Capital Gains Tax for Foreign Investors in India: 2026 Guide

Why Foreign Investors Face Capital Gains Tax in India

India's tax law is straightforward on one point: if the asset is situated in India, the gain is taxable in India. It does not matter whether the investor lives in Mumbai, Manhattan, or Melbourne. This principle applies to real estate, listed and unlisted shares, mutual funds, government securities, gold, and virtual digital assets (crypto).

The capital gains tax for foreign investors in India operates under the Income Tax Act (the 1961 Act still applies for Assessment Year 2026-27, even though the Income Tax Act 2025 takes effect from April 1, 2026). Every category of non-resident investor, from an NRI selling a flat in Bangalore to a Singapore-based FPI exiting Indian equities, must navigate this tax before repatriating a single rupee.

What makes this complicated is the layering. Capital gains tax rates depend on the asset type, the holding period, the investor category, and whether a DTAA applies. On top of that, Tax Deducted at Source (TDS) is mandatory on every payment to a non-resident with no minimum threshold. Then there are FEMA compliance steps before money can leave the country.

This guide breaks down every term, rate, and process foreign investors need to understand.

Who Qualifies as a "Foreign Investor" Under Indian Law

Not all foreign investors are treated the same. Indian law under FEMA and the Income Tax Act recognizes multiple categories of non-resident investors, each with different entry conditions, pricing norms, and tax treatment.

Non-Resident Indian (NRI)

An Indian citizen who has lived outside India for more than 182 days in the preceding financial year. NRIs are the largest group searching for capital gains tax guidance, typically holding property, mutual funds, or shares in India.

Overseas Citizen of India (OCI)

A foreign national of Indian origin registered as an OCI cardholder. OCIs face similar investment and tax rules as NRIs for most capital assets.

Foreign Portfolio Investor (FPI)

Institutional investors (funds, sovereign wealth funds, pension funds, endowments) registered with SEBI that invest in Indian listed securities. FPIs are the focus of the June 2026 government securities exemption ordinance.

Foreign Direct Investment (FDI) Investor

Foreign companies or individuals making direct equity investments in Indian companies, subject to sectoral caps and FEMA pricing guidelines.

Foreign Venture Capital Investor (FVCI)

SEBI-registered foreign entities investing in Indian venture capital funds or startups, with specific exemptions on pricing norms.

These categories face varying rules on investment instruments, sectoral restrictions, and compliance filings. An NRI selling a flat and an FPI exiting listed equity are both paying capital gains tax for foreign investors in India, but the rates, TDS treatment, and DTAA applicability can differ significantly.

How Residential Status Affects Your Tax

Your residential status under Section 6 of the Income Tax Act determines what income India can tax. The key tests:

182-day rule: If you spend 182 days or more in India during the financial year, you are a resident.

60-day rule: If you spend 60 days or more in India during the year AND 365 days or more during the preceding four years, you are a resident (with exceptions for NRIs and Indian citizens earning above ₹15 lakh abroad).

Resident but Not Ordinarily Resident (RNOR): A transitional status for returning NRIs, where only Indian-sourced income is taxable.

For capital gains purposes, non-residents are taxed only on gains from assets situated in India. But they lose certain benefits residents enjoy, most notably the indexation option on property and the ability to adjust the basic exemption limit against certain short-term gains.

Capital Gains Tax Rates for Non-Residents (FY 2025-26)

This is the core reference table. All rates reflect post-July 23, 2024 changes. Surcharge and cess are additional.

Asset Type	Holding Period for Long-Term	STCG Rate	LTCG Rate	TDS Rate (Approx.)
Listed equity shares (STT paid)	> 12 months	20% (Section 111A)	12.5% (Section 112A)	12.5% (LTCG) / 20% (STCG)
Equity-oriented mutual funds (STT paid)	> 12 months	20% (Section 111A)	12.5% (Section 112A)	12.5% / 20%
Debt mutual funds / bonds	> 36 months	Slab rates (up to 30%)	20% with indexation OR flat 12.5%	30% (no indexation allowed)
Real property (residential / commercial)	> 24 months	Slab rates (up to 30%)	12.5% (no indexation)	12.5% on gains (or full 30% if TRC not submitted)
Gold / commodities (non-listed)	> 36 months	Slab rates	20% with indexation	15% (variable by commodity)
Virtual Digital Assets (Crypto)	No period (flat rate)	30% (no deductions)	30% (no deductions)	31.2% (1% TDS + tax on gain)
Unlisted shares (company)	> 24 months	Slab rates	20% with indexation	20%

For a large property sale generating LTCG above ₹2 crore, the effective rate becomes noticeably higher than the headline 12.5%. For example, 12.5% LTCG + 25% surcharge + 4% cess pushes the effective rate to approximately 16.25%.

The Income Tax Act 2025: What Changes (and What Doesn't)

The new Income Tax Act 2025 takes effect from April 1, 2026. However, for income earned up to March 31, 2026 (AY 2026-27), the 1961 Act's provisions still apply.

