The introduction of a new clause in the Income Tax Bill, 2025 will bring significant tax relief to Non-Resident Indians (NRIs) who invest in India’s unlisted equity markets such as NSE, not for listed equity shares like BSE, among others.
Clause 72(6) on the New Income Tax Bill will allow NRIs, excluding foreign portfolio investors, to adjust the acquisition cost of unlisted shares for foreign exchange fluctuations, ensuring that long-term capital gains (LTCG) are computed in the same foreign currency used during purchase. This means that NRIs are only required to pay income tax on their actual gains in USD terms, thus avoiding over-taxation due to currency fluctuations.
The latest bill stipulates that the benefit of foreign exchange fluctuations will only apply to unlisted Indian equity shares, not unlisted ones, as outlined in Section 198.
Under the previous Income Tax Act, 1961, capital gains were taxed in Indian Rupees that often lead to inflated tax liabilities due to the depreciation of the rupee against foreign currencies.
Tax experts are hailing the new move, calling it a ‘game-changer’ for NRIs who are keen to invest in high-growth sectors like technology and start-ups where unlisted shares dominate the funding arena. The new measure underscores the government’s intent to incentivize NRI investments, foster capital inflows and support India’s economic growth.
However, the reform’s success hinges on clear implementation guidelines, particularly in how exchange rates are to be applied. Experts, therefore, are asking for rules that are well-defined and streamlined to avoid disputes related to assessment, unlike RBI rates or authorised dealer bank rates.
It is opined by industry experts that if the Centre includes a favourable provision in the new tax bill for 2025, NRIs could see a massive reduction of up to 72% in their long-term capital gains tax compared to before, when they had to pay income tax on artificially high income due to the depreciation of the Indian Rupee.
Although the exclusion of foreign portfolio investors limits its immediate scope, the new provision is seen as a strong step towards positioning India as an investment hub for global Indians.
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