TL;DR — the rate that actually applies when you sell
Holding period ≤ 12 months (Short-Term Capital Gain): Section 111A at 20% + 4% cess + applicable surcharge (post-Finance (No 2) Act 2024, effective 23 July 2024 — was 15% before). Surcharge: 10% (income > ₹50L), 15% (> ₹1Cr), 25% (> ₹2Cr — capped at 15% for LTCG/STCG-111A specifically per FA 2022). Effective rate band: 20.8% to 23.92%.
Holding period > 12 months (Long-Term Capital Gain): Section 112A. From 23 July 2024 (Finance (No 2) Act 2024): 12.5% on gains above ₹1.25 lakh annual exemption + 4% cess + surcharge (capped at 15% per LTCG cap). Effective rate band: 13.0% to 14.95%. The old 10% rate applied to LTCG before 23 July 2024.
Both rates require STT-paid status. If your sale is off-exchange (private negotiated transfer, transmission to legal heir, gift) — Section 111A / 112A don't apply. STCG falls under slab rate; LTCG under Section 112 at 12.5%.
Treaty rate: Most India tax treaties grant source-state taxing rights for capital gains on Indian shares (Article 13(4) or equivalent). The treaty does NOT typically reduce 111A / 112A rates — India taxes per its domestic rates. Mauritius-Singapore had grandfathering for pre-1-April-2017 acquisitions but that grandfathering has largely expired for sales after 1 April 2019.
At-source TDS: Your broker / RTA withholds the applicable rate on each sale and credits the net to your PIS NRO account. The TDS appears on Form 26AS / AIS.
PIS — the FEMA gating for NRI equity holding
NRIs cannot freely buy and sell Indian listed shares the way residents do. Under FEMA Notification 20(R) Schedule 3, all NRI equity investment in Indian listed securities must route through the Portfolio Investment Scheme (PIS) — a designated NRE or NRO account with one of the RBI-authorised banks (HDFC, ICICI, Axis, Kotak, SBI, etc.).
Two PIS account types:
• PIS-NRE: Funded from foreign inward remittance. Proceeds (post-tax) are freely and fully repatriable without USD limit. Suitable for fresh investments using foreign-earned money.
• PIS-NRO: Funded from NRO source (rent, dividends, prior accumulations, inheritance proceeds). Proceeds repatriable under the USD 1 million per FY cap. Most legacy holdings sit here.
Investment limits (PIS):
• Per NRI per company: max 5% of paid-up capital (with NRO + NRE combined). • Aggregate NRI investment in a company: max 10% of paid-up capital (extendable to 24% by special resolution of the company). • These limits are RBI-monitored at the company level; you don't track individually.
Brokerage: Your broker (Zerodha, ICICI Direct, Kotak Securities, etc.) must be a PIS-enabled broker. The broker links to your PIS bank, which monitors the FEMA rules in real time. On every buy, the bank releases funds against contract notes; on every sell, the bank applies TDS at source.
Important: NRIs cannot trade intraday or use F&O margin. Day-trading is prohibited under PIS. F&O is permitted but on a non-repatriation basis only (NRO-PIS), with margin and position limits. Delivery-based equity is the typical NRI mode.
Returning NRIs — re-designation: When you become Resident in India under FEMA, your PIS account must be closed and the holdings transferred to a resident demat account. The bank initiates this on intimation; failure to re-designate is a FEMA violation. Your tax-residency change under Section 6 may lag the FEMA re-designation by 1-2 years (the RNOR window) — these are separate regimes.
