Section 115-I: NRI Option to Exit the Special Tax Regime
Section 115-I of the Income-tax Act, 1961 allows an eligible non-resident Indian to elect ordinary taxation instead of the special provisions in Chapter XII-A. From tax year 2026-27, the corresponding rule is Section 218 of the Income-tax Act, 2025.
What does Section 115-I mean?
Chapter XII-A of the 1961 Act contains special rules for certain investment income and long-term capital gains of non-resident Indians. Section 115-I gives a qualifying taxpayer the choice not to apply those special rules for a particular assessment year. When the taxpayer exercises the choice in the return of income, income and tax for that year are computed under the other applicable provisions of the Act.
The expression non-resident Indian is defined for this Chapter in Section 115C. Eligibility depends on that statutory definition, not merely on holding an overseas address or bank account.
Section 115-I (1961 Act) and Section 218 (2025 Act)
| Issue | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Opt-out provision | Section 115-I | Section 218 |
| Special provisions opted out of | Chapter XII-A | Sections 212 to 217 |
| Return provision | Section 139 | Section 263 |
| Election period | Relevant assessment year | Relevant tax year |
| Result | Income is computed and taxed under the other applicable provisions for that year. | |
The 2025 Act applies to tax years beginning on or after 1 April 2026. Earlier assessment years continue to be dealt with under the applicable provisions of the 1961 Act and the repeal-and-savings rules. A valid election under the old Act remains relevant to its own assessment year.
Statutory effect of the election
Under Section 115-I, the NRI must furnish the return of income under Section 139 and declare that Chapter XII-A should not apply for the assessment year. Section 218 of the 2025 Act similarly requires the NRI to make the declaration in the return under Section 263, following which Sections 212 to 217 do not apply for that tax year.
How can an NRI opt out?
- Check whether the income and assets otherwise qualify for the special NRI provisions.
- Calculate the tax outcome under the special provisions and under the other applicable provisions of the Act.
- File the prescribed income-tax return for the relevant assessment year or tax year.
- Make the required opt-out declaration in the return, following the applicable form and filing instructions.
- Retain supporting records of income, asset acquisition, tax deducted and the filed return.
Merely omitting a special-rate claim or not filing a return should not be treated as a substitute for the statutory declaration.
What changes after opting out?
Choosing the opt-out means the special provisions of Chapter XII-A (or Sections 212 to 217 under the 2025 Act) are not applied for that year. The ordinary provisions then determine the computation, deductions, exemptions and rates, subject to their own conditions. Opting out does not automatically create eligibility for a deduction, lower rate, treaty relief or refund.
In particular, compare the effect of Section 115D (computation restrictions), Section 115E (special taxation) and Section 115F (reinvestment relief). The result may differ by asset, income type, acquisition date and tax year.
Illustrative example
Suppose an eligible NRI receives investment income from a qualifying foreign exchange asset and also earns other Indian-source income. The NRI should calculate liability both with and without the Chapter XII-A treatment. If the ordinary computation is preferable and the statutory requirements are met, the NRI may declare the opt-out in the return for that year. The election itself does not establish which computation will be lower.
Frequently asked questions
Is opting out compulsory?
No. Section 115-I and Section 218 create an option for eligible NRIs, not a mandatory election.
Is the election permanent?
No. It is expressly made for a particular assessment year under the 1961 Act or tax year under the 2025 Act. Each year should be considered independently.
Can an NRI opt out without filing a return?
The provisions require the choice to be declared in the return of income. The special return-filing relaxation in Section 115G should not be confused with this declaration requirement.
Does the 2025 Act remove this option?
No. Section 218 continues the elective mechanism for tax years governed by the 2025 Act.
Official legislation and further reading
- Income Tax Department: Section 115-I, Income-tax Act, 1961
- Income Tax Department: Income-tax Act, 2025 (see Section 218)
- Income Tax Department: Non-resident guidance and transition FAQs
- Income Tax Department: Old-to-new section navigator
This article provides general statutory information. Applicable rules, filing instructions and the facts of each taxpayer determine the final tax treatment.