My NRI client sold shares of an Indian company that he had subscribed to in foreign exchange. The transfer was in September 2024. My software has computed the tax at ten per cent under section 115E. Which rate applies, and from when did it change?
Twelve and one-half per cent, because the transfer took place on or after 23 July 2024. Section 115E(ii) now splits the long-term capital gains rate — ten per cent for any transfer which takes place before the 23rd day of July, 2024, and twelve and one-half per cent for any transfer on or after that date — while the rate on investment income under s.115E(i) remains twenty per cent and has done since 1 April 1998.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2024-07-23, reported as Income-tax Act, 1961, s.115E, as clause (ii) was substituted with retrospective effect from 23 July 2024. It bears on section 115E, section 115C, section 115C(b), section 115D, section 115F, section 115-I, section 45, section 48 of the Income Tax Act 1961, in Capital Gains, Residence & Treaty Benefit, Capital Gains Exemptions and How Tax Law Is Read matters.
The rate in this section is keyed to the DATE OF TRANSFER, not to the previous year or the assessment year, so a single assessment year straddles both rates and a return for AY 2025-26 may legitimately carry ten per cent on one sale and twelve and one-half per cent on another. That is unusual drafting and it is where the arithmetic errors are. Three further features of the section are missed. First, the rate on investment income is twenty per cent and is charged on the GROSS income, because s.115D(1) forbids any deduction against it. Second, s.115E(iii) preserves the ordinary charge on the rest of the total income by taxing it as if the total income had been reduced by the amounts in clauses (a) and (b), so the special rates are ring-fenced and do not spill over. Third, the section as it has stood since 1 April 1998 is oddly drafted: clause (a) reaches 'any income from investment or income from long-term capital gains of an asset other than a specified asset' at twenty per cent, and clause (b) reaches 'income by way of long-term capital gains' at the capital-gains rate — the Tribunal's reading in Deivanayagam Maruthini (ITAT Chennai, 28 February 2012) is that by implication the long-term capital gains in clause (b) are those arising on a specified asset. Before 1 April 1998 the section had a wholly different shape: a single flat twenty per cent where the total income consisted only of investment income or long-term capital gains or both, which is the text the older decisions construe and which must not be quoted for a current year. And the section only ever engages where the underlying asset is a 'foreign exchange asset' within s.115C(b) — the rate is worthless if the convertible-foreign-exchange condition is not proved.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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As printed on the Year 2026 and Year 2025 departmental pages, section 115E reads: '115E. Where the total income of an assessee, being a non-resident Indian, includes— (a) any income from investment or income from long-term capital gains of an asset other than a specified asset; (b) income by way of long-term capital gains, the tax payable by him shall be the aggregate of— (i) the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent; (ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income,–– (A) at the rate of ten per cent for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024; and (iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b).' The Year 2024 (No. 1) and Year 2019 (No. 1) pages print clause (ii) as a single unsplit rate: 'at the rate of ten per cent'.
For a non-resident Indian, income-tax on investment income is charged at twenty per cent and on long-term capital gains from a specified asset at ten per cent where the transfer takes place before 23 July 2024 and at twelve and one-half per cent where it takes place on or after that date; the balance of the total income is charged as if the total income had been reduced by those amounts. The twenty per cent rate on investment income has applied since 1 April 1998, when the section was substituted; before that date the section charged a single flat twenty per cent where the total income consisted only of investment income or long-term capital gains or both.
Not applicable — this is a statement of statutory text and of the amendment footnotes printed on the same departmental pages. No judicial reasoning is involved.
