Separate the asset, tax year and residency tests
Start with the asset type, trade dates, how it was funded and your residency for Indian income tax, FEMA and any applicable treaty. These tests serve different purposes. A bank or fund’s withholding is a credit against your final liability. Calculate that liability from all relevant gains and losses, the applicable rates and any treaty relief.
The examples below cover FY 2024–25 (AY 2025–26) under the Income-tax Act, 1961. For tax years beginning on or after 1 April 2026, use the Income-tax Act, 2025 and the relevant Finance Act, rules and forms. In particular, sections 196–198 of the 2025 Act replace the legacy special-rate provisions in sections 111A, 112 and 112A, and sections 212–217 cover the special regime for qualifying non-resident Indians.
Holding periods and domestic rates from 23 July 2024
| Asset or category | Long-term test | Domestic tax treatment |
|---|---|---|
| Qualifying listed shares, equity-oriented fund units and business trust units | Held more than 12 months. | Legacy section 111A: 20% STCG for qualifying transfers. Section 112A: 12.5% on eligible LTCG above the aggregate ₹1.25 lakh threshold, subject to FY 2024–25 transition rules. Check STT at transfer and, for equity shares under section 112A, at acquisition unless a notified exception applies. |
| Unlisted equity shares | Held more than 24 months. | STCG normally follows applicable slab rates. For a non-resident, section 112(1)(c)(iii) applies 12.5% to qualifying long-term unlisted shares or securities transferred from 23 July 2024, without the first and second provisos to section 48. The former 10% rate is not an election for later sales. |
| Specified mutual fund units acquired on or after 1 April 2023 | Section 50AA deems covered gains short term regardless of holding period. | Use the definition for the applicable year. For AY 2025–26, the legacy definition generally covers funds with not more than 35% of proceeds invested in equity shares of domestic companies. From AY 2026–27 it targets funds investing more than 65% in debt and money market instruments, or qualifying funds of funds with at least 65% invested in such funds, under the statutory measurement rules. |
| Other non-equity fund units, including debt units acquired before 1 April 2023 | For transfers from 23 July 2024, generally more than 12 months if the units are listed on a recognised stock exchange in India, otherwise more than 24 months, subject to special rules. | Short-term gains ordinarily follow applicable slab rates; qualifying long-term gains generally bear 12.5% without indexation under the applicable provisions. |
For an FY 2024–25 return with qualifying transfers on both sides of 23 July, use the applicable pre- and post-change rates and the single aggregate section 112A threshold. The table shows base tax rates, not universal withholding rates. Product labels such as ETF, REIT, InvIT or bond do not by themselves establish the applicable treatment; check the legal instrument and transaction.
Bank and demat routes under FEMA
| Route | Practical checks |
|---|---|
| Repatriable listed equity | Check the designated authorised dealer and NRE (PIS) route under Schedule III of the Non-Debt Instruments Rules for covered stock exchange purchases. Confirm the bank’s treatment of net sale proceeds. |
| Non-repatriable investments | Schedule IV permits covered investments on a non-repatriation basis. Use the permitted funding and account arrangements; sale proceeds are generally credited to NRO. The RBI’s separate asset-remittance facility can permit eligible remittances up to USD 1 million per financial year, subject to conditions, tax and documents. |
| Mutual fund units | Use the permitted repatriable or non-repatriable route for the specific units. A PIS account is not generally needed for an ordinary fund subscription or redemption. Reconcile the payment, TDS certificate and net proceeds. |
Notify the bank, broker and fund when your FEMA status changes. Confirm which accounts need redesignation and whether current income or asset remittance rules apply. Use the applicable remittance forms and certifications for the date and payment; Form 15CB is not required in every case.
Withholding and final tax are separate
Legacy section 195 requires the person responsible for paying a non-resident to withhold at rates in force on sums chargeable in India, generally at credit or payment, whichever comes first, subject to the applicable provision. Determine the chargeable amount, the particular payment and whether another provision applies. An AMC, custodian or designated bank may administer withholding depending on the transaction. A broker or depository participant is not invariably the statutory payer. Distinguish a fund distribution from a redemption gain, and do not infer final tax from the amount withheld.
