Section 213 of the Income-tax Act, 2025 — Special Provision for Computation of Total Income of Non-Residents (NRIs)

In plain language

Section 213 of the Income-tax Act, 2025 (effective 1 April 2026) is the computation rule of the special tax regime for Non-Resident Indians (NRIs) who earn income from certain Indian investments made with foreign money. It replaces Section 115D of the Income-tax Act, 1961 (part of the old Chapter XII-A) with substantially the same effect. In simple words: if you are an NRI and you have opted for this concessional flat-rate regime, you get low, fixed tax rates on your investment income — but in exchange, Section 213 takes away almost every deduction you would otherwise claim.

What Section 213 actually says

• Sub-section (1) — No expense deduction: While computing the investment income of a non-resident Indian, no deduction for any expenditure or allowance is permitted under any provision of the Act. Bank charges, collection charges, portfolio management fees, interest on money borrowed to invest — none of these can be reduced from the income. The gross income itself is the taxable income.
• Sub-section (2) — No Chapter VIII deductions: If the NRI's gross total income consists only of investment income and/or long-term capital gains (LTCG) from foreign exchange assets, no deduction under Chapter VIII (the deductions chapter of the 2025 Act, the successor of old Chapter VI-A — 80C, 80D, 80G style deductions) is allowed at all. If the gross total income also includes other income (say, Indian rent or salary), the investment income and LTCG are first carved out, and Chapter VIII deductions are allowed only against the remaining income.

Who does it apply to?

• Non-Resident Indian — under Section 212 of the 2025 Act, an individual who is a non-resident and is either an Indian citizen or a person of Indian origin. Companies, firms and foreign nationals with no Indian origin are outside this regime.
• Foreign exchange assets only — the regime covers "specified assets" (shares of an Indian company, debentures of and deposits with an Indian public company, Central Government securities, and other notified assets) that were acquired, purchased or subscribed to in convertible foreign exchange — typically money remitted through NRE accounts or normal banking channels.
• Investment income and LTCG — "investment income" means income derived from such a foreign exchange asset (dividends, interest, deposit income), and "long-term capital gains" means gains on transfer of such an asset held long-term.

Why does the law deny deductions?

Section 213 is the price of the concession in Section 214, which taxes this income at flat rates — broadly 20% on investment income and 12.5% on long-term capital gains from foreign exchange assets — instead of slab rates. The scheme is deliberately designed as "gross basis, flat rate": simple compliance, no expense substantiation, no deduction disputes. Because the rate is already concessional, Parliament denies the usual deductions to prevent a double benefit.

How it interacts with related sections

• Section 212 supplies all definitions (NRI, foreign exchange asset, investment income, specified asset).
• Section 214 gives the flat tax rates on income computed under Section 213.
• Section 215 exempts the LTCG if the net sale proceeds are reinvested in another specified asset within six months (with a 3-year lock-in).
• Section 216 relieves the NRI from filing a return if income comprises only such investment income/LTCG and full TDS has been deducted.
• Section 217 lets a returning NRI continue the concessional treatment for existing foreign exchange assets after becoming resident, by filing a declaration with the return.
• Section 218 makes the whole chapter optional — an NRI may elect out and be assessed under the normal provisions (with full deductions and slab rates) for any tax year, whichever is more beneficial.

Practical implications for taxpayers

• Do the math both ways every year. If your Indian income is small, normal slab rates (with the basic exemption of ₹4,00,000 under the new regime and Chapter VIII deductions) may beat the flat 20%/12.5%. Section 218 lets you opt out; Section 213's harsh no-deduction rule applies only if you stay in the regime.
• Keep investment expenses off your expectations. Demat charges, advisory fees or borrowing costs will not reduce your taxable investment income under this scheme.
• Segregate income streams. Rent, salary or business income in India is unaffected — it is taxed normally and can absorb your Chapter VIII deductions.
• Source of funds matters. Only assets bought with convertible foreign exchange qualify; assets bought from NRO (Indian-source) funds fall outside Sections 212–218 altogether.