Section 115H / Section 217: NRI Becomes Resident – Continuation of Tax Benefits TY 2026-27

Law update from 1 April 2026: The continuation benefit earlier contained in section 115H of the Income-tax Act, 1961 is preserved in section 217 of the Income-tax Act, 2025. Valid declarations made under the old law continue to be recognised through the saving provisions.

Section 115H / Section 217: when an NRI becomes resident

The special NRI taxation chapter gives concessional treatment to certain investment income and specified foreign exchange assets. A practical issue arises when a person who was an NRI becomes resident in India but still holds qualifying assets acquired while non-resident. The old section 115H allowed continuation of the special treatment, subject to conditions. The Income-tax Act, 2025 retains this concept under section 217.

Who should examine this provision?

This provision is relevant where a taxpayer was an NRI, becomes resident, and continues to hold qualifying foreign exchange assets covered by the special regime. It is not a blanket concession for every investment held by a returning NRI.

Key conditions

• The taxpayer must satisfy the conditions of the special NRI regime.
• The relevant asset must fall within the class eligible for continuation treatment.
• A declaration/option must be furnished in the manner required with the return.
• The benefit continues only while the qualifying asset remains covered and has not been transferred or converted in a manner that ends eligibility.

The Income Tax Department's current FAQ specifically notes that the continuation benefit applies to certain foreign exchange assets other than shares.

What happens to old Section 115H declarations?

A declaration validly filed under section 115H of the 1961 Act does not become useless merely because the old Act was repealed. The Income Tax Department states that such a declaration remains valid for the purposes of the new Act under the saving provision in section 536(2)(f).

Practical checklist for returning NRIs

1. List foreign exchange assets acquired while you were non-resident.
2. Identify whether each asset falls within the special NRI regime.
3. Check the tax year in which residential status changed.
4. Review whether an old Section 115H declaration already exists.
5. For TY 2026-27 onward, examine section 217 and the current return/form instructions.
6. Keep acquisition, remittance and investment records supporting the asset's character.

Common mistakes

• Assuming all investments of a returning NRI qualify.
• Ignoring the declaration requirement.
• Applying the new Act retrospectively to an earlier tax year.
• Forgetting that old-year assessments and disputes continue under the 1961 Act.

Official reference

Income Tax Department – Non-Resident guidance