India has the primary taxing right as the source country. The India-USA DTAA does not eliminate India’s right to tax Indian equity gains. DTAA benefit for Rahul is relevant in the USA — he can claim Foreign Tax Credit for the ₹1.52L Indian tax against his US tax liability on the same gain (since US taxes worldwide income). The DTAA is not a tool to avoid Indian tax — it is a tool to avoid paying tax in both countries.
DTAA — What It Does and Does Not Do for Indian Equity Gains
This is the most commonly misunderstood aspect of NRI share taxation. Many NRIs believe they can use DTAA to reduce or eliminate Indian tax on their Indian equity gains. This is generally incorrect for listed Indian equity.
| DTAA Impact | On Indian Equity Gains |
|---|---|
| India’s primary taxing right | India taxes the gain — DTAA does not override this for most standard equity gains |
| Where DTAA helps | In your country of residence — you claim Foreign Tax Credit for Indian tax paid, avoiding double taxation |
| Special treaty provisions (Mauritius/Singapore) | Historical — substantially phased out for shares acquired after April 1, 2017 |
| TRC + Form 10F for equity gains | Required if claiming treaty benefit in residence country’s ITR — not for reducing Indian tax directly |
| Practical conclusion | Pay correct Indian tax on Indian equity gains. Claim Foreign Tax Credit in residence country ITR. Net result: no double taxation. |
Capital Loss — Set-Off and Carry Forward Rules
| Loss Type | Can Set Off Against | Carry Forward Period | Condition |
|---|---|---|---|
| Short Term Capital Loss (STCL) | Both STCG AND LTCG in same year | 8 assessment years | ITR filed by original due date (August 31) |
| Long Term Capital Loss (LTCL) | LTCG only — NOT against STCG | 8 assessment years | ITR filed by original due date (August 31) |
| Crypto/VDA Loss | Only against Crypto/VDA gains | Cannot carry forward | Cannot set off against any other income |
Loss Set-Off Example:
FY 2025-26 transactions:
Listed equity LTCG: ₹3,00,000
Listed equity STCL: −₹80,000
Debt MF STCL: −₹40,000
Set-off: STCL ₹80,000 set off against LTCG ₹3,00,000 → taxable LTCG = ₹2,20,000.
Debt MF STCL ₹40,000 also set off against remaining LTCG → taxable LTCG = ₹1,80,000.
After ₹1,25,000 annual exemption: taxable = ₹55,000. Tax at 12.5% + cess = ₹7,150.
Without declaring the losses: ₹3,00,000 LTCG − ₹1,25,000 exemption = ₹1,75,000 taxable. Tax = ₹22,750.
Saving from correct loss set-off: ₹15,600.
Step-by-Step ITR Filing for NRI Share Gains
-
1Download Annual Capital Gains Statement from Broker
Every broker (Zerodha, HDFC Securities, ICICI Direct, Kotak Securities etc.) provides a consolidated P&L and capital gains statement for the financial year. Download this before filing — it is the source of accurate cost basis, sale price, and holding period for every transaction. -
2Download AIS and Verify Against Broker Statement
Income Tax Portal → AIS tab → Capital Gains section. The AIS shows all equity transactions reported by your broker to the Income Tax Department. Verify every transaction in AIS matches your broker statement. Mismatches trigger notices — resolve before filing. If an entry in AIS is wrong — submit feedback on the AIS portal marking it as incorrect or duplicate. -
3Pre-Validate NRO Bank Account on IT Portal
My Account → Profile → Bank Account → Add/Pre-validate. Enter NRO account number, IFSC, and account type. Without pre-validation — refund processing is blocked. Do this before filing, not after, to avoid delays. -
4File ITR-2 (or ITR-3 if business income)
NRIs with capital gains must file ITR-2. If business or professional income also exists — ITR-3. ITR-1 cannot be used for capital gains. In Schedule CG — enter each transaction: asset type, purchase date, sale date, cost, sale price, and computed gain. -
5Apply ₹1.25L LTCG Exemption in Schedule CG
The portal computes this automatically once LTCG transactions are entered — but verify the exemption is being applied. If multiple brokers — aggregate all LTCG before applying the exemption (₹1.25L is an annual limit, not per broker). -
6Claim TDS Credit in Schedule TDS
TDS shown in AIS automatically pre-fills in Schedule TDS. Verify the TDS amount matches broker’s Form 16A. If AIS shows less TDS than Form 16A — contact broker for correction before filing. -
7File Before August 31 (Budget 2026 Deadline)
Capital loss carry-forward requires filing by the original due date. For NRI non-audit cases — August 31 (Budget 2026 extension from July 31). Belated filing after August 31 loses capital loss carry-forward permanently.
