Section 115H Of Income Tax Act: Benefits & Provisions

Returning to India can change how your investment income is taxed. However, becoming a resident does not necessarily end every special tax provision available to an NRI.

Section 115H of the Income-tax Act, 1961 allows certain returning NRIs to continue the Chapter XII-A tax treatment for eligible income from specified foreign-exchange assets after they become resident in India.

The benefit is not an automatic 20% tax rate on all investments. Eligibility depends on the asset, how it was acquired, the income earned from it, the date you became resident and the declaration made in your tax return.

2026 transition: Income earned during FY 2025–26 is governed by the Income-tax Act, 1961 and assessed as AY 2026–27. Income earned from 1 April 2026 onward is governed by the Income-tax Act, 2025 and is referred to under the Tax Year system. The new Act preserves the corresponding returning-NRI continuation benefit under Section 217.

Key Takeaways

• Section 115H can allow an eligible returning NRI to continue certain Chapter XII-A tax benefits after becoming resident.

• The continuation is linked to qualifying foreign-exchange assets and is not a benefit for your entire investment portfolio.

• Qualifying assets can include certain debentures, deposits and Central Government securities.

• Shares of Indian companies may appear in the wider definition of specified assets, but the continuation benefit after becoming resident does not extend to them under the current official guidance.

• You must make the required declaration with your income-tax return.

• The continuation generally remains linked to the qualifying asset until its transfer, subject to the applicable statutory conditions.

• The 20% rate should not be treated as your final tax liability. Surcharge, cess, DTAA provisions, and the applicable tax-year rules may affect the amount payable.

What Is Section 115H?

Section 115H is a continuation provision for certain NRIs who become resident in India.

Under the Income-tax Act, 1961, Chapter XII-A provides special rules for certain income of NRIs. Section 115H allows an eligible person who becomes resident to continue the applicable Chapter XII-A treatment for qualifying income, provided the statutory conditions are satisfied.

The benefit is therefore asset-specific rather than a blanket concession.

For example, if you return to India while holding a qualifying debenture acquired under the required foreign-exchange conditions, the income from that asset may continue to receive the applicable Chapter XII-A treatment.

That does not mean income from every investment you own receives the same treatment.

The Income Tax Department's current guidance identifies continuation for qualifying debentures, deposits and Central Government securities and excludes shares of Indian companies from the post-return continuation.

What Are “Specified Assets” and “Foreign-Exchange Assets”?

The Chapter XII-A rules use specific definitions for investment assets.

Specified assets can include categories such as:

• Shares in an Indian company

• Qualifying debentures issued by an Indian company

• Deposits with a qualifying Indian company

• Securities of the Central Government

• Other notified assets

However, specified asset and foreign-exchange asset are not interchangeable terms.

A foreign-exchange asset generally involves an eligible asset acquired with funds connected to foreign exchange. Your purchase documents, remittance records, bank statements, and investment statements can help establish the acquisition history.

Therefore, do not determine eligibility only from the name of the investment. Check:

1. What asset you purchased

2. When you purchased it

3. How you funded the purchase

4. Whether the asset meets the applicable statutory conditions

5. What income was generated from it

Who Can Claim the Benefit?

A returning NRI should examine Section 115H when all of the relevant conditions point toward eligibility.

The key questions are:

• Were you an NRI before returning to India?

• Did you become resident under the applicable income-tax rules?

• Do you continue to hold the relevant qualifying asset?

• Was the asset acquired under the required foreign-exchange conditions?

• Is the income generated from that qualifying asset?

• Have you made the required declaration in your return?

• Does the claim relate to the period and tax law applicable to your return?

Your residential status is important, but it does not establish eligibility by itself.

For example, RNOR — resident but not ordinarily resident — is a separate residential-status classification. It should not be treated as a substitute for the specific Section 115H conditions.

You can review how India determines residential status alongside your investment records.

Example: Returning NRI With Different Investments

Illustrative example

Rahul moved from Dubai to Bengaluru on 10 June 2025 after several years as a non-resident.

Before returning, he had acquired qualifying debentures using foreign-currency funds. During the relevant year, those debentures generated ₹2 lakh of interest.

After returning to India, Rahul also invested ₹5 lakh in Indian mutual funds and later earned ₹1 lakh from those investments.

Rahul should not treat the entire ₹3 lakh of investment-related income as automatically eligible for Section 115H treatment.

The qualifying debenture income must be examined under the continuation provisions. The mutual-fund income must be considered under the rules applicable to that investment.

The practical lesson: separate income by the asset that produced it. Do not apply a special NRI provision to your entire investment portfolio merely because you were an NRI before returning to India.

Which Investments Can Continue Under Section 115H?

The current official guidance states that the post-return continuation applies to investment income from eligible:

• Debentures

• Deposits

• Central Government securities

It does not extend the continuation to shares of Indian companies.

This distinction is important because shares can appear in the broader list of specified assets under Chapter XII-A while still being outside the Section 115H continuation after the taxpayer becomes resident.

The income type also matters.

For example, you should separately identify:

• Interest from a qualifying deposit

• Interest from a qualifying debenture

• Income from a Central Government security

• Dividends

• Mutual-fund income

• Interest from unrelated bank accounts

• Capital gains from other investments

Capital gains on other assets should be analysed under the provisions applicable to those assets. You can also review Indian capital gains tax for NRIs.

Is the 20% Rate Automatic?

No.

The 20% figure should not be used as a shortcut for calculating the tax on every investment held by a returning NRI.

The Income Tax Department currently lists Section 115E investment income from qualifying specified assets purchased in foreign currency at 20%.

