NRI taxation | Updated 27 October 2026
Section 115E: Tax on NRI Investment Income and Long-Term Capital Gains
Section 115E of the Income-tax Act, 1961 provided special rates for qualifying investment income and long-term capital gains of non-resident Indians. Its corresponding provision under the Income-tax Act, 2025 is Section 214.
Chapter XII-A of the 1961 Act established a special tax regime for certain income arising from foreign exchange assets. The rules are relevant when reviewing income and transfers governed by the 1961 Act, while Section 214 of the 2025 Act provides the corresponding framework for tax years beginning on or after 1 April 2026.
Tax rates under Section 115E
| Income category | Applicable basic tax rate |
|---|---|
| Qualifying investment income from foreign exchange assets | 20% |
| Long-term capital gains covered by Section 115E on transfers before 23 July 2024 | 10% |
| Long-term capital gains covered by Section 115E on transfers on or after 23 July 2024 | 12.5% |
| Other income outside these special categories | Applicable rates under the relevant provisions |
These are basic rates. Applicable surcharge and health and education cess may increase the final liability. The Finance (No. 2) Act, 2024 amended the long-term capital gains rate effective from 23 July 2024. See the official Section 115E text and Income Tax Department rate tables.
Who qualifies as a non-resident Indian?
For Chapter XII-A, Section 115C defines a non-resident Indian as an individual who is an Indian citizen or a person of Indian origin and is non-resident under the Act. The Chapter's definition of a person of Indian origin includes an individual whose parent or grandparent was born in undivided India. Residential status must be determined under the relevant tax law for the applicable year.
Meaning of investment income and specified assets
Under Section 115C, a foreign exchange asset is a specified asset acquired, purchased or subscribed to using convertible foreign exchange. Investment income means qualifying income derived from such an asset, subject to the statutory exclusions. Specified assets include shares in Indian companies, qualifying debentures and deposits with Indian companies that are not private companies, Central Government securities and any additionally notified assets.
The special rates do not automatically apply to every investment or every capital gain of an NRI. The asset, source of acquisition funds, holding period and applicable capital gains provisions must be checked. Read the related Section 115C definitions.
How the tax is calculated
The tax payable is calculated by combining (1) tax on qualifying investment income at 20%, (2) tax on qualifying long-term capital gains at the relevant 10% or 12.5% rate, and (3) tax on the remaining total income under the otherwise applicable rules. Section 115D restricts expenditure and allowance deductions against qualifying investment income and governs Chapter VI-A deductions for this regime.
Illustrative calculation
Suppose an eligible NRI has Rs. 2,00,000 of qualifying investment income and Rs. 4,00,000 of qualifying long-term capital gains from a transfer after 22 July 2024. Before surcharge and cess, the special-rate component is Rs. 40,000 plus Rs. 50,000, or Rs. 90,000. Any other taxable income must be considered separately. This is an illustration, not a complete return computation.
Income-tax Act, 2025: Section 214
Section 214 of the Income-tax Act, 2025 specifies 20% on investment income and 12.5% on long-term capital gains from specified assets, with remaining income taxed at rates in force. Related provisions include Section 213 on computation and Section 215 on reinvestment relief. The Income Tax Department states that the core NRI special regime has been retained.
Official references: Income-tax Act, 2025, as amended and Income Tax Department guidance for non-residents.
Related provisions and practical considerations
- Section 115D: Special computation and deduction restrictions for qualifying NRI income.
- Section 115F: Conditional relief on reinvestment of proceeds from specified foreign exchange assets.
- Section 115G: Exemption from filing a return in specified cases, subject to conditions including tax deduction at source.
- Section 115H: Continuation of certain benefits after becoming resident, subject to statutory requirements.
Tax deduction at source, treaty relief where available, and the classification of the asset may affect the final outcome. Review the applicable assessment or tax year before applying any rate.