For many NRIs, investing in India is more than a financial decision — it’s an emotional bridge home. Yet, tax rules can be confusing, especially when money is remitted from abroad. To make life simpler and encourage foreign investments, the government created a dedicated chapter (Sections 115C to 115I) that offers preferential tax treatment for NRIs.
At the core of this chapter lies Section 115C, the definition clause that sets the ground rules for every benefit that follows.
Purpose of Section 115C
The section is not about tax rates — it’s about clarity. It defines key concepts like who qualifies as an NRI, what constitutes a foreign exchange asset, and how investment income is interpreted. Without these definitions, subsequent reliefs (Sections 115D to 115F) would be meaningless.
In essence, Section 115C provides a tax benefit to NRIs who earn income from foreign exchange assets, ensuring that funds brought into India are rewarded with clear & consistent tax rules.
Who Is an NRI Under Section 115C?
An NRI here means a citizen of India or a person of Indian origin who is not resident in India during the relevant year.
If you spend less than 182 days in India in a financial year, you qualify. Simple as that."
The definition is practical — it acknowledges that people may live abroad for work or business while still maintaining economic ties with India. Only those meeting this status can enjoy the favorable treatment of Chapter XII-A.
Understanding Foreign Exchange Assets
A foreign exchange asset is any investment made in India using foreign currency. That includes shares of Indian companies, debentures, bank deposits, and government securities — provided the initial payment came through foreign exchange channels.
Example: You transfer USD 5,000 from your NRE account to buy equity in an Indian listed company. Those shares instantly qualify as foreign exchange assets.
Income from them — dividends or capital gains — enjoys special rates under subsequent sections.
Also Read: Special Provisions for Non-Residents Turning Resident
Meaning of Investment Income
Investment income refers to returns (like interest or dividends) from foreign exchange assets, excluding dividends already taxed under Section 115-O. It’s the core income stream that the Act aims to reward through lower tax rates.
So, if you earn interest on a deposit funded with foreign currency or dividends from NRE-funded shares, it counts as investment income — and qualifies for the concessional treatment offered later in the chapter.
How Section 115C Helps NRIs
This provision is about trust & transparency. It assures NRIs that their investments in India won’t face unpredictable tax rules. Once the funds are brought in through foreign exchange, the law guarantees a defined benefit structure.
In practice, that means simpler compliance, clear eligibility for tax benefits, & the ability to efile income tax return without worrying about interpretation errors.
A Practical Example
Take Priya, an engineer working in Singapore. She invests USD 10,000 in Indian mutual fund units using money from her foreign account. Later, she earns ₹1 lakh as dividends and ₹2 lakh as long-term capital gains after two years.
Because these investments were made with foreign currency, they qualify as foreign exchange assets under Section 115C. When she files her ITR, she can claim concessional rates (10 % on long-term gains & 20 % on investment income). Her entire process can be done online via the income-tax portal.
The Link Between Sections 115C and 115E
If Section 115C lays the foundation, Section 115E builds the structure.
It specifies the actual concessional tax rates: 20 % for investment income & 10 % for long-term capital gains from foreign exchange assets.
However, none of that relief is available unless the asset first qualifies under Section 115C. So think of 115C as the entry gate to the entire benefit corridor.
Why Section 115C Remains Relevant
Even decades after its introduction, the section continues to serve millions of Indians abroad. Its definitions are still the basis for how NRI investments are taxed today.
In a globalized economy where money moves instantly, such clarity is essential. Whether you’re buying debentures, parking funds in a bank deposit, or investing in a startup, Section 115C tells you exactly how your income will be treated.
E-Filing and Compliance
One of the best parts of the modern tax system is accessibility. NRIs can now efile their income tax returns from anywhere in the world. Just log into the Income Tax e-filing portal, select the appropriate form (usually ITR-2), and disclose your foreign exchange investments clearly.
Platforms like CallMyCA.com make this even easier by handling documentation & ensuring your returns are filed error-free.
Also Read: Taxation Rules for Non-Residents on Dividends, Interest, Royalties & Fees
Foreign Exchange Asset vs. Regular Investment
|
Feature |
Foreign Exchange Asset |
Regular Investment |
|
Funding Currency |
Acquired using foreign exchange |
Funded through Indian rupees |
|
Eligible Investor |
NRI only |
Any resident or NRI |
|
Tax Rate |
Concessional under 115E |
Normal rates under Act |
|
Example |
Shares bought via NRE account |
Shares purchased from Indian salary |
This distinction is not just academic — it decides how much you save in tax.
Important Definitions Recapped
- Specified Asset – Any asset declared eligible for benefit by the Government.
- Investment Income – Interest or dividend earned from foreign exchange assets.
- NRI – Citizen of India or person of Indian origin who is non-resident for that year.
- Long-Term Capital Gain – Profit from transfer of such assets held for more than 12 months.
Knowing these terms helps NRIs file accurate returns and avoid unnecessary notices.
Why You Should Care
Every year, the Indian government receives billions of dollars in remittances & investments from NRIs. Section 115C plays a quiet but vital role in keeping that confidence alive. It promises fairness — no double taxation, no ambiguous definitions, just clear rules for foreign-funded investments.
If you earn through foreign exchange assets, this section is your starting point for maximizing returns while staying fully compliant.
Quick Checklist for NRIs
- Confirm your residential status each year.
- Invest through NRE or FCNR accounts to qualify for benefits."
- Keep transfer proofs of foreign currency transactions.
- File your return before the due date — you can efile easily.
- Consult a CA to check if Sections 115E or 115F apply to your income.
Also Read: Tax on Investment Income and Long-Term Capital Gains for Non-Residents
In Summary
- Section 115C defines key terms for NRI tax benefits.
- It provides a tax benefit to NRIs who earn income from foreign exchange assets.
- NRIs can efile income tax return from anywhere to claim these benefits.
- The section acts as the gateway to India’s concessional tax system for foreign investors.
Conclusion
Section 115C remains a cornerstone for NRI tax planning. It’s simple, well-structured, and aligned with India’s goal of welcoming foreign capital. If you’re living abroad & earning from investments in India, understanding this section can help you save significantly and avoid compliance hassles.
For personalized guidance and stress-free filing, visit CallMyCA.com — our CA experts will help you efile your returns correctly & ensure every eligible tax benefit is claimed.
