Chapter XII-A: The Concessional Tax Regime Many NRIs Never Claim

Chapter XII-A of the Income-tax Act, 1961 was inserted by the Finance Act, 1983 and still governs how a non-resident Indian's India-sourced investment income is taxed, yet the Income Tax Department's Non-Resident help page confirms the concessions inside it are routinely left unclaimed. This piece walks through what the Chapter actually offers, how an NRI in the United States is taxed in India and then at home, and how the money is finally brought back, with every rule traced to the statute or the treaty text as it stands in FY 2025-26.

FEMA / DTAA Position

Chapter XII-A spans sections 115C to 115-I of the Income-tax Act, 1961 and applies to a "non-resident Indian" who holds a "foreign exchange asset" — broadly, specified Indian assets acquired or subscribed to in convertible foreign exchange (section 115C). The threshold question of who is a non-resident is settled under section 6 of the same Act; our residential status glossary entry sets out the day-count tests that decide it before any Chapter XII-A benefit can be claimed.

Section 115C(f) narrows the regime to "specified assets": shares in an Indian company, debentures or deposits with an Indian public company, any security of the Central Government, and such other assets as the Government may notify. Only income from these foreign-exchange assets qualifies as "investment income" for the concession, which is why an NRI holding Indian property or a private-company stake cannot route that income through the Chapter at all under the section 115C(f) definition.

The Income Tax Department's Non-Resident help page confirms three concessions remain intact. First, no deduction in respect of any expenditure or allowance is allowed in computing the investment income (section 115D). Second, Chapter VI-A deductions are restricted where the gross total income consists only of such investment income or long-term capital gains. Third, and the most under-used, an NRI whose total income for the year consists only of investment income or long-term capital gains, both of which have already suffered tax deducted at source, is relieved of the obligation to file a return of income under section 115G.

On the foreign-exchange side, the first proviso to section 48 lets a non-resident compute capital gains on the transfer of shares or debentures of an Indian company in the same foreign currency that was originally used to acquire them, then reconvert the resulting gain into rupees. This removes the distortion that rupee depreciation would otherwise inject into a gain measured only in rupees. A Double Taxation Avoidance Agreement (DTAA) overlays this domestic position: where India has taxing rights the treaty caps the rate, and the resident country then grants relief. India has never ceded to zero its right to tax capital gains on shares of an Indian company, so the DTAA explainer is worth reading for why "treaty exempt" is a myth for this head of income.

Tax Treatment in India

Under FY 2025-26 rules, long-term capital gains on listed equity are taxed at 12.5% on the amount exceeding Rs 1,25,000 in a year, while short-term capital gains on the same assets are taxed at 20%, both rates effective from the Budget 2024 change of 23 July 2024. These rates apply to residents and non-residents alike; the Chapter XII-A concession operates alongside them for foreign-exchange assets rather than replacing them.

A short worked example fixes the scale. On a long-term gain of Rs 10,00,000 from listed Indian shares, the first Rs 1,25,000 is exempt, leaving Rs 8,75,000 taxed at 12.5%, or Rs 1,09,375, to which a 4% health and education cess adds Rs 4,375 for a total of Rs 1,13,750 before any surcharge. The NRI income tax calculator applies the slab, surcharge and cess layers in one pass so the figure can be reproduced in seconds.

Where an NRI's India income climbs into the higher brackets, a surcharge is added on the base tax before the 4% cess. The surcharge schedule for FY 2025-26 is as follows:

The single most important point for a high-earning NRI is that the new tax regime caps the surcharge at 25%, so the 37% top rate survives only for taxpayers who have opted into the old regime on income above Rs 5 crore. As we set out in the note on which ITR form an NRI should file, the new regime now applies by default, which makes the 25% ceiling the practical maximum for most non-residents.

Payments to non-residents are gathered through tax deducted at source under section 195, which is exactly why section 115G can switch off return-filing: if the TDS already matches the final liability on investment income, the Department holds its tax without a return. Our TDS and surcharge entries explain the mechanics behind these two layers.

A word of caution on section 115G. The relief is lost the moment the NRI has any other India income — rental receipts, professional fees, or a second capital gain on a non-foreign-exchange asset — because total income then no longer consists only of TDS-suffered investment income. Section 115-I preserves an escape hatch: the NRI may elect, by declaring so in the return, not to be governed by Chapter XII-A for a year and to be taxed under the normal provisions instead, which is worth modelling whenever ordinary slab rates would produce a lower bill than the Chapter's flat treatment.

Tax Treatment Abroad

The residence country taxes its residents on worldwide income, so the Indian tax paid is rarely the end of the story. For an NRI resident in the United States, the India-US DTAA, in force from 12 September 1991, allocates taxing rights and then requires the resident country to grant a credit for Indian tax under its Article on relief from double taxation. The practical effect is that Indian tax becomes a credit against the home-country liability on the same income rather than an added cost stacked on top of it.

