Section 115E and Section 115F: NRI Investment Income and Capital Gains

Sections 115E and 115F of the Income-tax Act, 1961 formed part of the special tax regime for certain income of non-resident Indians. They dealt with concessional tax on investment income and long-term capital gains, and with exemption where sale proceeds from a foreign exchange asset were reinvested in specified assets.

Current law from 1 April 2026: The Income-tax Act, 2025 now applies to tax years beginning on or after 1 April 2026. The substance of old Sections 115D, 115E and 115F is substantially continued in Sections 213, 214 and 215 respectively. This page explains the familiar 1961 Act provisions and identifies their current counterparts.

On this pageKey definitions Section 115E Section 115F Current law Example Official sources

Key definitions for the NRI special regime

Under old Section 115C, the special regime used defined terms that are essential to understanding Sections 115E and 115F. The current Income-tax Act, 2025 carries forward the framework in the corresponding provisions.

Non-resident Indian: an individual who is a citizen of India or a person of Indian origin and is not resident for income-tax purposes under the applicable law.
Foreign exchange asset: a specified asset acquired, purchased or subscribed to in convertible foreign exchange.
Investment income: income derived from a foreign exchange asset.
Specified asset: broadly includes shares in an Indian company, qualifying debentures or deposits with an Indian public company, Central Government securities and other notified assets.

Section 115E: tax on investment income and long-term capital gains

Section 115E prescribed special rates for a non-resident Indian whose total income included qualifying investment income or long-term capital gains. For transfers on or after 23 July 2024, the rate on the relevant long-term capital gains was changed from 10% to 12.5%.

Income under the special NRI regime	Rate under Section 115E of the 1961 Act
Investment income	20%
Relevant long-term capital gains where transfer took place before 23 July 2024	10%
Relevant long-term capital gains where transfer took place on or after 23 July 2024	12.5%
Remaining total income	Taxed at the otherwise applicable rates

These are income-tax rates before applicable surcharge and health and education cess. The computation rules of the special NRI chapter must also be read with the provisions governing deductions and capital-gain computation.

Section 115F: exemption on reinvestment of foreign exchange asset proceeds

Section 115F provided relief where an NRI had long-term capital gains from transfer of a foreign exchange asset and, within six months after the transfer, invested the whole or part of the net consideration in a qualifying new asset.

When the entire capital gain can be exempt

If the cost of the new asset is not less than the net consideration received from the original asset, the whole qualifying capital gain is not charged to tax under the capital-gains charging provision.

When only part of the capital gain is exempt

If the cost of the new asset is less than the net consideration, the exemption is proportionate.

Exempt capital gain = Capital gain x Cost of new asset / Net consideration

For this purpose, net consideration means the full value of consideration from the transfer reduced by expenditure incurred wholly and exclusively in connection with that transfer.

Three-year lock-in and claw-back

The reinvestment relief is subject to a three-year holding condition. If the new asset is transferred or converted into money within three years from its acquisition, the earlier exempt amount is brought back to tax in accordance with the applicable provision for the tax year in which the premature transfer or conversion occurs.

Current position under the Income-tax Act, 2025

For tax years beginning on or after 1 April 2026, the current Act uses new section numbers. Section 213 deals with computation of the relevant NRI income, Section 214 provides the special tax rates, and Section 215 contains the reinvestment relief for capital gains on transfer of foreign exchange assets.

Income-tax Act, 1961	Income-tax Act, 2025	Subject
Section 115D	Section 213	Special computation rules for NRI investment income and LTCG
Section 115E	Section 214	Tax on investment income and long-term capital gains
Section 115F	Section 215	Reinvestment relief for capital gains on foreign exchange assets

Under current Section 214, investment income is taxed at 20% and long-term capital gains on specified assets are taxed at 12.5%, while the balance of total income is taxed at the rates otherwise in force.

Transition point: A transaction, exemption or lock-in originating under the Income-tax Act, 1961 may continue to have consequences after 1 April 2026 because the repeal and savings provisions preserve accrued rights and liabilities. The applicable tax year and transition provisions should therefore be checked for transactions spanning both Acts.

Simple example of proportionate relief

Assume an eligible NRI has a qualifying long-term capital gain of Rs. 6,00,000 from a foreign exchange asset. The net consideration is Rs. 10,00,000 and Rs. 7,50,000 is invested in an eligible new asset within six months.

Exempt amount = Rs. 6,00,000 x Rs. 7,50,000 / Rs. 10,00,000 = Rs. 4,50,000

The balance capital gain of Rs. 1,50,000 remains outside the reinvestment exemption, subject to the other applicable provisions of the Act.

Official references

For current statutory text and transition guidance, see the Income Tax Department page for the Income-tax Act, 2025, the Income Tax Department guidance for non-residents, and the Income-tax Act, 2025 as amended by the Finance Act, 2026.

This article is a general explanation of the statutory provisions. Tax treatment can depend on the asset, acquisition currency, date of transfer, residential status, treaty position and transition rules applicable to the relevant tax year.