Tax rules allow non-resident Indians to use the basic exemption limit for certain capital gains taxed at normal income-tax slab rates, but not for gains attracting special rates
Non-resident Indians (NRIs) investing in Indian financial markets need to distinguish between capital gains taxed at normal income-tax rates and those subject to special rates, as the difference can significantly affect their tax liability.
Under Indian income-tax rules, NRIs can use their unused basic exemption limit to reduce tax on capital gains taxed at normal slab rates. However, they cannot use the unutilised limit to offset capital gains that attract special tax rates under specific provisions of the Income-tax Act.
For the financial year 2026-27, the basic exemption limit under the new tax regime is Rs 4 lakh. This can benefit NRIs earning certain types of short-term capital gains, including gains from listed bonds, market-linked debentures and gold exchange-traded funds, where the applicable rules tax the gains at normal slab rates.
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Tax experts advise NRIs to identify the nature of their investments, the applicable tax provisions and their residential status before calculating tax on capital gains
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The treatment can vary depending on the asset and the relevant legal provisions
For example, if an NRI earns Rs 2 lakh in short-term capital gains from listed bonds and has no other taxable income in India, the Rs 4 lakh exemption limit may eliminate the income-tax liability on those gains, subject to the applicable rules.
The position differs for gains taxed at special rates. Under Sections 111A, 112 and 112A of the Income-tax Act, NRIs cannot generally adjust their unused basic exemption limit against eligible short-term or long-term capital gains covered by these provisions.
For instance, an NRI with Rs 4 lakh in short-term gains from listed equity shares covered by Section 111A cannot offset those gains against an unused exemption arising from low interest income. The gains remain taxable at the applicable special rate.
NRIs are also not eligible for the rebate under Section 87A. However, the provisions of a double taxation avoidance agreement (DTAA) between India and the country where an NRI resides may offer relief in certain circumstances.
