US NRIs · Capital Gains Tax

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

Selling Indian equity or mutual funds from the US 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 the US, the treaty decides whether India can tax the gain at all. Under the India-US treaty, India keeps the right to tax gains on Indian securities (Article 13), 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.

Request a free CA call

India-US 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
Your TRC issuing authority	the Internal Revenue Service (IRS)

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

US residents are taxed on worldwide income, so this Indian income also lands on your IRS Form 1040, with a foreign tax credit (Form 1116) for the Indian tax paid. On top of that you report your Indian accounts and assets on the FBAR (FinCEN 114) and Form 8938 once the thresholds are crossed, and Indian mutual funds can trigger punitive PFIC treatment. The India-side tax here is only half the picture.

Frequently asked questions

Common questions from American 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-US treaty leaves these gains taxable in India (Article 13), 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 the US 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 US NRI tax guide: every income type and the rates that apply

Capital Gains Tax sorted, by an Indian CA who works with American 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.