The treaty-rate caps differ by country and by head of income. The table below sets out the India-source ceilings confirmed by the treaty data for four common NRI home jurisdictions:

Two cautions sit on top of this table. Dividends from an Indian company to a US-resident NRI are capped at 15% only where the recipient holds at least 10% of the voting stock; portfolio holdings face the 25% rate under Article 10 of the 1991 treaty. And for capital gains, none of these treaties makes the gain "exempt" — India retains its domestic right to tax gains on Indian company shares at the 12.5% long-term rate noted above, with the treaty governing only how the home country then relieves the double charge. The DTAA benefit calculator and the foreign tax credit calculator let an NRI compare the treaty-capped outcome against the plain domestic one.

Interest is treated more consistently across the four treaties: the United States, the United Kingdom and Singapore each cap India-source interest at 15%, while the UAE treaty caps it at 12.5%. Fees for technical services carry a "make available" test under Article 12 of both the US and UK treaties, meaning the lower treaty rate applies only where the service transfers skill or knowledge the payer can then use independently — a distinction that decides whether India can tax the fee at all.

To claim the lower treaty rate at source, an NRI must furnish a Tax Residency Certificate from the home authority, and the India-UAE treaty note specifically requires proof of a UAE establishment before that certificate will support relief. The India-Singapore treaty carries a Limitation of Benefits clause demanding substantial economic presence, and its 2017 protocol made gains on shares acquired after 1 April 2017 taxable in India, closing the older Singapore capital-gains route for assets bought since that date.

Repatriation Mechanics

Repatriation is a FEMA question rather than an income-tax one, and it turns on which account the money sits in. Balances in a Non-Resident External (NRE) account and a Foreign Currency Non-Resident (FCNR) deposit are freely repatriable in full, both principal and interest, because they hold income earned abroad and already converted; see the NRE account and FCNR deposit glossary entries for the account-type distinctions that drive this.

Funds in a Non-Resident Ordinary (NRO) account — which typically holds India-sourced income such as rent, dividends and the sale proceeds of Indian assets — are repatriable only up to the ceiling set by the Reserve Bank under the FEMA (Remittance of Assets) Regulations, 2016, reported by the research desk as USD 1 million per financial year. Remittance from an NRO account also requires a chartered accountant's certificate in Form 15CB and a self-declaration in Form 15CA confirming the applicable tax has been deducted, which is the point at which the Chapter XII-A TDS position and the repatriation process meet.

Once taxes are cleared, an NRO balance can be moved to an NRE account within the same annual ceiling, after which it becomes freely repatriable like any other NRE money. The repatriation calculator models the post-tax amount available against the USD 1 million ceiling. Note that the foreign-currency computation benefit under the first proviso to section 48 applies only to the capital-gains calculation, not to the repatriation limit, which the RBI regulation always measures in US dollars.

FAQ

Does Chapter XII-A give NRIs a lower rate automatically?

No. Chapter XII-A, which runs from section 115C to section 115-I and was inserted by the Finance Act, 1983, applies only to "investment income" and "long-term capital gains" from "foreign exchange assets" as defined in section 115C. Income outside that definition is taxed under the normal provisions, and under section 115-I an NRI may also choose to opt out of the Chapter entirely for any year by declaring so in the return.

Can I avoid filing an Indian return as an NRI?

Only in a narrow case. Section 115G relieves an NRI from filing where total income for the year consists solely of investment income or long-term capital gains on which tax has already been deducted at source. Any other India income, such as rent, business receipts or a non-foreign-exchange gain, removes the relief and a return becomes due.

Are my Indian capital gains exempt under the DTAA?

No. For every treaty checked here — the United States (in force from 1991), the United Kingdom (1993), the UAE (1993) and Singapore (1994) — India keeps the right to tax gains on shares of an Indian company. The long-term rate is 12.5% under FY 2025-26 domestic law, and the treaty governs only how your resident country relieves the double charge.

What surcharge will I pay on a large Indian gain?

Surcharge is added on the base tax above Rs 50 lakh of total income: 10% up to Rs 1 crore, 15% up to Rs 2 crore and 25% up to Rs 5 crore. Above Rs 5 crore the new regime caps the surcharge at 25%, while the old regime goes to 37%. A 4% health and education cess then applies on tax plus surcharge.

How much of my NRO balance can I send abroad each year?

The research desk reports the ceiling under the FEMA (Remittance of Assets) Regulations, 2016 as USD 1 million per financial year, subject to Forms 15CA and 15CB confirming tax has been paid. NRE and FCNR balances, by contrast, are freely repatriable without that ceiling.

Does the foreign-currency computation really help?

Yes, where it applies. The first proviso to section 48 lets a non-resident compute gains on Indian company shares or debentures in the original foreign currency, so rupee depreciation between purchase and sale does not inflate the taxable gain. It applies to the gain computation only, not to dividends, interest or the repatriation limit.

Which calculator should I start with?

For a combined slab, surcharge and cess estimate, use the NRI income tax calculator; to compare a treaty-capped rate against the domestic one, use the DTAA benefit and foreign tax credit calculators; and to size the post-tax amount you can send home, use the repatriation calculator.