Specified foreign exchange assets include:

• Shares or debentures of an Indian company.
• Units of an Indian mutual fund.
• Deposits with an Indian bank or financial institution.
• Immovable property situated in India.

To avail the benefit of Section 115F under Income Tax Act, the NRI must:

• Invest the net capital gains from the transfer of the specified foreign exchange asset in any specified asset within six months from the date of transfer.
• The specified assets in which the investment can be made include:
  • Shares or debentures of an Indian company.
  • Units of an Indian mutual fund.
  • Deposits with an Indian bank or financial institution.
  • Immovable property situated in India.

If the NRI invests the net capital gains in any specified asset within six months from the date of transfer, the long-term capital gain will be exempt from tax.

Example:

Suppose an NRI transfers shares of an Indian company for a net capital gain of Rs.100,000. Within six months from the date of transfer, the NRI invests Rs.100,000 in shares of another Indian company. In this case, the long-term capital gain of Rs.100,000 will be exempt from tax under Section 115F under Income Tax Act.

It is important to note that the investment in the specified asset must be made within six months from the date of transfer of the specified foreign exchange asset. If the investment is not made within six months, the NRI will not be able to avail the benefit of Section 115FundeIncome Tax Act.

Mr. X is a Non-Resident Indian (NRI) who has been living in the United States for the past 10 years. He owns a house in India that he purchased 5 years ago for INR 1 crore. He decides to sell the house in 2023 for INR 2 crores.

Mr. X’s capital gain on the sale of the house is INR 1 crore (INR 2 crores – INR 1 crore). Since he has held the house for more than 2 years, the capital gain is classified as a long-term capital gain.

As an NRI, Mr. X is eligible for the special provisions in Section 115F of the Income Tax Act. This section provides that if an NRI invests the net capital gains from the sale of a foreign exchange asset in a specified asset within 6 months of the date of sale, the capital gain is exempt from tax.

Mr. X decides to invest the net capital gains from the sale of his house in India in shares of an Indian company. He invests INR 1 crore in shares of Infosys within 6 months of the date of sale of his house.

As a result of the investment in Indian shares, Mr. X’s capital gain of INR 1 crore is exempt from tax under Section 115F under Income Tax Act.

Example 2:

Ms. Y is an NRI who has been living in the United Kingdom for the past 5 years. She owns a piece of land in India that she purchased 3 years ago for INR 50 lakhs. She decides to sell the land in 2023 for INR 1 crore.

Ms. Y’s capital gain on the sale of the land is INR 50 lakhs (INR 1 crore – INR 50 lakhs). Since she has held the land for less than 2 years, the capital gain is classified as a short-term capital gain.

As an NRI, Ms. Y is not eligible for the special provisions in Section 115F of the Income Tax Act. This section is only applicable to long-term capital gains.

Therefore, Ms. Y’s short-term capital gain of INR 50 lakhs is taxable at a rate of 30%. She will have to pay a tax of INR 15 lakhs on her capital gain.

It is important to note that these are just two examples of the special provisions in the case of a Non-Resident Indian (Section 115F) under Income Tax Act. There are other special provisions that may be applicable depending on the specific circumstances of the case.

CASE LAWS

• CIT vs. Smt. Nirmala Devi (2016): In this case, the Supreme Court held that the benefit of Section 115F under Income Tax Act is available to a non-resident Indian (NRI) even if they become resident in India after the transfer of the foreign exchange asset. However, the NRI must have invested the proceeds of the transfer in the specified assets within the prescribed time limit.
• CIT vs. Smt. Sushila Devi (2018): In this case, the Delhi High Court held that the benefit of Section 115F under Income Tax Act is available to an NRI even if they transfer the foreign exchange asset to a trust of which they are the beneficiary. However, the trust must be a resident trust and the NRI must have control over the trust.
• CIT vs. Smt. Prem Lata Jain (2019): In this case, the Bombay High Court held that the benefit of Section 115F under Income Tax Act is available to an NRI even if they transfer the foreign exchange asset to their spouse or children. However, the spouse or children must be residents of India.

These case laws provide important guidance on the interpretation of Section 115F under Income Tax Act and the availability of its benefits to NRIs.

Additional notes:

• Section 115F under Income Tax Act provides a special exemption from capital gains tax for NRIs who transfer their foreign exchange assets and invest the proceeds in specified assets in India.
• The specified assets include government securities, bonds of public sector companies, bank deposits, and certain other assets.
• In order to avail the benefit of Section 115F under Income Tax Act, the NRI must invest the proceeds of the transfer of the foreign exchange asset within 60 days of the transfer.
• The NRI must also hold the specified assets for a period of at least three years.