I’m an NRI based in the UAE. During FY2023–24, I had claimed the benefit of special NRI tax provisions on long-term capital gains (LTCG) from shares acquired through convertible foreign exchange. I had invested the proceeds in new shares to claim LTCG tax exemption. I’m aware that I have to hold the shares for at least 3 years to claim this exemption. Unfortunately, I will have to sell off the shares in February 2026. Will the exemption on LTCG be reversed for FY 2023–24, or do I need to offer the tax in FY 2025–26?
—Name withheld on request
You appear to be referring to the provisions of Section 115F of the Income Tax Act, 1961. Section 115F was introduced as part of the special tax regime for non-resident Indians (NRIs) to promote reinvestment of long-term capital gains into specified eligible assets, by providing conditional capital gains tax relief, subject to the requirement that such newly acquired assets are retained for a minimum lock-in period prescribed under the law, and subject to compliance with reporting and requirements tax rules.
Under this section, where the new asset acquired for the purpose of claiming capital gains exemption is sold or otherwise converted into money within a period of three years from the date of its acquisition, the exemption earlier availed is required to be reversed. The amount of capital gains so exempted is deemed to be long-term capital gains and is taxable in the year in which such new asset is sold or converted.
Accordingly, there is no requirement to file an updated return for FY 2023–24 (along with the 25% additional tax). Instead, the withdrawn exemption will be taxable in the year of sale of the new asset, which, in your case, would be FY 2025–26, in accordance with provisions of the Income Tax Act.
Harshal Bhuta is Partner at P. R. Bhuta & Co. CAs
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