NRI vs Resident: Capital Gains Tax Comparison India 2026
Rohan and his cousin Rahul both sold the same mutual fund on the same day this year, at the same gain of Rs. 5,00,000. Rohan lives in Pune and files as a resident. Rahul has been in Dubai for the last four years and files as an NRI. When they compared notes, Rohan’s tax bill on the sale came to nil. Rahul’s came to nearly Rs. 49,000. Same fund, same gain, same date, and a massive gap in tax, purely because of one word: residency.
Most people assume NRI vs resident capital gains tax works out the same, since the headline rates, 20% for short-term equity gains and 12.5% for long-term gains, are identical for both. They are identical on paper. What differs is everything around those rates: whether you can use your basic exemption limit, how much tax gets deducted before the money even reaches you, and whether you qualify for the Section 87A rebate at all. This guide walks through each of those differences for FY 2025-26.
Why NRI and Resident Capital Gains Are Not Actually Taxed the Same
In my seven years of helping people with cross-border tax questions, this is the single biggest misconception I run into. Everyone reads that the LTCG rate is 12.5% and the STCG rate is 20% “for everyone” and stops there. But Indian tax law treats a non-resident’s capital gains as a separate computation from a resident’s, even when the asset, the gain, and the rate are identical. Three mechanisms create the real NRI vs resident capital gains tax gap, and none of them show up in a simple rate comparison.
The Basic Exemption Limit Difference
A resident individual with little or no other income can adjust their unused basic exemption limit, Rs. 4,00,000 under the new regime or Rs. 2,50,000 under the old regime for FY 2025-26, against capital gains taxed at special rates under Sections 111A and 112A. If your only income for the year is a capital gain, this can wipe out a meaningful chunk of your tax bill entirely.
NRIs do not get this adjustment. For a non-resident, gains under Sections 111A and 112A are taxed from the first rupee above the standard Rs. 1,25,000 LTCG exemption, regardless of how much of the basic exemption limit is otherwise unused. This single rule is usually the largest part of the NRI vs resident capital gains tax gap for anyone whose main income for the year is an equity sale.
TDS: The Other Big Difference
For a resident selling listed shares or mutual funds through a broker, no TDS is deducted on the capital gain itself. Tax is computed and paid when you file your return. For an NRI, Section 195 requires TDS to be deducted at source on the gain before the proceeds ever reach your account, often at the highest applicable rate, which can mean a large chunk of your money is locked up until you file a return and claim a refund.
Property sales show the same pattern in an even sharper form. When a resident sells property above Rs. 50 lakh, the buyer deducts a flat 1% TDS on the sale consideration under Section 194-IA, regardless of the actual gain. When an NRI sells property, the buyer must deduct TDS under Section 195 at rates tied to the capital gains rate itself, 12.5% for long-term and up to 30% for short-term, calculated on the entire sale consideration unless a Lower or Nil Deduction Certificate has been obtained on Form 13. That gap between 1% and up to 30% is enormous, and NRIs who skip the Form 13 application often find a large part of their sale proceeds stuck until refund season.
Section 87A Rebate: Residents Get It, NRIs Do Not
Resident individuals with taxable income up to Rs. 12,00,000 under the new regime, or Rs. 5,00,000 under the old regime, can claim the Section 87A rebate and pay zero tax on their slab-rate income. NRIs cannot claim this rebate at all, on any income, regardless of how low it is. It is worth being precise here: since FY 2025-26, the Section 87A rebate does not apply against special-rate capital gains under Sections 111A and 112A even for residents, so this rule mainly affects your other income, like salary, rent, or interest. But for that other income, the resident versus NRI gap is absolute. One gets the rebate, the other never does.