The basic exemption adjustments in sections 111A, 112 and 112A are restricted to qualifying resident individuals or HUFs. The section 87A rebate is for resident individuals. An NRI’s low ordinary income does not erase tax on a qualifying special-rate gain. This is separate from the aggregate ₹1.25 lakh threshold for section 112A. Where appropriate, review a lower or nil withholding procedure or claim excess TDS through the applicable return.
| Individual total income | Surcharge on section 112A tax | Combined rate on gain subject to the 12.5% base rate, before any marginal relief |
|---|---|---|
| Up to ₹50 lakh | Nil | 13.00% |
| Above ₹50 lakh up to ₹1 crore | 10% | 14.30% |
| Above ₹1 crore | 15% cap | 14.95% |
These rates include 4% health and education cess. For an individual, the surcharge cap applies to tax on the specified dividend income and gains under sections 111A, 112 and 112A. Test other income separately and apply marginal relief if relevant. The aggregate final-tax calculation is not a broker’s standard rate sheet.
Special foreign exchange assets, treaties and loss claims
Chapter XII-A applies only to qualifying NRIs and specified assets acquired in convertible foreign exchange, including qualifying shares in an Indian company and the other classes in section 115C. Section 115D limits deductions on investment income. Section 115E generally taxes qualifying investment income at 20%, and qualifying LTCG at 10% before 23 July 2024 and 12.5% from that date. Section 115F allows proportionate rollover if qualifying net consideration is reinvested in the permitted asset within six months, full relief when the qualifying investment covers the net consideration, and a clawback if the new asset is transferred or converted within three years. Section 115-I permits opting out by declaration in the return for that year. Check the computation under both regimes when eligible.
Section 115G dispenses with a return only if the NRI’s total income assessable under the Act consists solely of the qualifying investment income or LTCG, or both, and the deductible tax has been deducted. It does not apply simply because all investments are held through NRE accounts. File the applicable return to claim an excess withholding refund. Under the 2025 Act, check section 216 and the filing rules for the tax year.
Treaty analysis is specific to the instrument, residence and applicable date. For example, the Singapore treaty distinguishes shares from the residual property category. A tribunal has applied Article 13(5) to mutual fund units on the facts of a Singapore case; do not assume every instrument described as an equity fund is a share or that every investor obtains the same result. For Mauritius, Singapore and Cyprus, check the particular acquisition-date provisions, the asset, the residence certificate, required filings and any limitation or anti-abuse rule. Do not assume every treaty uses Article 13 or that all pre-April 2017 holdings qualify. Foreign tax credit is determined separately under the residence country’s rules and applicable treaty.
Under legacy sections 70, 71, 74, 80 and 139(3), short-term capital loss may offset short- or long-term capital gains, while long-term capital loss offsets only long-term capital gains. A capital loss cannot offset another income head. Eligible unabsorbed losses can be carried forward for up to eight assessment years if the loss return is filed by the applicable section 139(1) deadline, including any applicable extension. The normal deadline for an unaudited individual is not always the actual filing deadline for a particular year.
Five worked FY 2024–25 illustrations
1. Equity fund redemption and excess withholding
An investor based in Singapore buys eligible equity fund units for ₹25 lakh in January 2022 and redeems them for ₹42.50 lakh on 15 September 2024. The gain is ₹17.50 lakh. For this domestic-law calculation assume the STT conditions are met, no treaty relief is established, and there is no other Indian income. The separate Singapore treaty analysis may change the result.
| Step | Amount |
|---|---|
| Long-term gain | ₹17,50,000 |
| Gain above the ₹1.25 lakh threshold | ₹16,25,000 |
| Tax at 12.5% | ₹2,03,125 |
| Cess at 4%; no surcharge | ₹8,125 |
| Final domestic tax | ₹2,11,250 |
| Assumed withholding on full gain at 13% | ₹2,27,500 |
| Excess potentially refundable | ₹16,250 |
2. Short-term gain and a separate capital loss
An Oman-based non-resident has ₹4 lakh in qualifying listed-equity STCG in August 2024. Assuming Indian tax applies and no surcharge, withholding of 20% plus cess is ₹83,200. With no loss or other relief, the same domestic tax is due; an unused basic exemption limit or section 87A rebate does not generate a refund. With an eligible ₹2.50 lakh short-term capital loss in the same year, net STCG is ₹1.50 lakh, final tax is ₹31,200 and the excess TDS is ₹52,000.
