NRI Tax Guide 2026: Property Sales, Retirement Payouts, and Trading Losses

The Income Tax Act, 2025 introduces specific nuances for taxpayers dealing with cross-border transactions, retirement benefits, and market volatility. Below is a breakdown of essential tax rules based on recent queries.

1. NRI Property Sales: Taxability and Treaty Relief

If you are a Non-Resident Indian (NRI) selling property located in India, the transaction is subject to Indian tax laws regardless of your country of residence.

• Tax Liability: Capital gains are taxable in India based on the holding period (Short-term vs. Long-term).

• The TDS Challenge: Buyers are legally obligated to deduct Tax Deducted at Source (TDS) at the time of payment. For NRIs, this rate is often higher than the actual tax liability.

  • Tip: NRIs should apply for a Lower Deduction Certificate from the IT department to avoid excess tax outflow.

• Double Taxation Relief: Under the India-Canada Tax Treaty (or similar treaties with other nations), you can generally claim a Foreign Tax Credit in your home country for the taxes paid in India, ensuring you aren’t taxed twice on the same gain.

2. Retirement Payouts: Gratuity and Leave Encashment

Tax exemptions for retirement benefits differ significantly between government and private-sector employees.

Government Employees

Gratuity and leave encashment are fully exempt from tax under Sections 10(10) and 10(10AA).

Private Sector Employees

Exemptions are capped at specific limits:

• Gratuity: Exempt up to the least of:

  1. ₹20 Lakh.

  2. Actual gratuity received.

  3. Amount calculated via the specified formula (15 days’ salary for each year of service).

• Leave Encashment: Exempt up to the least of:

  1. ₹25 Lakh.

  2. Actual amount received.

  3. 10 months’ average salary.

  4. Cash equivalent of unutilized leave (max 30 days per year of service).

3. Offsetting Losses from Options Trading

A common misconception is that trading losses can be offset against stock investment gains. Under current laws, these are treated as different “heads” of income.

• Classification: Loss from F&O (Futures and Options) is treated as a non-speculative business loss, not a capital loss.

• Offset Rules: * It cannot be adjusted against capital gains from shares.

  • It can be adjusted against other business income.

• Carry Forward: If the loss isn’t fully absorbed, it can be carried forward to future years—but only if you file your tax return before the official due date.

Summary Table for Quick Reference