What the courts have decided on section 115-I, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Dr. M. Manohar v. ACIT (Madras High Court) — the s.115H benefit does not extend to interest earned on interest that was re-deposited with the original sum; 'derived from' requires a direct nexus with the foreign exchange asset
High CourtHelps departmentValidity unconfirmed
My client, a returned NRI, keeps renewing his bank deposits by rolling the accrued interest back into the principal, and has claimed the concessional rate under section 115H on the whole of the interest each year. The Commissioner has revised the assessment under section 263. Is the claim on the interest-on-interest sustainable?
No. The Madras High Court held that section 115H does not allow that elasticity: the concessional rate is available only to investment income DERIVED FROM the foreign exchange asset, and unless the interest income has a direct nexus with the foreign exchange asset the benefit cannot be extended. The section 263 revision and the Tribunal's order confirming it were upheld and the assessee's appeal was dismissed.
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Statutory position — s.115E: twenty per cent on investment income throughout, and long-term capital gains at ten per cent before 23 July 2024 and twelve and one-half per cent on or after it
CBDT Circulars & InstructionsCuts both ways
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.
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Statutory position — s.115C: the Chapter XII-A definitions, and the convertible-foreign-exchange condition that the whole chapter turns on
CBDT Circulars & InstructionsCuts both ways
My client is a person of Indian origin living in Dubai. He bought shares in an Indian listed company out of rupees lying in his NRO account. The assessing officer says Chapter XII-A does not apply to him at all and has taxed the gain at the ordinary rate. Is he right?
On these facts, yes — and the reason is the funding, not the status. Section 115C(b) defines a "foreign exchange asset" as any specified asset "which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange", so an asset bought out of rupee funds is not a foreign exchange asset, and nothing in Chapter XII-A — not s.115E, not s.115F, not s.115H — can reach it. Being a non-resident Indian within s.115C(e) is a necessary condition but never a sufficient one.
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Statutory position — s.115D: no expenditure or allowance against investment income, no Chapter VI-A deduction, and the disapplication of the SECOND proviso to s.48 only
CBDT Circulars & InstructionsCuts both ways
My NRI client has interest income from debentures of an Indian public company acquired in foreign exchange, taxed under section 115E. The assessing officer has disallowed his collection charges, his section 80C deduction and his indexation. Is all of that correct, and what exactly is he allowed to lose?
Broadly yes, but the third disallowance needs care. Section 115D(1) denies any deduction for expenditure or allowance under any provision of the Act in computing investment income; s.115D(2)(a) denies Chapter VI-A deductions altogether where the gross total income consists ONLY of investment income or long-term capital gains or both, and in that case also disapplies the second proviso to s.48, which is the indexation proviso. The section does NOT disapply the FIRST proviso to s.48, and it has not referred to that proviso since 1 April 1993.
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Statutory position — s.115-I: the non-resident Indian's annual election OUT of Chapter XII-A, made in the return itself
CBDT Circulars & InstructionsCuts both ways
Chapter XII-A gives my NRI client a flat twenty per cent with no deductions, but on his numbers the ordinary slab rates with Chapter VI-A relief come out cheaper. Can he simply not use the chapter, and does he have to commit for good?
He can, and the election is for one assessment year at a time. Section 115-I lets a non-resident Indian elect not to be governed by Chapter XII-A for any assessment year by furnishing his return for that year under section 139 and DECLARING THEREIN that the chapter shall not apply to him for that year; if he does so, his total income for that year is computed and taxed in accordance with the other provisions of the Act.
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Statutory position — s.115H: continuation of the Chapter XII-A benefit after the assessee becomes resident, and the two things it does not cover
CBDT Circulars & InstructionsCuts both ways
My client has returned to India for good and is now assessable as a resident. He holds shares and public-company debentures bought in foreign exchange while he was abroad. Can he keep the twenty per cent rate, and on what?
He can, but only on part of it, and only if he files the declaration on time. Section 115H lets a person who was a non-resident Indian in a previous year and becomes assessable as resident in a subsequent year furnish a declaration in writing ALONG WITH his return under section 139 for that assessment year, and the chapter then continues to apply to him until the asset is transferred or converted into money — but the continuation extends only to INVESTMENT INCOME, and only from assets of the nature in sub-clauses (ii), (iii), (iv) and (v) of section 115C(f). Shares in an Indian company, which are sub-clause (i), are not in the list.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.