Sections 212 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 212 to 217 form a short self-contained code for a non-resident Indian who holds assets bought with convertible foreign exchange. They define the key terms, bar deductions against investment income, fix rates of 20% and 12.5%, exempt gains that are reinvested within six months, excuse a return in a simple case, and let the benefit continue or be declined. This article follows the text of the Income-tax Act, 2025 as amended by the Finance Act, 2026.
A non-resident Indian is an individual who is not a resident and is a citizen of India or a person of Indian origin. For investment income from a foreign exchange asset, tax is at 20%, and long-term capital gains on a specified asset at 12.5%, with no expenditure deduction. A gain is not charged if the net consideration is reinvested within six months in a specified asset, in proportion to the cost of the new asset. The whole code is optional: the assessee can decline it year by year.
For help with a non-resident's return, see our NRI tax filing page. By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. Sections 217 and 218 were substituted by the Finance Act, 2026, with effect from 1 April 2026; this article explains section 217 as it now stands. Later amendments, rules and notifications should be checked.
Section 212: the definitions
Section 212 applies "in sections 213 to 218". Its clauses are:
- Foreign exchange asset means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange.
- Investment income means any income derived from a foreign exchange asset.
- Long-term capital gains means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset.
- Non-resident Indian means an individual who is not a resident and is (i) a citizen of India or (ii) a person of Indian origin. Residential status itself is the subject of section 6.
- Specified asset means any of: shares in an Indian company; debentures issued by an Indian company which is not a private company as defined in the Companies Act, 2013 (18 of 2013); deposits with an Indian company which is not such a private company; any security of the Central Government as defined in section 2(f) of the Government Securities Act, 2006 (38 of 2006); and such other assets as the Central Government may specify by notification.
The Act refers to the Companies Act, 2013 and the Government Securities Act, 2006 for part of this definition; read those laws for their own terms. What the Central Government has notified under the last limb is not in the text consulted, so no further asset is named here.
Section 213: no deduction, and what happens to Chapter VIII
Under sub-section (1), no deduction in respect of any expenditure or allowance is allowed under any provision of the Act in computing the investment income of a non-resident Indian.
Sub-section (2) deals with the deductions in Chapter VIII (the deductions in computing total income; see our note on the gateway section 122):
- If the gross total income consists only of investment income or long-term capital gains or both, then no deduction is allowed under Chapter VIII.
- If the gross total income includes such income along with other income, the gross total income is reduced by that income, and the Chapter VIII deductions are allowed as if the reduced figure were the gross total income.
Section 214: rates
The income-tax payable on the total income of a non-resident Indian which includes the income in column B is the aggregate of tax at the rate in column C on the matching income:
| Serial number | Income (column B) | Rate (column C) |
|---|---|---|
| 1 | Income from investment | 20% |
| 2 | Income from long-term capital gains on specified asset | 12.5% |
| 3 | Total income as reduced by income referred to against serial numbers 1 and 2 | Rates in force |
"Rates in force" is the expression defined in section 2(90). The Act does not print those rates here, and none is stated in this article.
Section 215: reinvestment of the gain
Section 215(1) applies where an assessee who is a non-resident Indian:
- has long-term capital gains from the transfer of a foreign exchange asset (the "original asset"); and
- within six months after the date of the transfer, invests the whole or any part of the net consideration in a specified asset (the "new asset").
Then the gain is dealt with in two ways:
- If the cost of the new asset is not less than the net consideration for the original asset, the whole of the gain is not charged under section 67.
- If the cost of the new asset is less than the net consideration, the gain not charged under section 67 is A = B x C / D, where A is the gain not charged, B the whole of the capital gain, C the cost of acquisition of the new asset, and D the net consideration for the original asset.
Sub-section (2) defines two terms for this purpose. "Cost" of a new asset which is a deposit referred to in section 212(e)(iii) or (v) means the amount of the deposit. "Net consideration" means the full value of the consideration received or accruing on the transfer, reduced by expenditure incurred wholly and exclusively in connection with the transfer.
Sub-section (3) is the claw-back. If the new asset is transferred or converted into money within three years from its acquisition, the gain not charged is deemed to be income by way of capital gains relating to capital assets other than short-term capital assets of the tax year of that transfer or conversion. The general computation of capital gains is in section 72.
Section 216: return not required
A non-resident Indian need not furnish a return under section 263(1) if (a) his total income during the tax year consisted only of investment income or long-term capital gains or both, and (b) tax deductible at source under Chapter XIX-B has been deducted from that income. Both limbs must be met. See also section 263(1) on who must file.
Section 217: continuing the benefit, or declining it
Section 217 is printed as substituted by the Finance Act, 2026, with effect from 1 April 2026.
Sub-section (1) - continuing after becoming resident. Where a non-resident Indian in a tax year becomes assessable as a resident in India for a later year, and furnishes a written declaration to the Assessing Officer along with his return under section 263 for the tax year in which he is so assessable, saying that sections 212 to 216 continue to apply to him in relation to investment income from any foreign exchange asset referred to in section 212(e) other than shares in an Indian company, then sections 212 to 216 continue to apply to that income for that tax year and every later tax year until the asset is transferred or converted (otherwise than by transfer) into money.
Sub-section (2) - choosing not to be governed. A non-resident Indian may choose not to be governed by sections 212 to 216 for any tax year by declaring it in his return under section 263 for that year. If he does so, sections 212 to 216 do not apply to him for that tax year, and his total income is computed and charged to tax according to the other provisions of the Act.
The declaration in each case is made in or along with the return. Section 217 itself prescribes no form; the detail of returns is left to the Income-tax Rules, 2026.
A worked example
The names and figures are assumed; only the rates and the formula in sections 214 and 215 are taken from the Act.
Mr. Dario Okafor is a non-resident Indian who bought shares in an Indian company with convertible foreign exchange. He sells them. The long-term capital gain is Rs. 10,00,000 and the net consideration is Rs. 40,00,000. Within six months he buys a new specified asset costing Rs. 30,00,000.
- Cost of new asset (C) is less than net consideration (D), so section 215(1)(ii) applies.
- Gain not charged: A = 10,00,000 x 30,00,000 / 40,00,000 = Rs. 7,50,000
- Gain left in his income: 10,00,000 - 7,50,000 = Rs. 2,50,000, which is long-term capital gains on a specified asset
- Tax at 12.5% (serial number 2 of section 214): 2,50,000 x 12.5% = Rs. 31,250
If he transfers the new asset for money within three years of acquiring it, section 215(3) brings the Rs. 7,50,000 into the capital gains of that later tax year.
Need help with an NRI investment?
NRIs who hold shares, deposits or government securities bought with foreign exchange often have to decide, year by year, whether to stay inside this code or to opt out. Our team can map your assets to the definitions in section 212 and review the position on NRI tax filing before the return is prepared.
Key takeaways
- The code applies to an individual who is not a resident and is a citizen of India or a person of Indian origin.
- Investment income is taxed at 20% and long-term capital gains on a specified asset at 12.5%, with no expenditure deduction.
- A gain is not charged to the extent of the cost of a new specified asset bought within six months, using the formula in section 215(1)(ii).
- A transfer of the new asset within three years brings the exempted gain back into income.
- Section 217 lets the benefit continue after the assessee becomes resident, and lets him choose not to be governed in any tax year.
Read next
- Section 211: tax on non-resident sportsmen and sports associations
- Sections 218 to 220: IFSC units, conversion of a foreign bank branch and a foreign company resident in India
- Section 263(2) to (9): belated, revised, updated and defective returns
- Chapter XIII: determination of tax in special cases
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.