Section 115F unlocks major tax savings for NRIs on long-term gains from foreign exchange assets
Non-Resident Indians (NRIs) navigating Indian taxation may find it complicated—but within the legal framework lies a powerful opportunity. Sections 115F and 115C of the Income Tax Act allow NRIs to completely avoid tax on long-term capital gains (LTCG) from foreign exchange assets—if they reinvest wisely, reported upstox.com.
NRIs Can Save Lakhs in Tax by Reinvesting Capital Gains in Specified Indian Assets Under Section 115F.
Under these sections, if NRIs reinvest the proceeds from a foreign exchange asset into certain eligible assets within six months, they can claim full or proportional exemption on LTCG. This tax planning approach is 100% legal and recognized by Indian tax law.
- Why This Matters
India is home to a large and growing diaspora, with over 1.58 crore NRIs globally. According to RBI and World Bank data, NRIs held USD 160 billion in deposits and remitted over USD 129 billion in 2024. With cross-border wealth on the rise, understanding Indian tax nuances is crucial for compliance and long-term financial planning.
Who Qualifies as an NRI?
Under Section 6 of the Income Tax Act, you’re considered an NRI if:
- You stayed in India less than 182 days in a financial year, or
- You were in India less than 60 days in that year and less than 365 days in the past four years.
For Indian citizens leaving for employment or earning under ₹15 lakh in India, this can extend up to 182 or 120 days, respectively.
Taxability of Different NRI Incomes
- Income Type Taxability
- Rent from Indian property Taxable in India; 30% standard deduction allowed
- Interest on NRO account Fully taxable
- Interest on NRE/FCNR accounts Exempt if NRI status maintained
- Dividends from Indian companies Fully taxable
- STCG on listed shares 15% under Section 111A
- LTCG above ₹1.25 lakh 12.5% tax with potential exemption via Section 115F
- Business income Taxable if controlled from India
Gifts Exempt from relatives; taxable beyond ₹50,000 from others
- What is Section 115F and How Does It Help?
- If you’re an NRI and sell a foreign exchange asset—defined as any asset bought using convertible foreign exchange—you can reinvest the entire net sale amount in specific instruments to save on LTCG tax.
- Eligible Reinvestment Options:
- Equity shares of Indian companies
- Debentures or public deposits in Indian public companies
- Government securities
Lock-in period: 3 years. Early sale makes exempted gains taxable.
- Example:
- Net sale value: ₹4 crore
- Capital gain: ₹2 crore
- Reinvestment: ₹3 crore
- Exempt Gain: (₹3 crore / ₹4 crore) × ₹2 crore = ₹1.5 crore
- Tax saved: ₹18.75 lakh (@12.5%)
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- 4 Must-Know Compliance Points
- Reinvest within 6 months from asset transfer.
- Invest only in specified assets—not mutual funds, real estate, or gold.
- Hold for 3 years or lose the exemption.
- Maintain NRI status and document source of funds.
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- Final Takeaway
Taxation for NRIs doesn’t have to be a burden. Sections like 115F offer strategic tools to preserve cross-border wealth and foster reinvestment in India. With the right financial planning, NRIs can legally save lakhs in taxes while continuing to grow their portfolio.