Worked example — sale of Reliance Industries holding by a UAE NRI
Concrete numbers help. Consider Aman, a Dubai NRI selling 1,000 Reliance Industries shares in August 2026:
The position: • Bought: 500 shares in May 2018 at ₹1,200/share = ₹6,00,000 (long-term — held >12 months) • Bought: 500 shares in March 2026 at ₹3,000/share = ₹15,00,000 (short-term — held <12 months) • Sale: all 1,000 shares in August 2026 at ₹3,200/share = ₹32,00,000
Capital gain computation:
*Long-term lot (May 2018 → August 2026, >12 months):* • Sale proceeds: ₹16,00,000 (500 × ₹3,200) • Cost basis: ₹6,00,000 • LTCG: ₹10,00,000 • Section 112A: 12.5% on gain above ₹1.25L exemption = 12.5% × ₹8,75,000 = ₹1,09,375 • Add 4% cess: ₹1,13,750 • Add LTCG surcharge (assume Aman's total Indian income < ₹50L): 0% • LTCG tax: ₹1,13,750
*Short-term lot (March 2026 → August 2026, <12 months):* • Sale proceeds: ₹16,00,000 (500 × ₹3,200) • Cost basis: ₹15,00,000 • STCG: ₹1,00,000 • Section 111A: 20% × ₹1,00,000 = ₹20,000 (post-FA 2024 rate, effective 23 July 2024) • Add 4% cess: ₹20,800 • STCG tax: ₹20,800
*Total Indian tax: ₹1,34,550 on ₹11 lakh of gain (effective ~12.23%).*
At-source TDS (broker side): • Broker withholds 20% on STCG + 12.5% on LTCG above ₹1.25L exemption + cess + surcharge. • Broker doesn't always apply the ₹1.25L exemption automatically (LTCG exemption is per-assessee per-FY across all sources; broker doesn't know your other LTCGs). • Worst case the broker withholds 12.5% on the full ₹10L LTCG (not the ₹8.75L net), giving ₹1,25,000 + cess.
UAE DTAA position: • India-UAE DTAA, Article 13(4): capital gains on alienation of shares of an Indian company are taxable in India per Indian domestic rates. • The UAE itself has zero personal income tax — no double-tax issue. • Aman's net = ₹32L sale value − ₹1.35L Indian tax = ₹30.65L. Repatriation from PIS-NRO subject to USD 1M cap (well within limit).
ITR-2 cleanup: • Aman files ITR-2 for AY 2027-28 showing the gains, the LTCG exemption application, and the over-deducted TDS. • Refund of ~₹16,250 (12.5% × ₹1,25,000 + cess) credited 4-8 months post-ITR with Section 244A interest at 6%.
This pattern — broker over-deducts because they can't see the per-assessee exemption — is one of the most common reasons NRIs get small but recoverable refunds every year. The fix is either: (a) accept the cash-flow lag and recover via ITR, or (b) file Form 13 with full holding view if the gap is material.
Treaty rate — does the DTAA reduce 111A / 112A?
Short answer: usually no, for the bulk of NRI equity sales.
Why: Most India tax treaties grant source-state (India) taxing rights for capital gains on shares of Indian companies. The relevant article is typically Article 13(4) or Article 13(5) of the OECD-model-based treaty. Examples:
• India-USA DTAA Article 13: Gains on alienation of shares of a company resident in India are taxable in India per Indian law. • India-UK DTAA Article 14(4): Same source-state taxing principle for shares. • India-UAE DTAA Article 13(4): Same. • India-Canada DTAA Article 13(4): Same. • India-Australia DTAA Article 13(4): Same. • India-Singapore DTAA (post-2017 protocol): Source-state taxing on shares acquired after 1 April 2017. • India-Mauritius DTAA (post-2016 protocol): Source-state taxing on shares acquired after 1 April 2017.
For pre-2017 acquisitions in Mauritius / Singapore-routed structures, the grandfathering provided a partial exemption that mostly phased out by 2019.
Where treaty COULD reduce: Very few countries have treaties granting residence-state taxing rights for Indian equity capital gains. Even where the treaty is silent or favourable, the Indian domestic rates of 12.5% LTCG / 20% STCG (post-FA 2024) are typically not capped further by treaty.
Practical implication: Don't expect Form 10F / Form 41 + TRC to reduce your equity-sale TDS. Those forms reduce interest and dividend TDS materially (NRO interest 30% → 7.5%-15%; dividends 20% → 10%-15%), but for equity capital gains, the Indian rate is largely fixed.
Where DTAA DOES help on equity-related income: Dividends from Indian listed companies. Pre-FA 2020, dividends were exempt in the shareholder's hands (taxed at company level via DDT). Post-FA 2020, dividends are taxable in the recipient's hands. For NRIs, Section 195 applies; default 20% TDS. DTAA reduces depending on treaty — important for individual NRIs: India-USA Article 10 caps at 15% only where the beneficial owner is a COMPANY owning ≥10% voting stock; individual portfolio shareholders always fall under the 25% rate. India-UAE: 10%. India-UK: typically 10-15%. Furnish PAN + TRC + Form 10F / Form 41 for the lower rate.