Annual LTCG Harvesting Strategy — Reduce Tax Legally
The ₹1.25 lakh annual LTCG exemption resets every financial year. Many NRIs let this go unused — they either do not have LTCG that year or do not realise the exemption does not accumulate across years. A systematic annual harvesting strategy uses this exemption every year:
How it works: Each March (before financial year end) — identify equity holdings with unrealised long-term gains. Sell enough units/shares to realise ₹1.25 lakh in LTCG — zero tax on these gains due to exemption. Immediately repurchase at the new (higher) cost basis. Net result: no tax paid, but cost basis is stepped up, reducing future gains.
Harvesting Example:
Shares purchased at ₹2,00,000. Current value: ₹3,40,000. Unrealised LTCG: ₹1,40,000 (held 24 months).
Sell shares worth ₹3,40,000 in March. LTCG: ₹1,40,000. After ₹1,25,000 exemption: taxable LTCG = ₹15,000. Tax = ₹1,875.
Immediately repurchase the same shares at ₹3,40,000 (new cost basis).
Next year: future gains are measured from ₹3,40,000, not ₹2,00,000.
Each year of harvesting reduces the future taxable gain by ₹1.25L — at zero or minimal current year tax.
Six Common Mistakes NRIs Make with Share and MF Gains
Mistake 1 — Not filing ITR because “broker already deducted TDS”: The broker deducts 20% TDS — without applying the ₹1.25L exemption and at rates that are almost always higher than actual liability. The only way to recover the excess TDS is through ITR filing. An NRI with ₹13L LTCG has ₹1.17L refundable — but only if ITR is filed. Every year without filing is a year of unclaimed refund.
Mistake 2 — Using old STCG rate of 15% or applying slab rate to listed equity: Budget July 2024 changed equity STCG from 15% to 20% flat. Some NRIs — and occasionally CAs handling limited NRI work — still use 15% or apply income slab rates to equity STCG. Both are wrong from July 23, 2024 onwards. Verify your calculations use 20% for STCG on listed equity and equity MF.
Mistake 3 — Thinking DTAA can eliminate Indian tax on Indian equity gains: DTAA with countries like the USA, UK, Canada does not eliminate India’s right to tax Indian-source capital gains. India is the source country — it taxes the gain. DTAA benefit manifests in the residence country (Foreign Tax Credit). Attempting to claim DTAA as a basis for not paying Indian capital gains tax creates wrong ITR filings and eventual notices.
Mistake 4 — Not declaring capital losses because “there is no tax payable”: Losses also need to be declared in Schedule CG — even if there is no current-year tax. Undeclared losses cannot be carried forward. A ₹3L capital loss this year could offset ₹3L gain next year — saving ₹37,500 in tax. But only if declared in the current year’s ITR filed on time.
Mistake 5 — Not verifying AIS before filing: AIS data from the broker populates in the ITR. If the AIS shows incorrect transaction data (wrong cost basis, wrong sale price, duplicate entries) — the ITR based on AIS will be wrong. Always download and verify AIS against your own broker statement before filing. Raise AIS feedback for any incorrect entries.
