[Section 115F] : Exemption of Long-Term Capital Gains arising to Non-Resident Indian (NRI) on Transfer of ‘Foreign Exchange Asset’

As per Section 115F, where an assessee, who is a non-resident Indian (NRI), transfers any long-term foreign exchange asset (hereinafter called original asset), he can claim an exemption in respect of the long-term capital gains from such asset if the following condition is satisfied.

He has invested within a period of 6 months after the date of such transfer, the whole or any part of the net consideration in any of the foreign exchange assets (hereinafter called new asset).

Quantum of Deduction

(i) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gains shall be exempt;

(ii) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gains the same proportion as the cost of acquisition of the new asset bears to the net consideration1 shall be exempt. In other words, it may be calculated as under:

Long-term Capital Gain X   Amount invested / Net consideration

Withdrawal of exemption:

The exemption granted u/s 115F will be withdrawn under the following circumstances:

Where the new asset is transferred or converted into money within a period of 3 years from the date of its acquisition, the exemption granted, on the basis of cost of the new asset, shall be deemed to be income chargeable under the head “Capital gains” of the previous year in which the new asset is transferred or converted into money and shall be taxed as long-term capital gains.

Option Not to avail of the Provisions of Section 115F [Section 115-I]

A non-resident Indian may elect not to be governed by the provisions of section 115F for any assessment year. in that case, he shall have to furnish his return of income for that assessment year u/s 139 and declare that the provisions of the section shall not apply to him. The total income of the nonresident for that assessment year shall be computed and tax on such total income shall be charged like other normal cases.

Example-2

In previous Example-1, assume that R deposited Rs. 5,00,000 with an Indian public company on 1.8.2022. Compute the capital gains chargeable to tax for the assessment year 2022-23.

Solution:

The original asset was transferred on 30.3.2022 and he has deposited Rs. 5,0O,000 on 1.8.2022. The deposit is therefore, within the stipulated period of 6 months and he is therefore, entitled to the exemption under section 115F.