The 2025 Act mainly renumbers and reorganizes sections. Capital gains tax rates, holding periods, and exemption rules remain substantively the same. The reinvestment exemptions (old Sections 54, 54EC, 54F) are now found under Sections 85 through 88.

No changes were made to capital gains tax rates or holding periods in either the Union Budget 2025 or Budget 2026. Foreign investors should continue applying the same rate structure outlined above for FY 2025-26.

Common Mistakes Foreign Investors Make

Mistake 1: Assuming Indexation Is Available

As discussed above, the 20% with indexation option for pre-July 2024 property is only for resident individuals and HUFs. Non-residents pay 12.5% without indexation, period.

Mistake 2: Not Getting TRC and Form 10F Before Redemption

If you wait until after selling or redeeming, TDS will be deducted at the full domestic rate. Getting these documents to your fund house or broker beforehand can mean the difference between zero TDS and a 12.5% (or higher) deduction that takes months to recover.

Mistake 3: Ignoring Form 13 for Property Sales

The Lower Deduction Certificate is underutilized. Apply before the sale to prevent excessive TDS and preserve your cash flow at closing.

Mistake 4: Confusing NRI and FPI Rules

NRIs and FPIs face different TDS mechanisms, different DTAA applicability, and different FEMA filing requirements. An NRI selling property has a completely different compliance path than an FPI exiting listed equities. Do not apply one set of rules to the other.

Mistake 5: Forgetting FEMA Filings

Even after paying all capital gains tax, your money stays stuck in India if you haven't filed FC-TRS (for share transfers), Form 15CA/15CB (for remittances), or other FEMA-required documentation. Banks will simply refuse to process the transfer.

Mistake 6: Overlooking the NRO Repatriation Cap

The USD 1 million per year limit on NRO account repatriation can create multi-year delays for large asset sales. Plan the sale timing and account routing accordingly.

When Professional Help Is Worth the Cost

Capital gains tax for foreign investors in India sits at the intersection of the Income Tax Act, DTAA treaty law, FEMA regulations, and RBI guidelines. The stakes are high: a missed filing can block repatriation, an overlooked DTAA clause can mean paying tax you did not owe, and incorrect TDS can lock up capital for months.

Professional guidance is particularly valuable when:

• You are selling high-value Indian property and need Form 13 structuring
• Your country of residence has a favorable DTAA that could exempt gains on mutual funds or shares
• You need 15CA/15CB certification for repatriation
• You are dealing with multiple asset classes across different holding periods
• You need FEMA filings (FC-GPR, FC-TRS) for share transactions

Frequently Asked Questions

Do foreign investors get the ₹1.25 lakh LTCG exemption under Section 112A?

Yes. The ₹1.25 lakh annual exemption on long-term capital gains from listed equity and equity mutual funds is available to non-residents. This is one of the few exemptions that applies equally to residents and non-residents.

Can NRIs use the old 20% with indexation rate for property sold in 2026?

No. The option to choose between 12.5% without indexation and 20% with indexation (for property acquired before July 23, 2024) is available only to resident individuals and HUFs. Non-residents must use the 12.5% flat rate without indexation.

Which countries offer the best DTAA benefits for capital gains in India?

UAE, Singapore, and certain other countries with a residual gains clause (Article 13(5) type) in their DTAA with India can exempt capital gains on mutual funds and certain other assets. The US, UK, and Canada generally do not offer this exemption, as their treaties assign taxing rights to India or lack the residual clause.

How much TDS is deducted when an NRI sells property in India?

For long-term property (held over 24 months), TDS is 12.5% of the capital gain. For short-term property, TDS is at applicable slab rates, which can go up to 30%. In practice, buyers often deduct TDS on the full sale price rather than just the gain, making a Lower Deduction Certificate (Form 13) essential.

What is the maximum amount an NRI can repatriate from India per year?

From an NRO account, the limit is USD 1 million per financial year after applicable taxes and with proper documentation (Form 15CA, 15CB, and CA certification). Funds in NRE accounts are freely repatriable without this cap.

Does the June 2026 ordinance affect all foreign investors?

The ordinance specifically exempts interest income and capital gains on specified government securities held by eligible foreign investors (primarily FPIs) and the Bank for International Settlements. It does not affect capital gains on equities, property, mutual funds, or other asset classes. The exemption is effective from April 1, 2026.

Is crypto taxed differently for foreign investors in India?

Crypto and other Virtual Digital Assets (VDAs) are taxed at a flat 30% regardless of holding period, with no deductions allowed other than cost of acquisition. This rate applies equally to residents and non-residents. DTAA benefits typically do not apply to VDA gains.

Do I need to file an Indian tax return even if TDS covers my full liability?

Yes. Non-residents earning capital gains in India should file an income tax return to claim exemptions (Section 54, 54EC), apply DTAA benefits, claim TDS refunds if excess was deducted, and obtain necessary documentation for repatriation. Filing is also required to carry forward capital losses.