Section 212 · Special cases
Section 212 of the Income-tax Act, 2025 — Interpretation: Key Definitions for the Special NRI Tax Regime
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XIII
📜 What the law says — Section 212, Income-tax Act 2025
212. In sections 213 to 218,—
(a) “foreign exchange asset” means any specified asset which the assessee
has acquired or purchased with, or subscribed to in, convertible foreign
exchange;
(b) “investment income” means any income derived from a foreign exchange
asset;
(c) “long-term capital gains” means income chargeable under the head
“Capital gains” relating to a capital asset, being a foreign exchange asset
which is not a short-term capital asset;
(d) “non-resident Indian” means an individual, who is not a resident and
is—
(i) a citizen of India; or
(ii) a person of Indian origin;
(e) “specified asset” means any of the following assets:—
(i) shares in an Indian company; or
(ii) debentures issued by an Indian company which is not a private
company as defined in the Companies Act, 2013 (18 of 2013); or
(iii) deposits with an Indian company which is not a private company
as defined in the Companies Act, 2013 (18 of 2013); or
(iv) any security of the Central Government as defined in section 2(f)
of the Government Securities Act, 2006 (38 of 2006); or
(v) such other assets as the Central Government may specify in this
behalf by notification.
Special provision for computation of total income of non-residents.
In plain language
What Section 212 is and why it matters
Section 212 of the Income-tax Act, 2025 is the "Interpretation" section — the dictionary — that opens Chapter XIII, the special tax regime for Non-Resident Indians (NRIs). It does not itself levy any tax. Instead, it defines the five key terms that decide whether an NRI can use the concessional flat-rate regime in Sections 213 to 218: a flat 20% tax on "investment income" and 12.5% on "long-term capital gains" from foreign exchange assets (rates applied by Section 214). Section 212 replaces Section 115C of the Income-tax Act, 1961 (Chapter XII-A of the old Act) with essentially the same definitions, so there is continuity for existing NRI investments. The new Act applies from tax year 2026-27 (from 1 April 2026).
The five definitions in Section 212
- Non-Resident Indian (NRI): an individual who is a non-resident under the residency rules and is either a citizen of India or a person of Indian origin. A person is treated as of Indian origin if he, or either of his parents, or any of his grandparents, was born in undivided India. Companies, firms and HUFs cannot use this chapter — it is only for individuals.
- Specified asset: the approved investment list — (i) shares in an Indian company; (ii) debentures of an Indian public company (not a private company); (iii) deposits with an Indian public company; (iv) Central Government securities; and (v) any other asset the Central Government notifies.
- Foreign exchange asset: a specified asset that the NRI acquired, purchased or subscribed to using convertible foreign exchange (for example, funds remitted from abroad or held in an NRE/FCNR account). This "source of funds" test is the heart of the chapter — the same share bought with rupee income from India would not qualify.
- Investment income: any income derived from a foreign exchange asset — typically interest on debentures/deposits and dividends on qualifying shares.
- Long-term capital gains: capital gains from the transfer of a foreign exchange asset that is not a short-term capital asset.
Who it applies to
Section 212 applies to NRI individuals investing money brought into India in convertible foreign exchange. Both conditions must be met in the same person and asset: the investor must be an NRI as defined, and the asset must be a specified asset funded from convertible foreign exchange. If either leg fails, the concessional chapter simply does not apply and normal provisions govern the income.
How Section 212 interacts with Sections 213–218
- Section 213 (old 115D): no deduction for any expenditure and no Chapter VIII deductions (the old Chapter VI-A, e.g. 80C-type deductions) against investment income or these gains — the flat rate is applied on gross income.
- Section 214 (old 115E): the charging section — 20% on investment income, 12.5% on long-term capital gains (plus applicable surcharge and 4% cess).
- Section 215 (old 115F): exemption for long-term gains if the net consideration is reinvested in specified assets within 6 months, with a 3-year lock-in clawback.
- Section 216 (old 115G): no need to file a return if total income is only such investment income/LTCG and full TDS has been deducted.
- Section 217 (old 115H): an NRI who later becomes resident can, by declaration with the return, keep the benefit for income from qualifying assets.
- Section 218 (old 115-I): the regime is optional — the NRI can opt out for any tax year via the return of income, and normal slab rates then apply.
Practical implications
- Keep proof of the foreign-exchange source (remittance advice, NRE account statements) — without it, the asset cannot be classified as a foreign exchange asset.
- The flat 20% rate can be higher than slab rates for small incomes; run both computations and use the Section 218 opt-out where beneficial.
- Debentures and deposits must be of public Indian companies — private company instruments do not qualify.
- Definitions in Section 212 control only Sections 213–218; they do not change how "non-resident" is determined under the general residency rules of the 2025 Act.
💡 Example
Example 1 — Investment income at 20%: Ms. Priya, an NRI in Dubai, remits USD equivalent to ₹50,00,000 through her NRE account and subscribes to debentures of an Indian public company. In tax year 2026-27 she earns interest of ₹4,00,000. Because the debentures are a "specified asset" bought with convertible foreign exchange, they are a "foreign exchange asset" under Section 212, and the interest is "investment income". Tax under Section 214 = 20% × ₹4,00,000 = ₹80,000, plus 4% cess ₹3,200 = ₹83,200. No deductions (not even 80C-type deductions) are allowed against this income under Section 213. If TDS has covered the full tax and she has no other Indian income, Section 216 says she need not even file a return.
