Chapter XII-A of the Income Tax Act, covering Sections 115C to 115-I, sets out a special, and often underused, tax regime specifically for NRIs on their investment income from certain foreign exchange assets, and it’s worth understanding even for NRIs who already have a broader tax filing set up.
Under this chapter, investment income earned by an NRI on “specified assets,” which include shares in Indian companies, debentures, deposits with Indian companies, and Central Government securities, acquired using foreign exchange, is taxed at a concessional flat rate, rather than at regular slab rates. Long-term capital gains on the transfer of such specified assets also get concessional treatment under this chapter. The rates involved have been subject to change through various Finance Acts, so the current applicable rate should always be confirmed rather than assumed from a previous year.
One of the more valuable, and less well-known, provisions here is Section 115F, which allows an NRI to claim exemption on long-term capital gains from specified assets if the net proceeds are reinvested in specified new assets, such as shares of an Indian company or deposits with certain financial institutions, within six months of the transfer, similar in spirit to Section 54EC available to residents but tailored to NRI-specific asset categories.
There’s also a simplification benefit built in: once an NRI opts into this Chapter XII-A regime for a particular assessment year, they aren’t required to file a return at all for that income if tax has been fully deducted at source, though many NRIs still choose to file for various practical reasons.
An NRI can also choose not to be governed by this chapter for a given year and instead be taxed under normal provisions, whichever works out more beneficial, which makes a year-by-year comparison worth doing rather than defaulting to one regime out of habit.
Ashutosh Financial Services helps NRI clients work out whether this special regime or the normal provisions serve them better in a given year. Ashutosh Financial Services runs sessions specifically addressing these NRI-specific tax provisions.