(A) at the rate of ten per cent for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024; and
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Handle my notice → Ask a CA on WhatsAppTwelve and one-half per cent, because the transfer took place on or after 23 July 2024. Section 115E(ii) now splits the long-term capital gains rate — ten per cent for any transfer which takes place before the 23rd day of July, 2024, and twelve and one-half per cent for any transfer on or after that date — while the rate on investment income under s.115E(i) remains twenty per cent and has done since 1 April 1998. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 115E, section 115C, section 115C(b), section 115D, section 115F, section 115-I, section 45, section 48 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.115E, as clause (ii) was substituted with retrospective effect from 23 July 2024. The rate in this section is keyed to the DATE OF TRANSFER, not to the previous year or the assessment year, so a single assessment year straddles both rates and a return for AY 2025-26 may legitimately carry ten per cent on one sale and twelve and one-half per cent on another. That is unusual drafting and it is where the arithmetic errors are. Three further features of the section are missed. First, the rate on investment income is twenty per cent and is charged on the GROSS income, because s.115D(1) forbids any deduction against it. Second, s.115E(iii) preserves the ordinary charge on the rest of the total income by taxing it as if the total income had been reduced by the amounts in clauses (a) and (b), so the special rates are ring-fenced and do not spill over. Third, the section as it has stood since 1 April 1998 is oddly drafted: clause (a) reaches 'any income from investment or income from long-term capital gains of an asset other than a specified asset' at twenty per cent, and clause (b) reaches 'income by way of long-term capital gains' at the capital-gains rate — the Tribunal's reading in Deivanayagam Maruthini (ITAT Chennai, 28 February 2012) is that by implication the long-term capital gains in clause (b) are those arising on a specified asset. Before 1 April 1998 the section had a wholly different shape: a single flat twenty per cent where the total income consisted only of investment income or long-term capital gains or both, which is the text the older decisions construe and which must not be quoted for a current year. And the section only ever engages where the underlying asset is a 'foreign exchange asset' within s.115C(b) — the rate is worthless if the convertible-foreign-exchange condition is not proved. If it applies to you, the first step is this: Fix the date of transfer for every disposal separately and apply ten per cent to transfers before 23 July 2024 and twelve and one-half per cent to transfers on or after it. Do not apply a single rate across the previous year.
As printed on the Year 2026 and Year 2025 departmental pages, section 115E reads: '115E. Where the total income of an assessee, being a non-resident Indian, includes— (a) any income from investment or income from long-term capital gains of an asset other than a specified asset; (b) income by way of long-term capital gains, the tax payable by him shall be the aggregate of— (i) the amount of income-tax calculated on the income in respect of investment income referred to in clause (a), if any, included in the total income, at the rate of twenty per cent; (ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income,–– (A) at the rate of ten per cent for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024; and (iii) the amount of income-tax with which he would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b).' The Year 2024 (No. 1) and Year 2019 (No. 1) pages print clause (ii) as a single unsplit rate: 'at the rate of ten per cent'. The matter was decided on 2024-07-23 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. For a non-resident Indian, income-tax on investment income is charged at twenty per cent and on long-term capital gains from a specified asset at ten per cent where the transfer takes place before 23 July 2024 and at twelve and one-half per cent where it takes place on or after that date; the balance of the total income is charged as if the total income had been reduced by those amounts. The twenty per cent rate on investment income has applied since 1 April 1998, when the section was substituted; before that date the section charged a single flat twenty per cent where the total income consisted only of investment income or long-term capital gains or both.
Not applicable — this is a statement of statutory text and of the amendment footnotes printed on the same departmental pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "(A) at the rate of ten per cent for any transfer which takes place before the 23rd day of July, 2024; and (B) at the rate of twelve and one-half per cent for any transfer which takes place on or after the 23rd day of July, 2024; and"
It was decided by the CBDT Circulars & Instructions on 2024-07-23 and is reported as Income-tax Act, 1961, s.115E, as clause (ii) was substituted with retrospective effect from 23 July 2024. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 115E, section 115C, section 115C(b), section 115D, section 115F, section 115-I, section 45, section 48, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. For a non-resident Indian, income-tax on investment income is charged at twenty per cent and on long-term capital gains from a specified asset at ten per cent where the transfer takes place before 23 July 2024 and at twelve and one-half per cent where it takes place on or after that date; the balance of the total income is charged as if the total income had been reduced by those amounts. The twenty per cent rate on investment income has applied since 1 April 1998, when the section was substituted; before that date the section charged a single flat twenty per cent where the total income consisted only of investment income or long-term capital gains or both. It arises in Capital Gains, Residence & Treaty Benefit, Capital Gains Exemptions and How Tax Law Is Read matters, on section 115E, section 115C, section 115C(b), section 115D, section 115F, section 115-I, section 45, section 48 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check the rate your software has used against the actual transfer date before filing; the split rate is recent and a rate keyed to a date rather than to a year is exactly what packaged computations get wrong. Compute investment income gross. Section 115D(1) denies every expenditure and allowance against it, so a net figure understates the base and invites a section 143(1) adjustment. Keep the s.115E(iii) ring-fence in the computation expressly — the remaining income is taxed as if the total income had been reduced by the clause (a) and clause (b) amounts, and an officer who aggregates instead produces a higher slab rate on the residue. Prove the foreign exchange asset before you argue the rate. Without the s.115C(b) funding trail, s.115E does not apply at all and the gain falls to be taxed under the ordinary provisions. For any period before 1 April 1998, do not quote the current text: the section then charged a single flat twenty per cent on a total income consisting only of investment income or long-term capital gains or both. Consider whether an election under s.115-I out of the whole chapter produces a lower liability for the year, particularly where the client has Chapter VI-A deductions or a basic exemption that Chapter XII-A would waste.
