Exploring Section 115H: Benefits for Returning NRIs

Section 115H of the Income Tax Act: Key Features and Advantages

The Income Tax Act 1961 categorizes individuals as residents, non-resident Indians (NRIs), or residents but not ordinarily residents (RNOR), determined by their presence in India. This status is dynamic, shifting with the duration and intent of stay.

Section 115H pertains to those who were NRIs previously but become Indian residents in the current financial year, offering significant insights into its provisions.

Understanding Section 115H of the Income Tax Act

Under Chapter XII-A of the Income Tax Act, non-residents benefit from taxation privileges such as a 20% special concession on income from foreign exchange asset investments. However, these perks are not applicable to resident Indians. When an NRI transitions to resident status within a financial year, they can seek benefits under Chapter XII-A by submitting a written application to the assessing officer, specifically highlighting their foreign exchange investment income.

Benefits Offered by Section 115H

• Non-residents eligible under this section receive a 20% tax concession on income related to foreign exchange assets.
• They enjoy a 10% concession on long-term capital gains from specified assets and dividends.
• The tax benefits remain until the liquidation of the specified foreign asset.
• Benefits persist even with convertible foreign exchange transfers among banks, given the asset remains owned.

Explaining the Provisions of Section 115H

• Individuals of Indian origin eligible for Section 115H must have been NRIs; otherwise, they shift back to NRI status.
• 'Foreign exchange asset' denotes assets acquired with convertible foreign exchange.
• 'Specified assets' encompass government securities, shares of Indian companies, debentures of public companies, and deposits with public companies. Section 115C further clarifies these assets, including those specified by the Central Government.
• Non-residents, filing returns under Section 139 with a written statement, can utilize concessional rates on all specified assets, excluding shares in Indian companies, until dividends were added to specified assets in April 2021.
• 'Resident' status requires over 182 days of stay in the preceding year or 365 days across the prior four years, with at least 60 days in the relevant preceding year.
• An RNOR has been a resident in at least two of the past 10 years, accumulating a minimum of 730 days across the last 7 years.
• Persons of Indian Origin (PIOs) become non-residents if they do not meet resident or RNOR criteria.
• Residential status is subject to annual changes; a resident in 2022-2023 may become a non-resident in 2023-2024, and vice versa.
• Section 115H enables previous non-residents who turn residents to retain concessional tax privileges with meticulous tax filings, akin to non-resident benefits.
• It’s imperative for taxpayers to disclose their income and file returns under Section 139 in the year their status transitions to a resident Indian.