Luxembourg NRIs · Capital Gains Tax

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

Selling Indian equity or mutual funds from Luxembourg can trigger Indian capital-gains tax. Here's what the treaty allows, what your AMC withholds, and how to reclaim the excess.

If you invest in Indian listed shares or mutual funds while living in Luxembourg, the treaty decides whether India can tax the gain at all. Under the India-Luxembourg treaty, India keeps the right to tax gains on Indian securities (Article 13(5)), so the headline long-term rate stays at 12.5%. When you redeem, your broker or AMC withholds tax on the gain before paying you, often at a flat rate that runs ahead of what you actually owe once the ₹1.25 lakh long-term exemption and your holding period are applied. The over-withheld amount comes back through your Indian return.

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India-Luxembourg key facts: capital gains tax

Default non-resident TDS rate	12.5%
What the treaty changes here	It sets no lower rate on this income. What a treaty decides here is which country gets to tax it.
Treaty article / basis	Article 13(5): India taxes gains on shares of an Indian company
Your TRC issuing authority	the Administration des contributions directes (ACD)

Rates reflect India's domestic withholding under Section 393(2) (Section 195 until 31 March 2026) and the India-Luxembourg treaty. 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 Luxembourg

Luxembourg has a cheap way to settle interest and your Indian interest can't use it. Residents pay a flat 20% liberatory withholding, the relibi, on bank interest, and that interest then stays outside your tax base altogether. You can stretch the 20% to a foreign bank on form 931, but only to one in the EU or the EEA. An Indian bank is neither, so your NRO and FD interest lands on the form 100 and climbs the ordinary scale, which reaches 45.78% once the employment fund surcharge goes on, plus 1.4% for long-term care. Sitting inside the base, it also lifts the rate on everything else you declare. Indian shares run the other way: sell after six months, with a stake that never topped 10% in the five years before, and Luxembourg doesn't tax the gain at all, so nothing here absorbs the Indian tax you already paid.

Frequently asked questions

Common questions from Luxembourg NRIs

Long-term gains on Indian listed equity and equity mutual funds are taxed at 12.5% above a ₹1.25 lakh annual exemption, and short-term gains at 20% (Sections 198 and 196, formerly 112A and 111A). The India-Luxembourg treaty leaves these gains taxable in India (Article 13(5)), so the rate doesn't change because you live abroad, but you can recover any TDS the AMC over-withheld.

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 Luxembourg 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 Luxembourg NRI tax guide: every income type and the rates that apply

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

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