How Section 115H Benefits NRIs Shifting to Resident Status

Section 115H

of the Income Tax Act offers specific advantages for those shifting from non-resident Indian (NRI) to resident Indian status. According to the Income Tax Act 1961, a person's residential status can be classified as resident, NRI, or resident but not ordinarily resident (RNOR), decided by their duration of stay in India. This status may vary based on how long and why they stay in the country.

Section 115H is applicable for those who were NRIs in the previous year but have achieved resident status in the current financial year. Let’s delve into the provisions of this section.

Understanding Section 115H of the Income Tax Act

Chapter XII-A of the Income Tax Act provides specific tax benefits for non-residents, such as a 20% tax concession on income from foreign exchange asset investments. These advantages do not apply to resident Indians. Nevertheless, if an NRI changes status to a resident Indian within a financial year, they can still receive the benefits of Chapter XII-A by submitting a written declaration to the assessing officer, expressing their desire to continue these benefits, particularly for investment income from foreign exchange assets.

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Benefits under Section 115H

To uphold the benefits under Section 115H, a non-resident must present a written statement alongside their income tax return for the year they become a resident. They can still enjoy:

• A 20% tax concession on investment income from foreign exchange assets.
• A 10% tax concession on long-term capital gains from specified assets and dividend income.
• Concessionary tax rates until their foreign exchange asset is transferred into money.
• The advantages of concessional levy even while moving convertible foreign exchange between banks.

Provisions and Eligibility for Section 115H

The provisions given below explain how one can benefit from Section 115H:

• Individuals of Indian origin, with parents or grandparents who were Indian, can access these benefits. However, they must hold resident status under this act to avoid becoming non-resident due to origin.
• A foreign exchange asset refers to any asset obtained in convertible foreign exchange.
• Specified assets include government securities, shares in an Indian company, debentures from a public Indian company, and deposits with such companies. Section 115C characterizes these assets, and any asset designated by the Central Government is included.
• If a non-resident files their tax return under Section 139 and opts in writing, they gain concessional rates on all assets except shares in an Indian company. Since 01.04.2021, dividend income is deemed an asset.
• Resident status is obtained if an individual meets certain criteria: staying for 182 days or more in the past year, or 365 days or more over the last four years coupled with a minimum of 60 days in the current preceding year.
• An RNOR keeps the resident status in India for at least 2 years out of the last 10 years, with a stay of 730 days in the previous seven years.
• A Person of Indian Origin (PIO) is considered non-resident for tax purposes if they don't fulfill the criteria for being a resident or RNOR.
• A person's residential status may change annually according to their stay in prior years—for example, shifting from resident status in 2022-2023 to non-resident in 2023-2024.

Section 115H allows non-resident taxpayers to maintain concessional tax rate benefits even after acquiring resident Indian status in future years. Consistent tax return filing ensures they retain tax benefits as if they continued being NRIs. However, it's essential for taxpayers to report their income and submit returns under Section 139 in the year their status alters to resident Indian.