Section 115H: How Returning NRIs Keep the 20% Tax Rate

Section 115H keeps your investment income from Indian assets bought with foreign currency at a flat 20%, even after you become resident again. Your shares are outside it, capital gains are outside it, and if your income after moving back is modest, claiming it costs you more than declining it does. The box that claims it defaults to No.

What Section 115H covers, and what it leaves out

Chapter XII-A of the Income Tax Act gives NRIs a flat rate regime on income from certain Indian assets bought with foreign currency. Normally that regime ends the moment you stop being an NRI. This section is the exception, and it is narrower than its reputation.

The statutory text says the chapter continues to apply "in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of clause (f) of section 115C".

Two limits are hiding in that sentence, and between them they account for most of what people get wrong about this provision.

Investment income only, not capital gains

Interest is what this comes down to in practice. Section 115C defines a foreign exchange asset as a specified asset you acquired or subscribed to in convertible foreign exchange, and investment income as income derived from it other than dividends.

Capital gains are not investment income. When you eventually sell the asset, the gain is computed under the ordinary capital gains provisions that apply to any resident, not under the concessional Chapter XII-A rate. The rules on capital gains for NRIs take over at that point.

Which foreign exchange assets qualify, and why shares do not

Section 115C(f) lists five specified assets. Sub-clause (i) is shares in an Indian company. Sub-clauses (ii) to (v) are debentures of a non-private Indian company, deposits with a non-private Indian company, Central Government securities, and any other asset the Central Government notifies.

The continuation names sub-clauses (ii), (iii), (iv) and (v). It does not name sub-clause (i). Shares are left out of the list deliberately, so once you are resident, the income and gains on Indian shares you bought as an NRI are taxed the way any resident's shares are taxed.

Rates and asset categories verified August 2026. The pattern is simple enough to hold in your head: debt and deposit instruments keep the concessional rate on their income, equity does not, and nothing keeps it on a sale.

Tax rates under Section 115E, and the 2024 change

Investment income under Section 115E is taxed at a flat 20%. That number is stable and it is the one that matters here, because investment income is the only thing the continuation carries forward.

The long term capital gains rate in the same section changed in 2024. The Finance (No. 2) Act 2024 split it in two: 10% for a transfer before 23 July 2024, and 12.5% for a transfer on or after that date. If you are working from a figure you noted down earlier, check the date it was written.

You can confirm the split in the return itself. The ITR-2 Schedule SI for AY 2025-26 carries two separate rows for 115E(b), one at 10% for pre-23 July transfers and one at 12.5% for the rest. By AY 2026-27 the 10% row is gone.

There is a catch that matters more than the rate. Since the continuation does not carry capital gains at all, a returning NRI never gets either figure on a sale. The 12.5% rate applies while you are still non-resident.

Section 115D: no deductions, no rebate

Nothing you spent earning that interest comes off it. Section 115D blocks every deduction against investment income, expenses and allowances alike. If that income is all you have, Chapter VI-A deductions go too, and where you have other income they apply only to the rest.

The rebate under Section 87A is not available against income charged at special rates either. That combination is what turns this provision into a trap at lower income levels.

Who is eligible for the 115H benefit

You need to have been an NRI who acquired a qualifying asset in convertible foreign exchange, and to have since become assessable as a resident. If you bought the asset with rupees, or after you returned, it never qualified.

You do not need a Tax Residency Certificate, and you do not need to have been resident in a country India has a treaty with. Those belong to the treaty regime and have no bearing on this section.

Your residency category does not matter. This runs independently of whether you are RNOR or an ordinary resident, and it lasts until the asset is transferred or converted into money, not for a fixed number of years. That makes it outlast the RNOR window, which is worth knowing because the two get conflated constantly.

Do NRE and FCNR deposits qualify?

They can, and that surprises most people. A bank deposit feels like an account rather than an investment, so the assumption is that it sits outside all of this.

The Authority for Advance Rulings went the other way in V. Ravi Narayanan, holding that an Indian bank governed by the Banking Regulation Act is a company that is not a private company, so a deposit with it can be a specified asset under sub-clause (iii). An advance ruling binds only the applicant who sought it, so treat that as persuasive rather than settled.

The question rarely bites while the exemption lasts. NRE interest is exempt under Section 10(4) for as long as you count as a person resident outside India under FEMA, and an exempt receipt has no use for a concessional rate. It starts to matter in the year that exemption ends, which is also the year your accounts have to be converted on return.

How to claim the 115H benefit in your ITR

Where the 115H declaration sits in ITR-2

The declaration is not a separate letter to your Assessing Officer. It is a field in the return.

In ITR-2, Part A General, inside the residential status block and right after the days-in-India counts, there is a question: "Do you want to claim the benefit u/s 115H? (applicable in case of resident)". It takes a Yes or a No. It defaults to No.

Across the client returns I checked, that field was answered No every time, including on one filed by someone who had come back to India and was filing as Resident but Not Ordinarily Resident. Nobody refused the benefit. The box simply sat at its default and the return went out. There is no Schedule 115H, which is what people search for, and no separate form.

Flat 20% or slab rate: which costs you less

The election is worth arithmetic, not assumption:

1. The flat route. Multiply the investment income by 20%, add 4% cess and any surcharge that applies at your income level, and claim nothing against it.
2. The slab route. Under Section 115I you can decline the chapter for any assessment year by saying so in that year's return. The interest then becomes ordinary income with the basic exemption and, if you qualify, the Section 87A rebate.
3. Compare the flat 20% against the marginal rate that slice of income would otherwise face.

Take Priya, who moves back to Bengaluru holding Central Government securities she bought through her NRE account as an NRI. The securities pay her 6 lakh rupees of interest a year and she has no other Indian income. Claim the benefit and she owes 20% of 6 lakh plus cess, which is 1,24,800 rupees. Decline it under Section 115I and her total income of 6 lakh sits under the 12 lakh rebate threshold in the new regime, and she owes nothing.

The provision only starts earning its keep once the rest of your income pushes that slice into the 25% or 30% band. Below roughly 20 lakh of total income, I would decline it and take the slab rates.

Before you file your next return

Open last year's ITR-2, find field (f) in Part A General, and see what it says. If you came back holding debentures, company deposits or government securities bought with foreign currency,

I would run both numbers before the next return goes out, because that box defaults to No and nobody will flag it for you.

It is worth an hour with an adviser who will do the arithmetic rather than assume the concession is free money.