Section 115F Income Tax Act: NRI Capital Gains Exemption on Reinvestment

Section 115F of the Income-tax Act, 1961 provided relief from long-term capital gains tax when a qualifying non-resident Indian reinvested the net consideration from a foreign exchange asset in an eligible new asset within six months. For tax years starting on or after 1 April 2026, the corresponding provision is Section 215 of the Income-tax Act, 2025.

1. Conditions for exemption under Section 115F

The original asset must be a foreign exchange asset giving rise to long-term capital gains in the hands of a qualifying non-resident Indian. Under Section 115C, a foreign exchange asset is a specified asset acquired, purchased or subscribed to in convertible foreign exchange. Not every investment or asset owned by an NRI qualifies.

Within six months after the transfer, the taxpayer must invest all or part of the net consideration in a specified new asset. The historical wording of Section 115F also refers to savings certificates under Section 10(4B); eligibility of a particular certificate or product must be verified under the law applicable to the transaction.

Meaning of key terms

• Non-resident Indian: The definition in Section 115C of the 1961 Act (and the corresponding interpretation provision under the 2025 Act) determines who qualifies; it is not enough merely to hold an NRI bank account.
• Specified asset: An eligible category listed in Section 115C, such as qualifying Indian-company shares, qualifying debentures or deposits, Central Government securities and notified assets, subject to the exact statutory conditions.
• Net consideration: Full value of consideration received or accruing on transfer, less expenditure incurred wholly and exclusively in connection with that transfer.
• Long-term capital gains: Gains on an eligible foreign exchange asset that is not a short-term capital asset under the applicable holding-period rules.

2. Full and proportionate exemption

Section 115F(1)(a): If the cost of the new asset is at least equal to the net consideration from the original asset, the whole eligible long-term capital gain is exempt.

Section 115F(1)(b): If only part of the net consideration is reinvested, exemption is proportionate:

Exempt capital gain = Long-term capital gain x (Cost of new asset / Net consideration)

The remaining capital gain is taxable under the applicable provisions. The test is based on reinvestment of net consideration, not merely reinvestment of the capital gain.

3. Example of partial reinvestment

Illustration assumes the taxpayer, original asset and replacement investment meet every statutory condition.

4. Section 115F(2): Three-year lock-in and withdrawal of exemption

If the new asset is transferred or converted into money within three years of acquisition, the previously exempt capital gain attributable to that asset is brought back into charge in the year of the premature transfer or conversion. The provision treats the recaptured amount as capital gains relating to an asset other than a short-term capital asset. Any separate gain on disposal of the new asset must be examined independently.

Where the original exemption arose under the 1961 Act but the premature transfer occurs after 1 April 2026, the Income Tax Department explains that the original exemption conditions continue to matter under the repeal-and-savings rules, while taxation is administered for the tax year of the subsequent transfer.

5. Section 215 of the Income-tax Act, 2025

For tax years commencing from 1 April 2026, Section 215 carries forward the reinvestment relief, proportional calculation and three-year recapture principle. The new provision refers to capital gains chargeable under Section 67 instead of Section 45 of the 1961 Act. Relevant definitions appear in Section 212 of the 2025 Act.

Section 215 expressly sets out the qualifying investment in a specified asset and the formula for partial exemption. Do not assume that every historical savings certificate mentioned in Section 115F remains independently eligible under the new wording.

6. Practical checklist for NRIs

1. Confirm residential status and eligibility under the applicable Act.
2. Verify that the asset was acquired using convertible foreign exchange and falls within the statutory specified-asset categories.
3. Establish whether the capital gain is long-term under the rules applicable on the transfer date.
4. Calculate net consideration after eligible transfer expenses.
5. Complete and document the qualifying reinvestment within six months.
6. Preserve bank remittance, purchase, sale and investment records, and monitor the three-year lock-in period.

7. Official legislation and guidance

• Income Tax Department: Section 115F, Income-tax Act, 1961
• Income Tax Department: Income-tax Act, 2025 (see Sections 212 and 215)
• Income Tax Department: Non-resident taxation and transition FAQs

Updated 27 October 2026. This article is general legal and tax information. Applicability depends on the tax year, nature of the asset and specific facts.