Section 214 of the Income-tax Act, 2025 — Tax on Investment Income and Long-Term Capital Gains of NRIs (20% and 12.5% Special Rates)

In plain language

Section 214 of the Income-tax Act, 2025 gives Non-Resident Indians (NRIs) a special, simplified way of paying tax on income earned from certain Indian investments made with foreign money. Instead of the normal slab rates, it charges flat concessional rates: 20% on "investment income" and 12.5% on long-term capital gains (LTCG) from "specified assets". It is the new-law successor to the well-known Section 115E of the Income-tax Act, 1961, and applies from tax year 2026-27 (i.e., from 1 April 2026), sitting inside the special NRI chapter that runs from Section 212 to Section 218.

What Section 214 actually says

Where the total income of an NRI includes the incomes listed below, the tax payable is the aggregate of:

• 20% on income from investment (called "investment income");
• 12.5% on long-term capital gains on specified assets; and
• Normal "rates in force" (regular slab/other rates) on the balance of total income.

Health and education cess of 4% (and surcharge, where income crosses the thresholds) applies on top of these rates, as it does for all income-tax computations.

Who it applies to — the key definitions (Section 212)

• Non-Resident Indian: an individual who is a non-resident under the residency rules AND is either a citizen of India or a person of Indian origin. Companies, firms and HUFs cannot use this section.
• Specified asset: shares in an Indian company; debentures of an Indian public limited company; deposits with an Indian public limited company; Central Government securities; and 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, money remitted through an NRE account or in USD/AED/GBP). This forex link is the heart of the regime — assets bought with rupee funds do not qualify.
• Investment income: any income (interest, dividend, etc.) derived from a foreign exchange asset.
• Long-term capital gains: gains on transfer of a foreign exchange asset that is not a short-term capital asset.

Key conditions and practical limits

• No deductions against this income: Section 213 (successor to old Section 115D) computes investment income on a gross basis — no expense deduction, no chapter deductions (the old Chapter VI-A style deductions) against the concessional-rate income, and no basic exemption slab set-off against it.
• Flat rate, not slab rate: even if the NRI's total income is modest, the 20% / 12.5% rates apply from the first rupee of qualifying income.
• 12.5% reflects the current LTCG regime: under the 1961 Act, Section 115E originally taxed such LTCG at 10%; this was raised to 12.5% by the Finance (No. 2) Act, 2024 for transfers on or after 23 July 2024, and the 2025 Act carries the 12.5% rate forward.
• Enactment nuance: the Bill version of this clause expressly covered "LTCG of an asset other than a specified asset" within the 20% row; the Act as passed refers simply to "income from investment" at 20% and LTCG on specified assets at 12.5%, so gains outside the specified-asset net are generally taxed under the ordinary capital-gains provisions at the rates in force. Where a case is borderline, take professional advice.

How it interacts with related sections

• Section 215 (old 115F): full or proportionate exemption of the LTCG if the net sale consideration is reinvested within 6 months in another specified asset — with a claw-back if the new asset is sold within the 3-year lock-in.
• Section 216 (old 115G): the NRI need not file an income-tax return if total income consists only of investment income and/or such LTCG and full TDS has been deducted.
• Section 217 (old 115H): an NRI who later becomes resident can, by filing a written declaration with the return, continue the concessional treatment for income from foreign exchange assets (other than shares in an Indian company) until those assets are converted into money.
• Section 218 (old 115-I): the regime is optional — the NRI can elect out for any year and be taxed under the normal provisions instead, which may help when the normal computation (slab benefit, deductions) produces lower tax.

Practical implications for NRIs

• Keep clear evidence that the asset was bought with convertible foreign exchange (bank remittance advice, NRE account statements) — this is what unlocks Section 214.
• Compare both routes every year: the Section 214 flat-rate route (simple, no deductions) versus the normal route under Section 218 — choose whichever gives lower tax.
• Payers in India will typically deduct TDS on such NRI income; if TDS fully covers the liability and there is no other income, Section 216 can spare you the return-filing burden.
• DTAA relief may still be available — an NRI can apply the tax-treaty rate if it is more beneficial, subject to a Tax Residency Certificate and prescribed documentation.