Bahrain NRIs · Capital Gains Tax

Capital gains tax on Indian shares and mutual funds for NRIs in Bahrain

Selling Indian equity or mutual funds from Bahrain triggers Indian capital-gains tax, with no treaty to shift it. Your refund comes from the exemption and a correct cost basis.

If you hold Indian listed shares or mutual funds from Bahrain, India taxes the gains and there is no argument to be had about it. India and Bahrain have no tax treaty. The 2012 agreement between them is a Tax Information Exchange Agreement, which lets the two tax offices share information but caps no withholding rate. The gap matters more here than on property, because a few of India's treaties do give the country you live in the sole right to tax gains on Indian securities, and that is the one place a treaty genuinely beats the Indian rate. Bahrain NRIs don't have that door, so plan on Indian tax: 12.5% long-term above the ₹1.25 lakh annual exemption and 20% short-term (Sections 198 and 196, formerly 112A and 111A). What you can still recover is the AMC's over-withholding, which usually runs ahead of the real number.

Request a free CA call

India-Bahrain key facts: capital gains tax

India's default non-resident rate of 12.5% applies here with nothing to claim it down to.

Your ₹1.25 lakh exemption is the lever. No certificate is needed on either side: there is no treaty rate to claim in India, and nothing is charged on this income in Bahrain.

This is India's domestic withholding under Section 393(2) (Section 195 until 31 March 2026). There is no India-Bahrain treaty to modify it. Surcharge and cess apply on top where relevant.

How it works on the India side

Indian capital-gains tax on equity and equity mutual funds follows Sections 198 and 196 (Sections 112A and 111A under the 1961 Act): long-term gains, held over a year, are taxed at 12.5% above a ₹1.25 lakh annual exemption, and short-term gains at 20%, after the Budget 2024 changes. For an NRI, the AMC or broker deducts TDS on the gain at redemption, and because they apply a flat rate without your annual exemption or the full holding-period detail, the deduction is frequently more than your real liability.

The correction happens on your return. You compute the gain properly across all your folios and brokers, apply the exemption and the right rate per holding period, and set the TDS already deducted against it. Where the TDS exceeded the actual tax, which is common once the exemption is applied, the excess is refunded. Two things catch people out: getting the cost basis right across multiple brokers, and the rule that a non-resident cannot set an unused basic exemption limit against these gains the way a resident can.

What changes because you live in Bahrain

Bahrain takes nothing off this Indian income. There's no personal income tax, no capital gains tax and no net wealth or inheritance tax on individuals, and no foreign tax relief legislation either, so the Indian tax withheld earns you no credit on the Bahrain side. The trap here is paperwork, not tax. Bahrain tells the OECD it issues no tax identification numbers for CRS purposes, so you have no Bahrain TIN to quote. Don't leave the box blank. Indian banks, AMCs and depositories read that field as TIN or functional equivalent, and for Bahrain they accept your Bahrain ID or CPR number, so give it with the issuing country. Skip it and the institution can't treat your self-certification as valid under Rule 240 of the Income-tax Rules 2026, the old Rule 114H, and transactions like an FD renewal or a redemption can sit restricted until you redo the form.

Frequently asked questions

Common questions from Bahrain NRIs

12.5% on long-term gains above the ₹1.25 lakh annual exemption and 20% on short-term gains (Sections 198 and 196, formerly 112A and 111A). With no India-Bahrain treaty there is no lower rate and no residence-country carve-out for Bahrain NRIs to claim, so the Indian rate is the rate. The ₹1.25 lakh exemption is still yours, and it's often where the refund comes from.

AMCs and brokers withhold on the gain at a flat rate without applying your ₹1.25 lakh long-term exemption or the precise holding-period split, so the TDS often runs ahead of your real liability. When you file your Indian return you compute the gain correctly across every folio, apply the exemption and the 12.5% long-term rate, set the TDS against it, and the excess is refunded. It's the same fix whether or not Bahrain has a treaty with India.

Go further

Read the full guide, or see your country's complete picture

NRI capital-gains ITR across multiple brokers Bahrain NRI tax guide: every income type and the rates that apply

Capital Gains Tax sorted, by an Indian CA who works with Bahrain NRIs

Tell us your situation and a practising Chartered Accountant will confirm the rate that applies, the paperwork you need, and what you can reclaim, on a free call with no obligation.