Example 2 — LTCG at 12.5% with Section 215 reinvestment: Mr. Arjun, an NRI, sells shares of an Indian company (bought years ago with foreign remittances) for a net consideration of ₹40,00,000, earning a long-term capital gain of ₹10,00,000. Straight tax would be 12.5% × ₹10,00,000 = ₹1,25,000 (plus cess). Instead, within 6 months he reinvests ₹30,00,000 in Central Government securities. Exempt gain = ₹10,00,000 × 30,00,000 ÷ 40,00,000 = ₹7,50,000. Taxable gain = ₹2,50,000; tax = 12.5% × ₹2,50,000 = ₹31,250 plus cess. If he sells the new securities within 3 years, the exempted ₹7,50,000 becomes taxable in that year.
A short story: Rajesh, a software engineer in Singapore, wired his savings to India and bought shares and public-company deposits, assuming "NRI investments are all taxed the same". At filing time his CA asked one question: "Did the money come through your NRE account?" It had — so his deposits qualified as foreign exchange assets under Section 212, his interest was taxed at a clean flat 20% with TDS already covering it, and for one year he did not even need to file a return. His colleague, who had bought identical deposits using rent collected in India, got no such treatment — the definitions in Section 212 made all the difference.
| Term / Provision | What Section 212 & Chapter XIII say | 1961 Act equivalent | Rate / key condition |
|---|
| Non-resident Indian | Non-resident individual who is an Indian citizen or person of Indian origin | Section 115C(e) | Individuals only — not firms/HUFs |
| Specified asset | Indian company shares; public company debentures & deposits; Central Govt. securities; notified assets | Section 115C(f) | Private company instruments excluded |
| Foreign exchange asset | Specified asset acquired with convertible foreign exchange | Section 115C(b) | Source-of-funds test is mandatory |
| Investment income (Sec 214) | Income derived from a foreign exchange asset | Sections 115C(c), 115E | Flat 20% + surcharge & 4% cess |
| Long-term capital gains (Sec 214) | LTCG on transfer of a foreign exchange asset | Sections 115C(d), 115E | Flat 12.5% + surcharge & 4% cess |
| Reinvestment exemption (Sec 215) | Reinvest net consideration in specified assets within 6 months | Section 115F | 3-year lock-in; proportionate exemption |
| Opt-out (Sec 218) | NRI may choose normal provisions for any tax year via the return | Section 115-I | Regime is entirely optional |
Related sections
Section 213 — Computation of total income of NRIs (no deductions against investment income) Section 214 — Tax on investment income (20%) and long-term capital gains (12.5%) of NRIs Section 215 — Capital gains exemption on reinvestment in specified assets within 6 months Section 216 — Return of income not required where TDS covers NRI investment income Section 217 — Benefit continues after NRI becomes resident, on declaration Section 218 — Option for NRI not to be governed by the special chapter
Frequently asked questions
What does Section 212 of the Income-tax Act, 2025 actually do?
It is the interpretation (definitions) section for the special NRI tax chapter (Sections 212–218). It defines 'non-resident Indian', 'specified asset', 'foreign exchange asset', 'investment income' and 'long-term capital gains', which together decide who gets the flat 20%/12.5% concessional rates.
Which section of the old Income-tax Act, 1961 does Section 212 replace?
Section 212 corresponds to Section 115C of the 1961 Act (Chapter XII-A). The definitions have been carried over substantially unchanged, so investments that qualified under the old law continue to qualify under the 2025 Act.
Who qualifies as a 'non-resident Indian' under Section 212?
An individual who is a non-resident under the residency rules and is either a citizen of India or a person of Indian origin (broadly, someone who, or whose parents or grandparents, was born in undivided India). Companies, firms and HUFs cannot use this chapter.
What is a 'foreign exchange asset' and why does the source of funds matter?
It is a specified asset (Indian company shares, public company debentures or deposits, Central Government securities, or notified assets) acquired with convertible foreign exchange — for example, funds remitted from abroad or from an NRE/FCNR account. The same asset bought with Indian-sourced rupees does not qualify, and normal tax rules apply.
What tax rates apply to income covered by these definitions?
Under Section 214, investment income from foreign exchange assets is taxed at a flat 20% and long-term capital gains at 12.5% (plus applicable surcharge and 4% health and education cess). No expenditure deductions or Chapter VIII deductions are allowed against such income under Section 213.
Can an NRI avoid this special regime if normal slab rates work out cheaper?
Yes. Section 218 makes the chapter optional — the NRI can declare in the return of income that Sections 212–217 should not apply for that tax year, and income is then taxed under the normal provisions.
Do I need to file an Indian tax return if my only income is NRI investment income?
Not necessarily. Under Section 216, if your total income consists only of investment income or long-term capital gains from foreign exchange assets (or both) and full TDS has been deducted, you are not required to file a return for that tax year.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
💬 Discussion & questions
0 comments · Ask anything about this — a Chartered Accountant or the community will reply.
Have a doubt about this (Section 212)? Ask here 👇
Free · takes 20 seconds · our CA answers. No account needed.
No comments yet — be the first to ask. 👆
EaseValue