For Non-Resident Indians (NRIs), managing investments in India often comes with tax complexities. But did you know there’s a special tax regime under Indian law that could help reduce your tax liability significantly? Let’s break down how Chapter XII-A of the Income Tax Act can benefit NRIs for the Assessment Year 2025–26.
What Is the Special Tax Regime Under Chapter XII-A?
Chapter XII-A of the Income Tax Act is a provision specifically designed for NRIs who invest in India using foreign currency. It offers a simplified and favorable tax treatment on certain types of investment income. This regime is applicable for the Assessment Year 2025–26 and beyond — and if you qualify, it could mean lower taxes and fewer compliance hassles.
Which Investments Qualify?
To be eligible, your income must come from these specified foreign exchange assets:
Shares of Indian companies
Debentures or deposits with Indian public companies
Central government securities
All of these must be purchased in foreign currency to qualify under the regime.
Why Is This Regime Beneficial?
Compared to regular tax slab rates, this special regime offers:
Flat 12.5% tax on long-term capital gains (LTCG) — compared to 20% with indexation or even higher under normal slabs
20% tax on interest or dividend income — versus up to 30% under regular taxation
No ITR filing required if your only income is LTCG or investment income and TDS (Tax Deducted at Source) has been applied
This simplifies tax filing and saves both time and money for NRIs with eligible investments.
What are the Trade offs?
No deductions under Chapter VI-A (e.g., Section 80C benefits)
No indexation benefit for capital gains
No adjustment for forex fluctuations
No expense deductions against investment income
So, while your tax rates may be lower, you cannot claim typical deductions or adjustments.
Should You Opt In?
If you’re an NRI earning only from eligible Indian investments made in foreign currency, this regime could help you:
✅ Reduce your effective tax outgo
✅ Avoid complex ITR filing
✅ Maximize returns from Indian investments
Disclaimer: This article is for informational purposes only. Always consult a qualified tax advisor to assess if this regime aligns with your specific financial situation.
