Contents
- Introduction: Understanding Section 115H Benefits
- Overview of Key Changes for FY 2025-26
- Eligibility Requirements and Asset Qualification
- Tax Benefits and Concessional Rates
- Claiming Process and Documentation
- Categories of People Impacted
- Timeline of Changes and Critical Dates
- You may also like
- Frequently Asked Questions (FAQs)
- Conclusion
Introduction: Understanding Section 115H Benefits
Section 115H of the Income Tax Act, 1961, serves as a vital tax relief provision for Non-Resident Indians (NRIs) who transition to Indian resident status. This section allows continued access to concessional tax rates on income from specified foreign exchange assets, preventing the shock of sudden tax rate increases upon becoming a resident.
Section 115H bridges the gap between NRI and resident tax obligations, ensuring smooth financial transition for returning Indians while maintaining investment attractiveness of Indian markets.
The provision has gained increased importance as more professionals return to India post-pandemic, bringing substantial foreign investments that qualify for these beneficial tax rates. Understanding Section 115H is crucial for anyone planning their return to India or accidentally becoming a resident due to extended stays.
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The Section 115H declaration must be made in your very first ITR as a resident - missing this means permanent loss of benefits worth potentially lakhs of rupees annually.
Overview of Key Changes for FY 2025-26
Assessment Year 2025-26 brings significant legislative developments with the Income Tax Bill 2025, though Section 115H remains fully applicable until the new Act is notified. Key changes affecting NRIs include updated surcharge structures, enhanced standard deductions, and proposed procedural simplifications.
Note: The Income Tax Bill 2025 proposes to replace Section 115H with Clause 217, introducing streamlined procedures and potentially expanded coverage.
Important: Until the new Act is notified, all existing Section 115H provisions remain in full effect for AY 2025-26.
| Change Category | Current Status (AY 2025-26) | Proposed Change | Implementation Timeline |
|---|---|---|---|
| Legislative Framework | Section 115H (IT Act 1961) | Clause 217 (IT Bill 2025) | Awaiting notification |
| Standard Deduction | ₹75,000 (New Regime) | Potentially higher | From AY 2026-27 |
| Declaration Process | Written statement in ITR | Simplified opt-in mechanism | Under development |
| Surcharge Structure | 15% cap on capital gains | May be retained | Details pending |
The new regime has been default since FY 2025-24, with increased standard deduction to ₹75,000. This change benefits most taxpayers while Section 115H benefits remain identical across both regimes.
Eligibility Requirements and Asset Qualification
Section 115H eligibility requires precise compliance with specific conditions. The most critical requirement is the status transition - from non-resident in the immediately preceding financial year to resident in the 2025.
Primary Eligibility Conditions
- Status Transition: Must be Non-Resident in FY 2025-24 and Resident in FY 2025-25
- Asset Ownership: Must own qualifying foreign exchange assets acquired during non-resident period
- Declaration Requirement: Must make written declaration in first year ITR as resident
- Documentation: Must maintain complete records of asset acquisition and forex conversion
Qualifying Asset Types
Only specific assets acquired with convertible foreign exchange qualify for Section 115H benefits:
| Asset Category | Specific Types | Key Requirements | Common Examples |
|---|---|---|---|
| Equity Shares | Listed Indian company shares | Purchased with foreign exchange | IT company shares, ESPP shares |
| Debentures | Corporate bonds | Acquired through forex conversion | Corporate bonds, NCDs |
| Mutual Fund Units | Units of Indian mutual funds | Subscription with foreign currency | Equity funds, debt funds |
| Bank Deposits | Deposits in Indian banks | Made with convertible forex | NRE/NRO fixed deposits |
Critical: Converting these assets to Indian rupees permanently terminates Section 115H benefits for those specific assets.
Tax Benefits and Concessional Rates
Section 115H provides substantial tax savings through concessional rates significantly lower than regular income tax slabs, making it one of the most valuable provisions for returning NRIs.
