Capital Gain Taxability in the Hands of Non-Resident Indians (NRIs) refers to the tax treatment of profits arising from the sale or transfer of capital assets, such as property, shares, mutual funds, or other investments, by an NRI. The taxation of capital gains in India differs depending on the nature of the asset, the holding period, and the residential status of the taxpayer (NRI in this case).
Types of Capital Gains
- Short-Term Capital Gains (STCG):
- Gains from the sale of assets held for less than 36 months (for immovable property) or less than 12 months (for listed securities, mutual funds, etc.).
- Long-Term Capital Gains (LTCG):
- Gains from the sale of assets held for more than 36 months (for immovable property) or more than 12 months (for listed securities, mutual funds, etc.).
Tax Rates on Capital Gains for NRIs
1. Sale of Immovable Property (Real Estate)
- Short-Term Capital Gains (STCG):
- If the property is sold within 2 years of purchase, it is subject to 30% tax (plus applicable surcharge and cess).
- Long-Term Capital Gains (LTCG):
- If the property is sold after 2 years from the date of acquisition, the gains are subject to 20% tax with indexation (adjustment for inflation).
- Indexation allows the cost of acquisition to be adjusted for inflation, reducing taxable gains.
- Additionally, capital gains can be exempted under Section 54 if the proceeds are reinvested in another residential property (subject to conditions).
2. Sale of Listed Securities (Shares, Mutual Funds, etc.)
- Short-Term Capital Gains (STCG):
- If shares or mutual funds are sold within 12 months, STCG is taxed at 15% (plus surcharge and cess).
- Long-Term Capital Gains (LTCG):
- If shares or mutual funds are sold after 12 months, LTCG exceeding ₹1 lakh in a financial year is taxed at 10% without indexation benefit.
- If the total LTCG is less than ₹1 lakh in a year, it is exempt from tax.
3. Sale of Debt Mutual Funds and Other Assets
- Short-Term Capital Gains (STCG):
- For assets like debt mutual funds, if sold within 36 months, STCG is taxed at 30%.
- Long-Term Capital Gains (LTCG):
- For assets held for more than 36 months, LTCG is taxed at 20% with indexation.
4. Sale of Gold, Bonds, and Other Non-Equity Assets
- Short-Term Capital Gains (STCG):
- Taxed at 30% if sold within 3 years from the date of purchase.
- Long-Term Capital Gains (LTCG):
- Taxed at 20% with indexation after 3 years.
Tax Deductions and Exemptions Available
- Section 54: Exemption on LTCG from the sale of a residential property, if the proceeds are reinvested in another residential property within a specified period.
- Section 54EC: Exemption if LTCG is reinvested in specified bonds (such as NHAI or REC bonds) within 6 months.
- Section 54F: Exemption on the sale of any long-term capital asset (other than a residential house), provided the proceeds are reinvested in a new residential house.
Double Taxation Avoidance Agreement (DTAA)
- DTAA between India and other countries allows NRIs to avoid being taxed twice on the same income (once in India and once in their country of residence).
- Tax Credit: NRIs can claim a credit for taxes paid in India against their tax liability in their home country (subject to the provisions of the DTAA).
Repatriation of Capital Gains
- Capital gains earned in India through the sale of assets can be repatriated abroad (outside India) by NRIs, subject to tax payment.
- For repatriation, the following is required:
- Form 15CB (CA Certificate).
- Form 15CA (Self-declaration of remittance).
- Payment of applicable taxes on capital gains.
Tax Filing for NRIs
- NRIs must file an Income Tax Return (ITR) in India to report their capital gains, even if the tax has been deducted at source (TDS).
- The return can be filed through ITR-2 or ITR-3, depending on the nature of the capital gains.
Summary of Capital Gains Tax Rates for NRIs
| Asset Type | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) |
|---|---|---|
| Immovable Property (Real Estate) | 30% (if held for < 2 years) | 20% with indexation (if held for > 2 years) |
| Shares/Mutual Funds (Listed) | 15% (if held for < 12 months) | 10% (if held for > 12 months, exceeding ₹1 lakh) |
| Debt Mutual Funds | 30% (if held for < 36 months) | 20% with indexation (if held for > 36 months) |
| Gold/Bonds/Other Assets | 30% (if held for < 3 years) | 20% with indexation (if held for > 3 years) |
Conclusion
NRIs are subject to capital gains tax in India on the sale of assets such as property, stocks, and mutual funds. The tax rates differ based on the holding period and type of asset. They can benefit from tax exemptions and deductions under sections like 54, 54EC, and 54F by reinvesting the gains in specified assets. NRIs should also be mindful of the DTAA provisions to avoid double taxation.
If you need assistance with calculating your capital gains, filing taxes, or understanding DTAA benefits, feel free to ask!