When Form 13 LDC is worth applying for equity sales
Form 13 / Section 197 lower-deduction certificate is most valuable when the at-source TDS materially exceeds your actual tax liability.
Worth applying for equity sales when:
• Large LTCG with significant ₹1.25L exemption headroom unused elsewhere. If your only Indian LTCG for the FY will be from this sale and the gain is, say, ₹5 lakh, your actual tax is 12.5% × ₹3.75L = ₹46,875. If the broker withholds 12.5% on the full ₹5L = ₹62,500, the gap is ₹15,625. LDC helps but the absolute amount is small — break-even with the ~₹20K LDC application cost.
• Section 54F / 54EC reinvestment exemption planned. If you're rolling the equity sale proceeds into a residential house (Section 54F) or NHAI / REC capital-gain bonds (Section 54EC), the LTCG is potentially fully exempt. LDC at 0%-1% rate makes sense for sale values > ₹1 crore.
• Treaty rate genuinely lower than Indian rate. Rare for equity, but possible in specific country / asset combinations.
• Multiple sales across the year. If you're staggering ₹5-10 crore of equity sales across multiple AMCs / brokers / RTAs during the FY, individual TDS at each deductor accumulates. A consolidated LDC at a lower rate based on your computed annual liability simplifies cash flow.
Not worth applying:
• Small sales (sale value < ₹50 lakh, gain < ₹10 lakh). Broker TDS at 12.5%-20% rate is close to actual liability; LDC application cost (~₹20-40K of CA fees) eats the benefit.
• STCG-only sales. STCG at 20% (post-FA 2024) is the broker's default; nothing to reduce.
• Sales where treaty rate doesn't help (most equity-capital-gains cases).
If you're on the fence, do a one-page math: Expected over-withholding × 6 months at 6% Section 244A interest = opportunity cost of refund route. If that opportunity cost is materially less than ₹30K, skip Form 13 and recover via ITR.
Common mistakes NRIs make selling Indian equity
1. Trading from a resident demat account after becoming NRI. Under FEMA, your resident demat / trading account must be converted to NRO / PIS within a reasonable time after status change. Continuing to trade as a resident is a FEMA violation. The broker is supposed to flag this but many lag — the burden is on you.
2. Forgetting the ₹1.25L LTCG exemption on the ITR. Brokers often don't apply the exemption at source because they don't have visibility into your other LTCG sources. ITR-2 Schedule CG is where you apply the exemption per assessee per FY. Many NRIs file directly with the broker's TDS amount as final — losing the exemption refund.
3. Not reporting cost basis correctly for grandfathered LTCG. For shares acquired before 31 January 2018 and sold after 1 April 2018, the grandfathering rule under Section 112A allows you to use the higher of (a) actual cost, OR (b) the lower of [FMV on 31 January 2018, sale price]. Many NRIs use actual cost only, over-paying tax. Especially relevant for old holdings.
4. Treating bonus shares as having zero cost. Bonus shares received before 1 February 2018 get FMV-on-31-Jan-2018 grandfathering. Bonus shares received after that get zero cost (and are short-term until 12 months from allotment). Many NRIs (and their CAs) mis-classify, leading to penalties on assessment.
5. Selling via off-market transfer without Section 111A / 112A status. Off-market sales (transmission to legal heir, gift, private negotiated transfer) don't qualify for the 15% / 12.5% concessional rates because STT isn't paid. STCG falls under slab rate; LTCG under Section 112 at 12.5%. For gifts within family, the recipient inherits cost basis but the gift itself is exempt under Section 56(2)(x) for specified relatives.
6. Repatriating from PIS-NRO without Form 15CA/15CB. Any outward remittance > ₹5 lakh from NRO requires Form 15CA + Form 15CB. Many NRIs assume the broker handles it; they don't. CA-certified Form 15CB is needed for each remittance (or one annual consolidated certificate covering the year's flow).
7. Mixing PIS-NRE and PIS-NRO holdings on the same trading screen. Conceptually they're separate FEMA pools. Sale proceeds must land in the right NRE / NRO account. If you sell a PIS-NRE-acquired share but the broker credits to PIS-NRO, you've effectively converted NRE to NRO — losing the freely-repatriable status. Confirm settlement instructions before each sale.