NRI vs Resident Capital Gains Tax at a Glance
| Factor | Resident | NRI |
|---|---|---|
| LTCG rate, listed equity and equity mutual funds | 12.5% above Rs. 1.25 lakh | 12.5% above Rs. 1.25 lakh, same |
| STCG rate, listed equity and equity mutual funds | 20% | 20%, same |
| LTCG rate, property and other assets | 12.5%, no indexation | 12.5%, no indexation, and no indexation option at all |
| Basic exemption limit adjustment against special-rate gains | Available if other income does not use it up | Not available at all |
| Section 87A rebate | Available on slab-rate income within threshold | Not available on any income |
| TDS on listed share or mutual fund sale | None at sale; tax paid at filing | Deducted at source under Section 195 |
| TDS on property sale | Flat 1% under Section 194-IA, if above Rs. 50 lakh | Up to 30% under Section 195, on full consideration, unless Form 13 obtained |
| Capital loss set-off and carry forward | Same 8-year carry forward rules | Same 8-year carry forward rules |
| DTAA relief for double taxation | Not usually relevant | Available where India has a treaty with the country of residence |
Worked Example: Same Gain, Very Different Tax Bill
Back to Rohan and Rahul. Both had an LTCG of Rs. 5,00,000 on equity mutual funds this year, and neither had significant other income.
Rohan (resident, new regime): The first Rs. 1,25,000 is exempt under Section 112A, leaving Rs. 3,75,000. Since Rohan has no other income, his full Rs. 4,00,000 basic exemption limit is unused, and he adjusts it against this remaining gain. Taxable LTCG drops to nil. Tax payable: Rs. 0.
Rahul (NRI): The same Rs. 1,25,000 exemption applies, leaving the same Rs. 3,75,000. But Rahul cannot adjust any basic exemption limit against it. The entire Rs. 3,75,000 is taxed at 12.5%, working out to Rs. 46,875, plus 4% cess of Rs. 1,875. Tax payable: Rs. 48,750.
Identical fund, identical gain, identical date of sale. Rahul pays Rs. 48,750 more than Rohan, purely on account of residential status. If Rahul had also sold property during the year, he would have seen a large chunk of the sale proceeds withheld as TDS as well, something Rohan would not face at anywhere near the same scale.
What Stays the Same for Both
It is not all bad news for NRIs. The headline rates, holding periods, the Rs. 1,25,000 LTCG exemption threshold under Section 112A, the removal of indexation on property from FY 2024-25 onward, and the 8-year loss carry forward window are identical for both. Exemptions under Section 54F on reinvesting sale proceeds into a residential property are also available to NRIs on the same terms as residents. For the full rate structure that applies to both, see my guide on capital gains tax FY 2026-27, and for a deeper breakdown of LTCG specifically, my long term capital gains tax guide.
How to File and Reduce the TDS Burden
Both residents and NRIs report capital gains in ITR-2 if they do not have business income. The one extra step worth knowing for NRIs is Form 13, an application to the assessing officer for a Lower or Nil Deduction Certificate, filed before a property sale closes. Without it, the buyer must deduct TDS at the standard higher rates on the full consideration, and you wait until you file your return to claim back the excess. With it, TDS is deducted closer to your actual tax liability, and far less of your money sits locked up for months. For the complete picture of your overall tax position as an NRI, I have a full guide on income tax for NRIs.
Conclusion
NRI vs resident capital gains tax looks identical at the rate level and diverges sharply everywhere else, in the basic exemption limit, in TDS mechanics, and in Section 87A eligibility. As Rohan and Rahul’s example shows, the same gain on the same day can mean nil tax for one and nearly Rs. 49,000 for the other. If you are an NRI, the Form 13 certificate and careful tracking of your DTAA position are the two levers that actually move your tax bill. Start with my complete income tax guide for India for the broader picture.
Frequently Asked Questions
Can an NRI claim the Rs. 1,25,000 LTCG exemption under Section 112A?
Yes. This particular exemption is available to residents and NRIs on identical terms. It is only the basic exemption limit adjustment that is restricted to residents.
Does the resident versus NRI difference apply to capital losses too?
No. Set-off and 8-year carry forward rules for capital losses are the same for residents and NRIs.
If I become an NRI partway through the year, which rules apply?
Your residential status for the full financial year is determined by the day-count tests under Section 6, applied at year-end. If you qualify as a resident for that year, resident rules apply to gains made during that year, even the ones made before you moved abroad.
Can an NRI avoid the high TDS on property sale entirely?
Not entirely, but a Form 13 Lower or Nil Deduction Certificate, applied for before the sale, can bring the TDS down close to the actual tax liability instead of the full standard rate on the entire consideration.
