If you’re an NRI selling shares of an Indian company and dreading that long-term capital gains tax bill—take a deep breath. There’s a legal way to save tax, and it’s called Section 115F of the Income-tax Act, 1961.
Let’s break it down.
What’s the Deal with Section 115F?
Section 115F is a special tax exemption designed specifically for Non-Resident Indians. It helps you avoid tax on long-term capital gains from investments made in India—provided you reinvest your sale proceeds smartly.
Yes, that’s right. Sell your long-term investment. Reinvest the proceeds within 6 months. Get a tax break.
Who’s Eligible?
To claim this exemption, you must:
- Be a Non-Resident Indian (as per the Income-tax Act)
- Have invested in foreign exchange assets i.e. the assets purchased/ acquired in convertible foreign exchange - basically, shares, debentures, deposits, or Central Government securities bought using foreign currency
- Earn long-term capital gains from selling those assets.
What Counts as Reinvestment?
Reinvestment has to be done in:
- New shares or debentures of an Indian company
- Deposits with Indian public companies
- Central Government securities (like NSC)
And you need to make this reinvestment within six months from the date of sale.
How Much Tax Can You Save?
Two scenarios:
- Reinvest Entire Net Sale Proceeds → 100% of capital gain is exempt
- Reinvest Part of the Proceeds → Partial exemption. It’s proportional
Simple formula:
Exempt Gain = Capital Gain × (Amount Reinvested ÷ Net Sale Consideration)
Quick Example:
Ravi, an NRI, sells shares in an Indian company and makes a ₹10 lakh capital gain. He receives ₹30 lakh after the sale. If he reinvests ₹15 lakh in eligible debentures:
Exempt Gain = ₹10 lakh × (15 ÷ 30) = ₹5 lakh
That means only ₹5 lakh is taxable—Ravi just halved his tax bill.
One Catch: Lock-in Period:
Hold the new investment for at least 3 years. If you sell early, the exempt capital gain becomes taxable in that year.
Final Thought:
And if you’re an NRI? Keep Section 115F in your back pocket. It could save you a serious chunk of change on your next big exit.
Good tax planning isn’t about finding loopholes—it’s about knowing your options. Section 115F is one such option. Use it wisely.
Note: This article is for general information. For advice tailored to your situation, consult Khare Deshmukh & Co., Chartered Accountants.