3. Exit from an unlisted start-up
A US-based investor buys qualifying unlisted shares in 2019 for USD 50,000, assumed to be ₹35 lakh for the tax computation (₹70 per USD), and sells them in November 2024 for ₹1.20 crore. Under section 112(1)(c)(iii), with no indexation or currency adjustment, the illustrative gain is ₹85 lakh. At 12.5% plus 10% surcharge and 4% cess, tax is ₹12,15,500, assuming that is the only Indian income and no treaty relief. Applying the former 10% rate would produce ₹9,72,400, understating the tax by ₹2,43,100. If the investment qualifies under section 115C, consider Chapter XII-A separately; its post-change LTCG rate also is 12.5%.
4. Grandfathered cost for an illustrative listed share
Assume 1,000 shares bought in 2015 at ₹500 each, a valid 31 January 2018 statutory FMV of ₹960 per share, and sale at ₹3,000 per share in August 2024. Assume no corporate actions, the applicable STT requirements are met and no treaty relief or other income. Under section 55(2)(ac), use the higher of actual cost (₹5 lakh) and the lower of FMV (₹9.60 lakh) and sale proceeds (₹30 lakh). The resulting cost is ₹9.60 lakh. Gain is ₹20.40 lakh, ₹4.60 lakh lower than using actual cost, and tax plus cess on ₹19.15 lakh after the section 112A threshold is ₹2,48,950.
5. Offsetting a short-term loss against long-term gain
A UK-based investor has an eligible ₹6.50 lakh short-term capital loss and ₹10 lakh qualifying section 112A gain in September 2024 after holding the profitable investment for three years. Assume no other relevant gains, Indian income or treaty relief, and withholding of ₹1.30 lakh. The set-off leaves ₹3.50 lakh of gains. After the ₹1.25 lakh threshold, ₹2.25 lakh bears 12.5% plus cess, or ₹29,250. Excess withholding is ₹1,00,750.
Return and records checklist
- Retain contract notes, acquisition and redemption statements, STT records, fund classifications and any corporate action history.
- Reconcile Form 16A, Form 26AS, AIS and payment records for legacy years; use the corresponding records for current years.
- Use ITR-2 for the applicable legacy assessment year if eligible and there is no business or professional income; check ITR-3 where applicable. Complete the capital gains, grandfathering and loss schedules as relevant.
- Check the actual due date for preserving capital losses, enter a validated refund account, and retain treaty and remittance documentation.
Frequently asked questions
1. Can I keep using an ordinary resident savings or demat account after becoming non-resident under FEMA?
Notify your providers and change the account designation and investment arrangements as the applicable rules require.
2. Can capital losses offset foreign income?
They cannot offset foreign salary, rent or business income in an Indian return. Whether a foreign gain is taxable in India depends on Indian scope and treaty rules. Foreign tax returns have their own rules.
3. Why was tax withheld on a ₹50,000 equity fund gain?
Check whether the gain is short-term or long-term and which rate the payer applied. A 20% base rate can correspond to qualifying short-term gain. The ₹1.25 lakh aggregate threshold is for section 112A long-term gains only. A refund depends on the full return and verified credits.
4. Does STT apply to an NRI?
Residence does not generally exempt a qualifying taxable securities transaction. Check the instrument, transaction and statutory collection rules; STT is separate from income tax withholding.
5. Will a treaty always reduce Indian capital gains tax?
No. Apply the treaty actually in force to the specific asset and transaction, and substantiate eligibility.
6. Can a late return preserve a capital loss?
Generally a timely loss return is needed under legacy sections 80 and 139(3). Check notified extensions and any applicable relief for the year.
Sources
- Income-tax Act, 1961: rates, valuation, losses and withholding
- Finance (No. 2) Act, 2024: capital gains changes
- Income-tax Act, 2025, as amended by Finance Act, 2026
- Income Tax Department: non-resident return guidance
- RBI Master Direction: Foreign Investment in India
- RBI Master Direction: Remittance of Assets
- RBI FAQs: Non-resident accounts
- India–Singapore treaty synthesised text, Article 13
- ITAT order on the India–Singapore treaty and mutual fund units