Mistake 6 — NRO account not pre-validated on IT portal: The refund goes to the bank account linked on the Income Tax portal. For NRIs — this must be a pre-validated NRO account. Without pre-validation, the refund is generated but cannot be credited — it sits in a limbo state requiring multiple follow-ups. Pre-validate in April, before any ITR is filed. Takes five minutes: My Account → Profile → Bank Account on incometax.gov.in.
Frequently Asked Questions
Q1. What is the LTCG tax rate for NRI on Indian listed shares?
12.5% on gains above ₹1.25 lakh per year (Budget July 2024). No indexation available. Holding period must be more than 12 months for LTCG classification. The ₹1.25L exemption applies annually across all equity LTCG — it is not per stock or per transaction. TDS by broker: 20% (higher than actual tax) — excess recovered via ITR refund.
Q2. STCG on equity — what rate applies to NRIs?
20% flat — effective July 23, 2024 (Budget 2024 changed from 15%). This is not the income slab rate. It is a flat 20% regardless of whether the NRI is in the 5%, 20%, or 30% slab. Plus 4% health and education cess. Broker deducts 20% TDS at sale — which in this case matches the actual STCG rate, so there may be less refund for STCG transactions (though surcharge and exemption calculations still matter).
Q3. Do I need to file ITR every year just for capital gains?
If any TDS has been deducted on capital gains — yes, file to claim the refund. Even if the net tax after set-off is zero — filing preserves capital loss carry-forward rights. If total India income (including capital gains) exceeds ₹2.5 lakh — filing is mandatory. For most NRIs who trade Indian equities — annual ITR filing is both mandatory and financially beneficial.
Q4. Can I set off my mutual fund loss against property gain?
It depends on the type. Short Term Capital Loss (STCL) from mutual funds can be set off against both STCG and LTCG from any capital asset — including property LTCG. Long Term Capital Loss (LTCL) from mutual funds can only be set off against LTCG from any capital asset. Capital losses cannot be set off against regular income (salary, business, interest) — they remain in the capital gains category.
Q5. I missed filing last year — can I still claim the TDS refund?
For TDS refunds — you can file a belated return up to December 31 of the assessment year (March 31 for revised returns — Budget 2026 update). But capital loss carry-forward benefit is lost in a belated return. The belated return can still claim TDS refunds — but losses from that year cannot be carried forward to future years. File as soon as possible for any year where TDS was deducted.
Q6. Do NRIs get the Section 87A rebate on capital gains?
No — Section 87A rebate (which gives zero tax for income up to ₹12L in New Regime) does not apply to special rate capital gains (STCG at 20%, LTCG at 12.5%, crypto at 30%). The rebate applies only to income taxed at slab rates. An NRI with only equity LTCG of ₹5L pays 12.5% on the amount above ₹1.25L — no rebate. However, for debt MF STCG (taxed at slab rate) — 87A rebate can potentially apply depending on total income level.
Conclusion
NRI capital gains taxation on Indian shares has a clear structure: 12.5% LTCG (above ₹1.25L annual exemption), 20% STCG — both flat rates on equity since July 2024. Broker deducts 20% TDS at source without applying exemptions — creating refunds in almost every case. The refund is real money, the process is straightforward, and the only action required is an annual ITR filing with correct Schedule CG entries and AIS verification.
The six mistakes documented here — not filing, using wrong rates, misunderstanding DTAA, not declaring losses, ignoring AIS, not pre-validating the NRO account — are all avoidable. The ITR filing itself takes 1–2 hours with the broker’s annual capital gains statement in hand. The refund that typically results from that 2-hour investment is ₹50,000–₹1,50,000 for most active NRI equity investors.
Related Guides
Official Resources
- Income Tax Portal (incometax.gov.in) — ITR filing, AIS download, bank account pre-validation, refund status
For more practical NRI tax guides visit: TaxPremia.com