Still good law. The Year 2025 and Year 2026 departmental pages print identical split-rate text with footnotes in the same terms, which is the strongest evidence available on this pass that nothing has displaced the 23 July 2024 position. No Finance Act text was retrieved this pass and the amending statute is recorded only by its number, Act No. 15 of 2024. Any authority, opinion, computation or software setting applying ten per cent to a transfer on or after 23 July 2024 is superseded by amendment, and any authority applying a single flat twenty per cent to long-term capital gains is superseded for any period from 1 April 1998. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The current text was transcribed this pass from https://incometaxindia.gov.in/w/section-115e-45, which prints the heading 'Tax on investment income and long-term capital gains', the Act name 'Income-tax Act, 1961' and the stamp 'Year: 2026', with footnote 35 against clause (ii): 'Sub. by the Act No. 15 of 2024, w.r.e.f. 23-7-2024.' It was transcribed independently from /w/section-115e-42 (Year: 2025), which prints the identical split-rate clause with footnote 46 in the same terms: 'Sub. by Act No. 15 of 2024, w.r.e.f. 23-7-2024.' Two further year-stamped pages independently bracket the change by printing clause (ii) as a flat ten per cent with no sub-clauses (A) or (B): /w/section-115e-40 (Year: 2024 (No. 1)) and /w/section-115e-44 (Year: 2019 (No. 1)). The twenty per cent rate on investment income and the 1 April 1998 restructuring come from the archived /w/section-115e (Year: 2000), which prints the 20/10 structure with footnote 24, 'Substituted by the Finance Act, 1997, w.e.f. 1-4-1998'; that page is used as legislative history and not to state current law. The pre-1998 shape of the section is independently visible in two judgments read in full this pass which reproduce it: CIT v. Mathew (Kerala High Court, 19 May 2005) quotes 'section 115E(1)' as 'Where the total income of an assessee, being a non-resident Indian, consists only of investment income or income by way of long-term capital gains or both, the tax payable by him on his total income shall be the amount of Income-tax calculated on such total income at the rate of twenty per cent of such income', and Smt. Trishla Jain v. Dy. CIT (ITAT Delhi, 3 August 1990) records at its paragraph 2 that long-term capital gains were taxed at twenty per cent under s.115E for AY 1987-88. I did NOT verify from any source read this pass that Act No. 15 of 2024 is the Finance (No. 2) Act 2024, and I deliberately state the Act number as the departmental footnote gives it: this is precisely where build 127 went wrong. The commencement is expressed as 'w.r.e.f.' — with retrospective effect from — 23 July 2024, and the sub-clauses themselves key the rate to the date of transfer rather than to a year. 'decided_on' is that COMMENCEMENT DATE, not a decision date; 'bench' is 'Not applicable — statutory text' and 'favours' is null for the same reason. Note also that surcharge and cess are not addressed by s.115E and are not stated here: no Finance Act rate schedule was retrieved this pass. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
For a non-resident Indian, income-tax on investment income is charged at twenty per cent and on long-term capital gains from a specified asset at ten per cent where the transfer takes place before 23 July 2024 and at twelve and one-half per cent where it takes place on or after that date; the balance of the total income is charged as if the total income had been reduced by those amounts. The twenty per cent rate on investment income has applied since 1 April 1998, when the section was substituted; before that date the section charged a single flat twenty per cent where the total income consisted only of investment income or long-term capital gains or both.
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