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TMI BlogTaxation of Foreign Exchange Asset Transfers by NRIs : Clause 215 of the Income Tax Bill, 2025 Vs. Section 115F of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115F of the Income-tax Act 1961 ("the 1961 Act"), which has been the cornerstone provision governing similar tax reliefs for NRIs for decades. The legislative intent behind both provisions is to incentivize NRIs to reinvest proceeds from foreign exchange assets into specified assets within India, thereby channeling foreign funds into the Indian economy while providing tax relief on capital gains. Given the evolving landscape of global tax laws, capital flows, and India's increasing engagement with its diaspora, an in-depth analysis of Clause 215, juxtaposed with the established Section 115F, is essential to understand the continuity, changes, and potential impact of the proposed legislation. Objective and Purpose The primary objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an economy. 2. Nature of Capital Gains Covered The clause covers long-term capital gains arising from the transfer of a foreign exchange asset. The term "foreign exchange asset" generally refers to assets acquired, held, or transferred in foreign currency, typically including shares, debentures, deposits, or other securities notified by the government. The exclusive coverage of long-term capital gains (as opposed to short-term) is significant, as it aligns with the policy of rewarding sustained investment rather than speculative trading. 3. Reinvestment Requirement and Timeframe The exemption is available only if the NRI invests the whole or any part of the net consideration from the transfer of the original asset into a specified a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tational clarity and to avoid disputes regarding the eligibility and quantum of exemption. 6. Lock-in Period and Taxability on Premature Conversion If the new asset is transferred or converted (otherwise than by transfer) into money within three years from the date of acquisition, the capital gain previously exempted becomes taxable in the year of such transfer or conversion. This "claw-back" provision is intended to prevent abuse of the exemption by ensuring that the reinvested amount remains locked into the specified asset for a reasonable period, thereby serving the policy objective of long-term capital formation. 7. Reference to Section 67 Clause 215 refers to "section 67" as the charging section for capital gains in the new Bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s availing the exemption must maintain meticulous records of: * Sale consideration and associated transfer expenses. * Dates and amounts of reinvestment. * Nature and cost of new assets acquired. * Subsequent transfers or conversions of the new asset. Any procedural lapses or non-compliance could result in denial of exemption or triggering of the claw-back provision. Comparative Analysis: Clause 215 vs. Section 115F 1. Structural Parity Clause 215 of the Bill closely mirrors Section 115F of the 1961 Act in both structure and substantive content. Both provisions: * Apply to NRIs and cover long-term capital gains from foreign exchange assets. * Require reinvestment of net consideration in specified assets within six months. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations * Eligible Assets: The exclusion of savings certificates and possible redefinition of "specified asset" under Clause 215 could narrow or otherwise alter the range of eligible reinvestment options for NRIs. * Reference to Deposits: The definition of "cost" in relation to a deposit refers to section 212(e)(iii)(v) in Clause 215, which may represent a shift in focus compared to the earlier cross-reference to section 115C(f) in Section 115F. The actual impact will depend on how "deposit" and "specified asset" are defined in the new Bill. * Claw-back Mechanism: Both provisions retain the three-year lock-in period, but Clause 215 uses the phrase "converted (otherwise than by transfer) into money," which could potentially broaden the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian context. Conclusion Clause 215 of the Income Tax Bill, 2025, represents a continuation of the policy framework established under section 115F of the Income-tax Act, 1961, with certain refinements and modernizations. It retains the core incentive structure for NRIs, offering exemption from long-term capital gains tax on foreign exchange assets, subject to timely reinvestment in specified assets and adherence to a lock-in period. While the provision is largely a restatement of existing law, the changes in cross-references, terminology, and possible redefinition of eligible assets warrant careful scrutiny. Stakeholders, including NRIs, financial intermediaries, and tax authorities, must familiarize themselves with the new legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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