Taxation for Non-Resident Indians (NRIs) can get complicated due to multiple income sources—interest from Indian deposits, property rent, capital gains, & dividends. The Income Tax Act addresses this through Chapter XII-A, which provides special tax provisions for NRIs. However, not every NRI benefits equally from these flat-rate provisions.
That’s where Section 115I comes in — it gives NRIs the choice to opt out of Chapter XII-A and instead be taxed under the regular provisions of the Act.
Objective of Section 115I
The goal of Section 115I is flexibility. Every NRI’s financial profile is different — some earn mostly from Indian investments, while others have global income with deductions & exemptions.
This section ensures that an NRI isn’t bound to a single tax structure. If paying tax under regular income tax slabs results in a lower burden than the flat rate under Chapter XII-A, the individual can choose to be taxed normally.
It’s a practical safeguard against double taxation and ensures NRIs are treated fairly in relation to domestic taxpayers.
Key Provision Explained
Section 115I states:
“Where a non-resident Indian elects not to be governed by the provisions of this Chapter for any assessment year, his total income for that assessment year shall be computed & the tax payable thereon shall be determined in accordance with the other provisions of this Act.”
In simple terms — Chapter XII-A (Sections 115C to 115I) is optional. The taxpayer can opt out by making a written declaration while filing their return. Once opted out, the computation follows the normal income tax slabs & deduction rules.
Applicability and Conditions
For an NRI to apply Section 115I, the following must be satisfied:
- The person must qualify as a Non-Resident Indian as per Section 6 of the Income Tax Act.
- The income should include items like interest, dividends, or long-term capital gains earned from Indian sources."
- A written declaration must be made at the time of filing the return, opting out of Chapter XII-A.
- The rate of exchange for conversion into rupees of income expressed in foreign currency will follow the prescribed rules.
It is especially beneficial when deductions under Chapter VI-A or set-off of losses reduce the overall tax payable under normal computation.
Also Read: TDS on Property Transactions : The One Form Every Property Buyer Must File After a Purchase
Why Section 115I Matters
For NRIs, not all years are the same. Some years, their Indian income may be high & fixed-rate tax convenient. Other times, when deductions or exemptions apply, the flat rate (like 20% on investment income) might be too steep.
Section 115I prevents over-taxation by allowing the taxpayer to calculate tax both ways and choose whichever is more beneficial.
This provision also aligns India’s taxation with international best practices, giving NRIs control over their compliance & ensuring transparency.
A Real-Life Example
Let’s take Priya Mehta, an Indian software engineer working in Singapore. She earns ₹16 lakh from Indian fixed deposits and mutual funds. Under Chapter XII-A, this would attract a 20% flat tax rate (₹3.2 lakh tax).
However, Priya also has deductions under Section 80C and 80D amounting to ₹2 lakh. When she applies Section 115I & opts out of Chapter XII-A, her income falls under normal tax slabs.
After deductions, her tax comes down to ₹2.1 lakh—saving her ₹1.1 lakh simply by choosing the right method.
This is exactly the type of flexibility Section 115I offers — ensuring the taxpayer pays only what’s fair.
Interaction with Other Provisions
While applying Section 115I, NRIs should also consider:
- Section 115H – allowing them to continue special provisions even after becoming residents.
- Section 115J – dealing with book profits for certain companies.
- Exchange Rate Rules – critical for converting foreign income into Indian rupees.
Together, these provisions ensure that NRI taxation remains consistent, fair, and transparent across varying income structures.
Rate of Exchange Clarification
When income is expressed in a foreign currency (like USD or SGD), it must be converted to INR for taxation."
Section 115I read with the relevant rules specifies the rate of exchange for conversion into rupees, as notified by the Central Board of Direct Taxes (CBDT).
This prevents currency fluctuations from unfairly inflating tax liabilities.
Also Read: 100% Deduction on Capital Expenditure for Specified Businesses
Recent Relevance
With India’s growing global workforce and cross-border investments, Section 115I is more relevant today than ever. NRIs now use it strategically — often consulting tax professionals before filing — to check which method (Chapter XII-A or normal provisions) yields the lower tax liability.
It’s not just about saving money; it’s about compliance confidence & control over how one’s income is evaluated under Indian law.
Key Takeaways
- Section 115I gives NRIs the option to avoid flat-rate taxation if regular computation is better.
- The election must be made each assessment year — it doesn’t carry forward automatically.
- Exchange rate rules ensure accurate rupee conversion.
- It’s ideal for NRIs with deductions, losses, or variable Indian income.
Conclusion
In essence, Section 115I of the Income Tax Act gives NRIs the power to choose. By comparing both systems — Chapter XII-A & regular computation — they can decide which works best for their income mix. This flexibility helps maintain fairness in taxation while promoting financial planning for global Indians.
If you’re an NRI unsure about how to optimize your taxes or whether you should opt out of Chapter XII-A, get in touch with our experts at CallMyCA.com — India’s trusted CA-led tax advisory platform helping NRIs file smartly & save legally.
