The Indian Income-tax Act, 1961 (“the Act”) provides for various special regime of taxation for NRIs (i.e. to an individual, being a citizen of India or a Person of Indian Origin (PIO) who is not a resident as per provisions of the Act).

For the purpose of this note, we have only covered special provisions covered in Section 115C to Section 115I of the Act. Under the said special regime, specific tax rates are provided for certain nature of income earned by NRIs which are explained in the ensuing paragraphs.

It is imperative for NRIs to know such special provisions/reliefs and file ROI accordingly.

Nature of Income for which NRI can opt for Special regime of Taxation

NRI can avail the benefits of special regime if his Gross Total Income consists of the below income:

  i. Investment Income (viz. interest, dividend etc.) from specified foreign exchange asset and/or

  ii. Long Term Capital Gain (LTCG) relating to specified foreign exchange asset.

Kindly note, Specified Foreign Exchange Asset means any of the following assets purchased in convertible foreign exchange:

-        Shares in an Indian company

-        Debentures of an Indian public limited company

-        Deposits with an Indian public limited company

-        Central Government securities

-        Other assets as may be specified by Central Government (No such assets has been notified by Central Government till now)

Option to be taxed under the Special Regime of Taxation:

Provisions of special regime of taxation as covered in Section 115C to Section 115I are optional for NRIs. NRI may elect not to be govern by special provisions in case normal provisions are found to be more beneficial for him/her.

Tax rates under Special regime of taxation vis-à-vis Normal Regime of taxation:

We have tabulated in below the reliefs available for income earned from specified foreign exchange asset, in terms of rate of taxation under Special regime vis-à-vis normal regime of taxation, which the NRIs may normally be subject to tax under the IT Act.

Note:

1.    Taxability of Market Linked Debentures is not covered in the above table as the same is recently introduced and is at a very nascent stage.

2.  Deduction of Chapter VI-A shall not be allowed against investment income/ LTCG from Specified Asset

Exemption from tax on LTCG:

LTCG arising to NRI from specified asset are exempt from tax if the net sale consideration (i.e. full value of consideration reduced by expenditure incurred wholly and exclusively in connection with transfer in simple words sale value less any expense incurred for such transfer) is invested in another specified asset within a period of 6 months from date of transfer of the original specified asset.

If the new asset is transferred or converted (otherwise than by transfer) into money within a period of 3 years from the date of acquisition, then the exemption claimed earlier shall be taxable in the year in which the new asset is transferred or converted (otherwise than by transfer) into money.

Relief from filing Return of Income (ROI) under Special Regime of Taxation:

NRI is not required to file his ROI if his total income consists only of:-

i.Investment income from specified asset

ii.LTCG from specified asset

AND tax on both incomes has been deducted at source as per provisions of the Act.

                                                                                                                                                                                                                - Updated 01/2024