Verified Tax Rates with Surcharge
| Income Type | Base Rate | Surcharge (Income Dependent) | Health & Education Cess | Effective Rate Range |
|---|---|---|---|---|
| Investment Income | 20% | 0-37% (no cap) | 4% | 20.8% - 28.49% |
| Long-term Capital Gains | 10% | 0-37% (capped at 15%) | 4% | 10.4% - 11.96% |
| Short-term Capital Gains | 15% | 0-37% (capped at 15%) | 4% | 15.6% - 17.94% |
| Dividend Income | 20% | 0-37% (no cap) | 4% | 20.8% - 28.49% |
Effective Tax Rate Calculations
The actual tax burden varies based on total income levels due to surcharge structure:
- Up to ₹50 lakhs: Base rate + 4% cess only
- ₹50 lakhs to ₹1 crore: Base rate + 10% surcharge + 4% cess
- Above ₹1 crore: Base rate + higher surcharge (capped at 15% for capital gains) + 4% cess
Old vs New Tax Regime Impact
| Aspect | Old Tax Regime | New Tax Regime (Default) |
|---|---|---|
| Section 115H Rates | Identical | Identical |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Other Deductions | 80C, 80D, etc. available | Limited deductions |
| Tax Slabs | 5%-30% | 5%-30% with higher exemptions |
Claiming Process and Documentation
The claiming process requires meticulous attention to deadlines and documentation. Missing the declaration deadline results in permanent loss of benefits.
Step-by-Step Process
- Eligibility Verification: Confirm NRI status in FY 2025-24 and resident status in FY 2025-25
- Document Compilation: Gather all required documents including TRC, investment proofs, and forex conversion records
- ITR Preparation: File ITR with explicit written declaration for Section 115H benefits
- Deadline Compliance: Submit before July 31, 2025 (or extended deadline if announced)
- Record Maintenance: Keep all supporting documents for potential scrutiny
Essential Documentation Checklist
- Tax Residency Certificate for FY 2025-24
- Passport with entry/exit stamps
- Investment purchase receipts with dates
- Bank statements showing forex conversion
- Portfolio statements from brokers/mutual funds
- Form 15CA/15CB if applicable
- Days-in-India calculation worksheet
Warning: Late filing beyond the due date, even with penalty, results in permanent loss of Section 115H benefits.
Categories of People Impacted
Section 115H affects diverse groups of individuals, each with unique circumstances and asset profiles. Understanding these categories helps in better planning and compliance.
Primary Beneficiary Categories
| Category | Typical Background | Common Assets | Key Challenges |
|---|---|---|---|
| IT Professionals | Software engineers returning from US/Europe | Stock options, 401k, ESPP shares | Complex vesting schedules |
| Business Executives | Senior management on overseas assignments | International mutual funds, bonds | Multiple jurisdiction compliance |
| Medical Professionals | Doctors returning from practice abroad | Practice investments, medical bonds | Professional asset valuation |
| Accidental Residents | NRIs exceeding 182 days unexpectedly | Existing foreign portfolios | Unplanned status change |
| Students Turned Professionals | Former students now working in India | Part-time earnings investments | Limited asset base |
Special Considerations for Different Categories
- Tech Professionals: Must handle stock option vesting and ESPP complexities
- Business Executives: Often have assets across multiple countries requiring careful tracking
- Medical Professionals: May have practice-related investments needing special valuation
- Accidental Residents: Need retroactive planning and documentation
HUF Eligibility: Hindu Undivided Families can also claim Section 115H benefits if they meet the transition criteria.
Timeline of Changes and Critical Dates
Understanding the historical context and future deadlines is crucial for proper planning and compliance with Section 115H provisions.
Historical Timeline
- 1961: Income Tax Act enacted with basic NRI provisions
- 1999: Section 115H introduced for returning NRIs
- April 1, 2021: Dividend income coverage added to Section 115H
- FY 2020-21: New tax regime introduced as option
- FY 2025-24: New tax regime became default
- August 2025: Income Tax Bill 2025 passed by Parliament
- September 2025: Current status - awaiting new Act notification
Critical Dates for AY 2025-26
| Event | Date | Consequence of Missing | Alternative Options |
|---|---|---|---|
| ITR Filing (Non-audit) | July 31, 2025 | Permanent benefit loss | None for Section 115H |
| ITR Filing (Audit cases) | October 31, 2025 | Permanent benefit loss if first year | Professional consultation |
| Belated Return | December 31, 2025 | No Section 115H benefit | Pay penalty, lose benefits |
| Updated Return | March 31, 2030 | Cannot add Section 115H later | Corrections only, not new claims |
Absolute Deadline: Section 115H declaration can only be made in the first year of becoming resident. No extensions or later claims are permitted.
Frequently Asked Questions (FAQs) on Section 115H
What is Section 115H and who can benefit from it?
Section 115H is a tax provision for Non-Resident Indians who become residents of India. It allows continued access to concessional tax rates on income from foreign exchange assets acquired during their non-resident period. Only individuals and HUFs transitioning from NRI to resident status can benefit.
What are the exact tax rates under Section 115H for AY 2025-26?
