Section 115E is a special concessional tax provision under Chapter XII-A of the Income Tax Act, 1961, designed specifically for Non-Resident Indians (NRIs). It provides preferential tax rates on:
- Investment income, and
- Long-term capital gains (LTCG)
from specified foreign exchange assets, thereby incentivizing NRIs to invest in India using foreign currency and contribute to India’s economic development.
Applicability
This section applies to:
✅Assessee:
- Individual who is a Non-Resident Indian (as per Section 115C(e))
- A person of Indian origin (PIO) residing outside India
✅Income Covered:
- Investment income derived from foreign exchange assets
- Long-term capital gains from transfer of such assets
✅Asset Criteria:
- Acquired, purchased, or subscribed in convertible foreign exchange
What are “Foreign Exchange Assets”? [Sec 115C(b)]
Assets must be acquired with foreign currency, and can include:
- ✅ Shares in Indian companies
- ✅ Debentures of Indian public companies
- ✅ Deposits with public Indian companies
- ✅ Central Government securities
- ✅ Other assets notified by the Central Government
Concessional Tax Rates under Section 115E
| Type of Income | Tax Rate (Before Budget 2024) | Tax Rate (After Budget 2024) | Conditions |
| Investment income from foreign exchange assets | 20% | 20% (unchanged) | Interest, dividends, etc. |
| Long-term capital gains (LTCG) on forex assets | 10% | 12.5% (w.e.f. 23 July 2024) | Asset held > 36 months, acquired in foreign exchange |
| Other income (e.g., rental, salary) | Normal slab rates | Normal slab rates | Taxed as per regular provisions |
📌Note: Indexation is not allowed on LTCG under Section 115E.
🔷 5. Important Restrictions
As per Section 115D:
🚫 No deductions under Chapter VI-A (e.g., 80C, 80D) allowed from investment income/LTCG.
🚫 No standard deduction, expenses under Section 57 allowed.
🚫 No indexation for capital gains.
Exemption from Filing Return [Section 115G]
An NRI is not required to file an income tax return in India if:
- Total income consists only of:
- Investment income under Section 115E(a)
- LTCG under Section 115E(b)
- And TDS has been deducted on such income under Chapter XVII-B
Continuation of Benefits on Becoming Resident [Section 115H]
If an NRI becomes a resident, they can opt to continue using benefits under Chapter XII-A only for income from foreign exchange assets, by making a declaration in the return for the year in which they become resident.
Budget 2024 & 2025 Updates – What Changed?
✅ Budget 2024 (Effective 23 July 2024):
- LTCG tax rate under Section 115E increased from 10% to 12.5% on foreign exchange assets.
✅ Budget 2025:
- No further changes were made to Section 115E.
- The amended rate of 12.5% continues.
- Chapter XII-A structure remains intact.
Example – Tax Computation under Section 115E
Let’s assume Mr. A (NRI) earns the following income in FY 2025–26:
| Income Component | Amount (₹) | Tax Treatment |
| Interest from debentures (acquired in forex) | ₹3,00,000 | 20% = ₹60,000 |
| LTCG from equity shares (sold after 23 Jul 2024) | ₹4,00,000 | 12.5% = ₹50,000 |
| Rental income from property in India | ₹2,40,000 | Slab rate after std. deduction |
💡 No deductions (e.g., 80C) allowed from the ₹3,00,000 or ₹4,00,000.
Only ₹2,40,000 rental income qualifies for standard deduction or Chapter VI-A.
Summary Table – Section 115E at a Glance
| Particulars | Before 23 July 2024 | From 23 July 2024 Onwards |
| Investment income | 20% | 20% |
| LTCG on foreign exchange assets | 10% | 12.5% |
| Other income | Slab rates | Slab rates |
| Deductions | Not allowed | Not allowed |
Legal References & Circulars
- 📜Section 115E, 115C, 115D, 115F, 115H, 115G
- 📘CBDT Circular No. 731
- ⚖️ITO v. Homi Phiroze Ranina (Mumbai ITAT)
- 📊Finance Act, 2024 – Clause amending LTCG rate from 10% to 12.5%
Final Takeaways
- Section 115E continues to offer a lucrative tax regime for NRIs investing in India using foreign currency.
- The revised LTCG rate of 12.5% (from July 2024) is still lower than standard LTCG rates applicable to residents.
Aimed at foreign capital mobilization, this section is a key incentive in India’s NRI-focused investment strategy.