However, the actual tax calculation can depend on:

• Whether the income qualifies under the relevant special provision

• The applicable tax year or assessment year

• Surcharge

• Health and Education Cess

• DTAA provisions

• The nature of the income

• Other applicable provisions of the tax law

The Income Tax Department also states that where a DTAA provides a lower rate, the treaty provision can apply where its conditions are satisfied.

So, avoid statements such as “returning NRIs pay 20% tax on investments.”

A more accurate approach is:

A qualifying income stream may receive the applicable special tax treatment if the statutory conditions are satisfied.

How Long Does the Benefit Continue?

For qualifying assets covered by the continuation provision, the special treatment can continue after you become a resident, subject to the applicable conditions and the required declaration.

The continuation is linked to the qualifying asset. It is not a general lifetime tax concession covering investments you make after returning to India.

If you:

• Sell the qualifying asset

• Acquire a new investment after returning

• Receive income from an excluded asset

• Change the nature of the investment

• Fail to meet a required statutory condition

the tax treatment needs to be reassessed.

The current official guidance states that the continuation benefit under the old Act applies to qualifying debentures, deposits and Central Government securities and continues until the relevant assets are transferred, subject to the statutory requirements.

Does RNOR Status Automatically Give You Section 115H Benefits?

No.

RNOR status and Section 115H address different questions.

Your residential status determines which general tax rules may apply to you. Section 115H deals with the continuation of specific Chapter XII-A treatment for qualifying assets after an eligible NRI becomes resident.

Therefore, do not assume:

“I am RNOR, so all my former NRI investments retain their special tax treatment.”

Instead, examine the asset, acquisition history, income type, and applicable continuation provision separately.

Your NRE, NRO or RFC account status is also a separate banking and FEMA issue. Review the NRE, NRO and RFC account rules separately.

How Should You Verify Eligibility Before Filing?

Before claiming the benefit, create an asset-by-asset record.

1. Confirm your residential status

Record when you returned to India and determine your residential status for the relevant period.

2. Identify each investment

List the investment, issuer, purchase date, and current status.

3. Establish the acquisition trail

Keep documents showing how the investment was acquired and, where relevant, the foreign-exchange or remittance trail.

4. Separate the income

Classify each receipt as interest, dividend, capital gain or another type of income.

5. Check whether the asset remains eligible

Do not automatically carry forward a previous year's treatment without checking the current law.

6. Make the required declaration

Check the applicable return and instructions for the relevant assessment year or Tax Year.

7. Verify the rate

Check the applicable statutory rate, surcharge, cess, and any DTAA relief before calculating the final liability.

8. Retain supporting records

Keep the documents supporting both the asset and the income reported in the return.

Common Errors to Avoid

Applying the special rate to every investment

The special provisions apply only where the relevant statutory conditions are met.

Treating RNOR status as automatic eligibility

Residential status does not replace the asset-specific requirements.

Ignoring acquisition records

The funding and acquisition history can be important when determining whether an asset qualifies.

Using an old tax rate

Tax rates and reporting requirements can change. Always check the provision applicable to the relevant assessment year or Tax Year.

Mixing qualifying and non-qualifying income

Interest from a qualifying asset should not automatically be combined with income from unrelated investments.

Ignoring the 2026 tax-law transition

For income earned from 1 April 2026 onward, the Income-tax Act, 2025 applies, and the corresponding provision is Section 217 rather than Section 115H. The official transition guidance confirms that the continuation benefit has been retained under the new Act.

What Documents Should You Keep?

Keep documents that establish:

• Date of acquisition

• Purchase price

• Source of funds

• Foreign-exchange or remittance trail, where relevant

• Broker or bank statements

• Deposit certificates

• Interest certificates

• Proof of your return to India

• Previous tax returns

• Current income statements

• Sale or transfer records

Your records should allow you to connect three things:

the asset → how it was acquired → the income it generated.

If you have foreign income or tax paid outside India, analyse foreign-tax-credit and treaty issues separately. You can review Form 67 and foreign tax credit in India.

When Should You Seek Professional Advice?

A professional review can be useful when:

• Your return date affects residential status

• The acquisition or funding trail is unclear

• Your portfolio contains multiple investment types

• You have foreign tax or treaty issues

• You transferred or sold a potentially qualifying asset

• You are filing during the 2026 transition between the old and new income-tax laws

The objective is to classify each income stream correctly before applying any special tax treatment.

Conclusion

Section 115H should be understood as a conditional continuation provision, not as an automatic 20% tax rate for everything a returning NRI owns.

For returns governed by the Income-tax Act, 1961, check whether the asset and income satisfy the Section 115H conditions and whether the required declaration has been made.

For income from 1 April 2026 onward, check the corresponding provisions of the Income-tax Act, 2025, including Section 217. The official transition guidance confirms that the returning-NRI continuation benefit has been retained under the new law.

Before filing, verify four things carefully:

your residential status, the qualifying asset, the acquisition history, and the income generated from that asset.

Do not apply the 20% figure to your entire investment portfolio without first establishing that the relevant special provision applies.

Sources & References

1. Income Tax Department — Taxation of Non-Residents
   Official guidance covering Chapter XII-A, Section 115E, specified assets, investment income and taxation of non-residents.
   Income Tax Department — Taxation of Non-Residents

2. Income Tax Department — Benefits Allowable to Non-Residents
   Official guidance covering specified assets and applicable special tax treatment for eligible non-resident investment income.
   Income Tax Department — Benefits Allowable to Non-Residents

3. Income Tax Department — FAQs on Interplay and Transition to the New Income-tax Act, 2025
   Official guidance explaining the transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 and the corresponding provisions applicable from 1 April 2026.
   Income Tax Department — FAQs on Interplay and Transition