What Is Section 115H of the Income Tax Act?
Imagine you’ve been living abroad and earning money from investments made then. Section 115H is a special rule that says: “Even if you return to India and become a resident, you can still pay the lower NRI tax rates on that income—IF you ask for it correctly.” It was created to help NRIs smoothly move back home without losing tax benefits earned overseas.
Who Can Claim Benefits Under Section 115H?
- NRIs who become residents of India in a financial year—but were NRIs the year before.
- Must submit a written statement or declaration in the tax return (ITR) of the first year they become resident.
- Must hold foreign exchange assets acquired while they were NRI—such as investments made using foreign currency.
- They need an Indian PAN (tax ID), and most guides recommend having a Tax Residency Certificate (TRC) and being from a country with a DTAA (Double Tax Avoidance Agreement) with India.
What Are the Tax Benefits Available Under Section 115H?
- Investment income from foreign exchange assets—like dividends or interest—taxed at a flat 20%, instead of higher rates for residents.
- Long-term capital gains from specified foreign exchange assets are taxed at 10% (instead of the usual resident rates).
- Dividend income from specified assets is also eligible for the 10% concession, if acquired as an NRI.
- These concessions continue until those assets are converted to money or sold—even after returning to India.
- This rule lets NRIs keep enjoying NRI tax treatment for those specific incomes.
How to Avail Benefits Under Section 115H?
- File your Income Tax Return (ITR) in the year you become a resident under Section 139.
- Include a written declaration saying you wish to continue the benefits under Chapter XII‑A (which houses Section 115H).
- Provide documents: ITR, asset investment proof, PAN, and optionally TRC or proof of DTAA residency.
- Declare before the deadline (usually July 31 for most ITRs); missing this means you lose the benefit.
Conditions and Restrictions Under Section 115H
- Applies only to income from assets acquired when you were an NRI—not income earned after returning.
- Not automatic—you must file a declaration with your return.
- Only specified assets qualify: shares, debentures, deposits with public Indian companies or government securities acquired with foreign exchange.
- Dividend income added to scope only from 1 April 2021 onwards.
- If you miss filing the declaration or the ITR, you’ll pay regular resident tax rates, which are higher.
Importance of Section 115H for NRIs
- Eases tax burden when moving back to India—protects income streams from abroad originally tax-favored.
- Helps with financial planning, knowing your old investments remain tax-efficient.
- Encourages NRIs to return home without being taxed twice on the same income.
- Acts as a transition bridge—from non-resident tax world to Indian system—making your return smoother.
Understanding Residential Status
Your tax eligibility changes based on how many days you stay in India. Each year, people get categorized as Resident, Non-Resident, or Resident but Not Ordinarily Resident (RNOR). Section 115H applies exactly when you move from NRI to Resident.
What Counts as “Foreign Exchange Asset”?
These are investments made using foreign currency while you were abroad, like:
- Shares of Indian companies bought with foreign currency,
- Government or corporate securities,
- Deposits with Indian companies,
- Any other notified asset.
What Happens If You Sell the Asset?
If you sell or convert the asset to money, the concessional tax treatment under Section 115H ends—tax on its income is then charged as per resident rates.
Conclusion: Section 115H is a helpful rule for returning NRIs—it lets you keep the lower tax rates on income from foreign exchange assets even after becoming a resident. But you must:
- File the right documents on time,
- Declare properly,
- And hold assets from your NRI period.
This way, you protect your money, plan effectively, and make your return to India financially better.
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