Section 214 Income Tax Act 2025: How Are NRI Investments Taxed?
Section 214 provides special rates of income-tax on qualifying investment income and long-term capital gains of non-resident Indians (NRIs). It separates those amounts from other taxable income so that each category is taxed at the prescribed rate.
What does Section 214 of the Income-tax Act, 2025 provide?
Section 214 is titled "Tax on investment income and long-term capital gains". It applies where the total income of an assessee who is a non-resident Indian includes income falling in the statutory table. The income-tax payable is the aggregate of tax computed separately on the categories in that table.
It is not a flat rate on the NRI's entire income: qualifying investment income, qualifying long-term capital gains, and the remaining total income are considered separately.
What are the income-tax rates under Section 214?
| Statutory table entry | Income | Rate |
|---|---|---|
| 1 | Income from investment | 20% |
| 2 | Income from long-term capital gains on specified asset | 12.5% |
| 3 | Total income after reducing the income in entries 1 and 2 | Rates in force |
Important: These are basic statutory rates. Applicable surcharge, health and education cess, relief under a tax treaty, withholding provisions and any other relevant statutory provisions must be assessed separately. Not every receipt from an Indian investment automatically qualifies for the Section 214 regime.
What are the relevant statutory definitions under Section 212?
An individual who is not resident in India and who is either an Indian citizen or a person of Indian origin. The definition is specific to the provisions covered by Section 212.
A specified asset acquired, purchased or subscribed to by the assessee using convertible foreign exchange.
Income derived from a foreign exchange asset.
Income chargeable under the head "Capital gains" in relation to a capital asset that is a foreign exchange asset and is not a short-term capital asset.
Includes (i) shares in an Indian company; (ii) debentures issued by an Indian company other than a private company under the Companies Act, 2013; (iii) deposits with such a non-private Indian company; (iv) Central Government securities as defined under Section 2(f) of the Government Securities Act, 2006; and (v) other assets notified by the Central Government.
Who can claim the special rates under Section 214?
- The assessee must be an individual satisfying the special definition of non-resident Indian under Section 212(d).
- For investment income, the receipt must arise from a foreign exchange asset within Section 212(a) and (b).
- For the 12.5% rate, the gain must be a long-term capital gain on a specified asset within the applicable statutory framework.
- The conditions relating to acquisition in convertible foreign exchange and the nature of the asset should be established from transaction records.
Examples of potentially relevant assets include eligible shares of an Indian company purchased with convertible foreign exchange and qualifying debentures or deposits. Whether a particular investment qualifies requires verification of the statutory conditions, holding period and acquisition documents.
How do Sections 213, 215 and 216 affect Section 214?
Section 213 - Computation of NRI income
Section 213(1) does not allow deduction of expenditure or allowance under the Act when computing investment income of an NRI. Under Section 213(2), Chapter VIII deductions are restricted where gross total income consists solely of qualifying investment income, long-term capital gains or both. Where other income is present, the special income is excluded from gross total income when determining eligible Chapter VIII deductions.
Section 215 - Reinvestment of capital gains
Section 215 may provide relief from chargeability of long-term capital gains where the net consideration from transfer of an eligible foreign exchange asset is reinvested in a specified asset within six months, subject to its proportional relief formula and conditions, including consequences of premature disposal. This relief is separate from the 12.5% rate under Section 214.
Section 216 - When is an income-tax return not necessary?
Section 216 provides a conditional relaxation from filing a return under Section 263(1) where the NRI's total income consists only of investment income, long-term capital gains or both, and the required tax has been deducted at source under Chapter XIX-B. The exemption should not be assumed if other taxable income exists or the withholding condition is not met.
Illustrative tax calculations under Section 214
Example 1: NRI with investment income and long-term gains
Assume a qualifying NRI has Rs. 6,00,000 of investment income and Rs. 10,00,000 of eligible long-term capital gains on specified assets, and no other taxable income.
- Tax on investment income: Rs. 6,00,000 x 20% = Rs. 1,20,000.
- Tax on long-term capital gains: Rs. 10,00,000 x 12.5% = Rs. 1,25,000.
- Aggregate basic tax: Rs. 2,45,000, before any applicable surcharge, cess or other adjustments.
Example 2: NRI with other taxable income
If the same NRI also earns Rs. 4,00,000 of other taxable income, tax on that additional income is calculated separately at the rates in force, subject to the relevant computation provisions. It is not automatically taxed at either 20% or 12.5%.
Frequently asked questions about Section 214
Is all income of an NRI taxed at 20% under Section 214?
No. The 20% rate applies to qualifying investment income. Eligible long-term capital gains on specified assets are taxed at 12.5%, and the remaining total income is taxed at the rates in force.
Does Section 214 apply to an NRI's salary or rental income?
Section 214 does not classify salary or rental income as qualifying investment income merely because it is received by an NRI. Such income must be considered under the applicable provisions of the Act.
Does a purchase of Indian shares with rupees always qualify?
No. The definition of foreign exchange asset in Section 212(a) requires acquisition, purchase or subscription using convertible foreign exchange.
Can an NRI deduct investment management expenses from investment income?
Section 213(1) generally prohibits deductions for expenditure or allowance when computing investment income under this special regime.
Can reinvestment reduce capital gains tax?
Potentially. Section 215 contains a separate reinvestment relief, subject to its six-month reinvestment rule and other conditions.
Does an NRI always need to file a return?
Not necessarily. Section 216 provides a limited filing relaxation if its income-category and tax-deduction conditions are both satisfied.
What was the corresponding provision in the Income-tax Act, 1961?
Section 115E of the Income-tax Act, 1961 dealt with the corresponding subject matter. The applicable law depends on the relevant tax year and transitional rules.
Official statutory references
Consult the Income-tax Act, 2025, as amended by the Finance Act, 2026 and the Income Tax Department's non-resident guidance. The statute prevails in the event of any discrepancy.
Last reviewed: 11 November 2026. This article is intended for general legal and tax information.