Section 115H provides 20% tax on investment income, 10% on long-term capital gains, and 15% on short-term capital gains. These rates are subject to applicable surcharge (capped at 15% for capital gains) and 4% health and education cess, resulting in effective rates ranging from 10.4% to 28.49%.
When is the deadline for claiming Section 115H benefits in AY 2025-26?
The deadline is July 31, 2025, for filing your ITR with the Section 115H declaration. This can only be done in your first year as a resident. Missing this deadline results in permanent loss of benefits with no option to claim in subsequent years.
Can I claim Section 115H if I became resident mid-year in FY 2025-25?
Yes, if you were an NRI in FY 2025-24 and became a resident at any point during FY 2025-25 (by staying 182+ days in India), you can claim Section 115H benefits by making the declaration in your AY 2025-26 ITR.
Which assets qualify for Section 115H benefits?
Only assets acquired with convertible foreign exchange qualify: equity shares of Indian companies, debentures, mutual fund units, and bank deposits. The key requirement is that these assets must have been purchased with foreign exchange during your non-resident period.
What happens if I convert my foreign exchange assets to rupees?
Converting foreign exchange assets to Indian rupees permanently terminates Section 115H benefits for those specific assets. This decision is irreversible, so timing of conversion should be carefully planned based on your overall tax strategy.
Can I claim both Section 115H and DTAA benefits on the same income?
No, you cannot claim both benefits on the same income simultaneously. However, you can choose the more beneficial option between Section 115H and DTAA benefits. This requires careful calculation to determine which provides better tax savings for your specific situation.
How does the new tax regime affect Section 115H benefits?
Section 115H benefits are identical under both old and new tax regimes. The new regime became default from FY 2025-24 with a higher standard deduction of ₹75,000, but this doesn't impact Section 115H concessional rates which apply regardless of your regime choice.
What documentation is essential for claiming Section 115H benefits?
Essential documents include: Tax Residency Certificate for FY 2025-24, passport with travel history, investment purchase receipts, bank statements showing forex conversion, portfolio statements, and detailed calculation of days spent in India during FY 2025-25.
Can Hindu Undivided Families (HUFs) claim Section 115H benefits?
Yes, HUFs can claim Section 115H benefits if they transition from non-resident to resident status and own qualifying foreign exchange assets. The same eligibility criteria and procedures apply to HUFs as they do to individual taxpayers.
What is the impact of Income Tax Bill 2025 on Section 115H?
The Income Tax Bill 2025 proposes to replace Section 115H with Clause 217, introducing simplified procedures and potentially expanded coverage. However, until the new Act is notified, Section 115H remains fully applicable for AY 2025-26 with all existing provisions.
How long can I continue to claim Section 115H benefits?
There's no time limit for Section 115H benefits. They continue until you convert the qualifying assets to Indian rupees. Benefits are asset-specific and terminate only when individual assets are converted, not on any blanket timeline.
What are the surcharge caps for Section 115H income?
Surcharge on capital gains under Section 115H is capped at 15% regardless of your total income level. For investment income and dividends, regular surcharge rates apply based on total income, but capital gains enjoy the beneficial 15% cap.
Can I lose Section 115H benefits if I become an NRI again?
Once you've claimed Section 115H benefits as a resident, becoming an NRI again in subsequent years doesn't automatically terminate the benefits on assets for which you've already claimed Section 115H status, provided they remain unconverted to rupees.
What if I miss the Section 115H declaration in my first year as resident?
Missing the declaration in your first year of residency results in permanent and irreversible loss of Section 115H benefits. You cannot claim these benefits in subsequent years, even through revised returns, updated returns, or any other mechanism.
Conclusion: Securing Your Section 115H Benefits for AY 2025-26
Section 115H remains one of the most valuable tax provisions for NRIs returning to India, offering substantial savings through concessional rates ranging from 10% to 20%. With potential changes looming through the Income Tax Bill 2025, AY 2025-26 represents a crucial year for eligible taxpayers to secure these benefits.
The key to success lies in understanding the strict eligibility requirements, maintaining comprehensive documentation, and most critically, filing your ITR with the proper declaration before July 31, 2025. The irreversible nature of missing this deadline cannot be overstated - there are no second chances with Section 115H benefits.
As the tax landscape evolves with proposed legislative changes, staying informed and taking timely action becomes even more critical. Whether you're a returning IT professional with stock options, a business executive with international investments, or an accidental resident with existing foreign portfolios, Section 115H can provide significant tax relief during your transition to Indian residency.
Action Required: If you're eligible for Section 115H benefits in AY 2025-26, consult with qualified tax professionals immediately to ensure proper compliance and maximize your tax savings before the filing deadline.