For many (NRIs), selling Indian investments can trigger long-term capital gains (LTCG) tax. But the new Income Tax Act, 2025 offers a way to defer or even eliminate that tax liability under Section 215, provided strict conditions are met.
The provision, which broadly replaces Section 115F of the Income Tax Act, 1961, allows eligible NRIs to claim an exemption from long-term capital gains tax by reinvesting the sale proceeds into specified Indian assets.
However, the benefit isn’t available to every NRI. The exemption applies only if the original investment was made using convertible foreign exchange and the proceeds are reinvested within a prescribed timeline.
Who can claim the exemption?
According to Pranav Sai S, Tax Expert at ClearTax, Section 215 is available only to NRIs transferring a long-term foreign exchange asset that was originally acquired using convertible foreign exchange.
“The provision forms part of the special tax regime for certain NRI investments. NRIs who invest using domestic rupee funds are generally not eligible to claim this exemption,” he said.
In other words, merely being an NRI at the time of selling an investment does not qualify a taxpayer for the exemption. The source of the original investment is equally important.
How does Section 215 work?
To claim the exemption, an NRI must reinvest the net sale consideration from the transfer of a qualifying foreign exchange asset into another specified asset within six months of the sale.
If the entire sale consideration is reinvested, the entire becomes exempt. However, if only part of the proceeds is reinvested, the exemption is available proportionately.
The formula is:
Exempt capital gain = Long-term capital gain × (Amount reinvested ÷ Net sale consideration)
For example, suppose:
Long-term capital gain: ₹40 lakh
Net sale consideration: ₹1 crore
Amount reinvested: ₹75 lakh
In this case, the exempt capital gain would be:
₹40 lakh × ( ₹75 lakh ÷ ₹1 crore) = ₹30 lakh
The remaining ₹10 lakh would remain taxable.
Which assets qualify?
The exemption is available only when the sale proceeds are reinvested in specified Indian assets notified under the Act. These include eligible financial instruments such as shares of Indian companies, certain debentures, specified deposits and government securities.
Investing in assets outside the prescribed list will not qualify for the exemption.
Don’t overlook the three-year lock-in
The tax break comes with an important condition.
“The new asset should generally not be transferred or converted into money within three years. If this condition is violated, the exemption claimed earlier is withdrawn and the exempt capital gain becomes taxable in the year of such transfer,” said Pranav Sai S.
This effectively creates a three-year lock-in for taxpayers availing the benefit.
Key conditions at a glance
NRIs seeking to claim the exemption under Section 215 must satisfy all of the following:
- The taxpayer must qualify as an NRI.
- The original asset must be a long-term foreign exchange asset acquired using convertible foreign exchange.
- The net sale consideration must be reinvested in specified assets within six months.
- If only part of the sale proceeds is reinvested, the exemption will be available proportionately.
- The new asset should not be sold or converted into money within three years.
For NRIs who have invested in Indian securities using foreign currency, Section 215 can significantly reduce capital gains tax liability. But missing even one of these conditions, whether it’s the source of the original investment, the six-monthdeadline or the three-year holding requirement, can result in the exemption being denied or withdrawn.