No Tax On Crores? NRIs Are Using This 'Jugaad' To Pay Zero On Capital Gains

News18

17-07-2025

Last Updated:
NRIs can claim full or partial exemption on LTCG if they reinvest the sale proceeds of foreign currency assets in certain specified Indian investments within 6 months
While Non-Resident Indians (NRIs) are very much under the purview of Indian tax laws, many of them have figured out how to legally avoid paying significant chunks of income tax, especially on capital gains. And they're not breaking any rules. Instead, they're using a specific section of the Income Tax Act that allows them to reinvest profits and skip taxes altogether.
Let's break down how it works, and why it's perfectly legal.
Who Qualifies As NRI?
Not everyone living abroad is an NRI for tax purposes. According to Section 6 of the Income Tax Act, a person is considered an NRI if they meet one of these criteria:
Spent fewer than 182 days in India during a financial year, or
Spent fewer than 60 days in India during the year and less than 365 days over the past four years.
There are exceptions. For instance, citizens earning below Rs 15 lakh in India may be allowed up to 120 days instead of 60. And for those leaving India for employment, the 60-day limit goes up to 182 days.
Tax Rules: What NRIs Pay, What They Don't
What Is Section 115F?
This is where things get interesting. NRIs can claim full or partial exemption on LTCG if they reinvest the sale proceeds of foreign currency assets in certain specified Indian investments within six months. A foreign currency asset is simply an asset (like shares or debentures) purchased using convertible foreign exchange.
1. Eligible Reinvestment Options:
2. Not eligible: Mutual funds, real estate, gold, or any asset not listed above.
The catch? You must hold the new investment for at least three years. Sell earlier, and the previously exempted capital gains become taxable.
Here's How It's Calculated:
Let's say an NRI sells equity shares listed in India for Rs 4 crore. The original cost was Rs 2 crore, giving a capital gain of Rs 2 crore. If Rs 3 crore from the total sale proceeds are reinvested in eligible assets:
Exempt Gain = (Rs 3 crore / Rs 4 crore) × Rs 2 crore = Rs 1.5 crore
Taxable Gain = Rs 50 lakh
Tax Saved = Rs 18.75 lakh @ 12.5% LTCG rate
Things NRIs Must Remember
Six-month window: Reinvestment must happen within 6 months of the sale, and it must be the entire net sale proceeds, not just the capital gain.
Stick to eligible assets: Only invest in shares, debentures, public deposits, or government securities.
Hold for 3 years: If you sell or convert early, you lose the tax break.
Keep your NRI status intact: Also maintain traceable records to prove that the money used for reinvestment came from foreign income.
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