Reinvesting only the gain need not exempt the whole gain
For tax year 2026–27, section 215 concerns an NRI’s long-term capital gain from transferring a foreign exchange asset. Within six months after transfer, the NRI must invest all or part of the net consideration in a specified new asset. Full relief requires new-asset cost at least equal to net consideration. Where cost is lower, the uncharged gain is whole gain multiplied by new-asset cost divided by net consideration. Income-tax Act, 2025 as amended by Finance Act, 2026: sections 212 and 215.
Test the original and new assets separately
Section 212 defines foreign exchange assets by specified asset category and acquisition in convertible foreign exchange. Categories include Indian-company shares, qualifying non-private Indian-company debentures and deposits, Central Government securities and notified assets. The original asset must satisfy the foreign-exchange-asset and long-term conditions; the reinvestment is tested against the statutory specified-asset description. Do not substitute any overseas investment or ordinary property merely because the investor is an NRI.
Build the denominator before applying the fraction
Net consideration is transfer consideration less expenditure incurred wholly and exclusively in connection with transfer. It is not simply the gain, nor automatically the cash ultimately credited after every bank deduction or withholding. Establish each deduction on its actual legal basis. For the stated deposit categories, cost means the deposit amount. Future interest is not an extra deposit investment merely because expected to accrue.
Keep both timing tests visible
Document transfer date, acquisition dates, qualifying cost and the six-month investment window. If the new asset is transferred or converted into money within three years of acquisition, section 215(3) brings the previously uncharged original gain into the specified long-term-capital-gains category for that tax year. Separately assess any gain or income on the new asset itself; do not confuse the two amounts.
Apply the actual period’s framework
This guide uses the 2025 Act as amended by Finance Act, 2026 rather than assuming legacy section numbers remain current. Confirm NRI status, any section 217(2) choice and all other relevant conditions before claiming relief. Examples assume eligibility, timely qualifying investments and correctly computed gain; they calculate relief and remaining gain only, not final tax, surcharge, cess, treaty relief or return obligations.
Applicable primary references
Income-tax Act, 2025 as amended by Finance Act, 2026: sections 212 and 215
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Full qualifying reinvestment
Assume net consideration ₹10,00,000, long-term gain ₹4,00,000 and qualifying new-asset cost ₹10,00,000 within the window. The whole ₹4,00,000 is uncharged under this model; remaining original gain is zero.
Illustrative example 2: Partial reinvestment
With the same ₹10,00,000 net consideration and ₹4,00,000 gain, qualifying cost is ₹6,00,000. Relief is ₹4,00,000 × ₹6,00,000 / ₹10,00,000 = ₹2,40,000. Remaining original gain is ₹1,60,000.
Illustrative example 3: Reinvesting just the gain
Qualifying cost is only ₹4,00,000 against ₹10,00,000 net consideration and ₹4,00,000 gain. Relief is ₹1,60,000 and remaining gain ₹2,40,000. Investing the gain amount alone does not satisfy the full-net-consideration comparison.
Illustrative example 4: Transfer-expense denominator
Gross consideration ₹10,50,000 less established qualifying transfer expenditure ₹50,000 gives net consideration ₹10,00,000. With gain ₹4,00,000 and eligible cost ₹5,00,000, relief is ₹2,00,000 and remaining gain ₹2,00,000.
Illustrative example 5: Reinvestment above consideration
Assume net consideration ₹10,00,000, gain ₹4,00,000 and qualifying cost ₹12,00,000. The full-relief branch gives ₹4,00,000, not an artificial ₹4,80,000 exemption. The excess ₹2,00,000 investment does not create a negative original gain.
Illustrative example 6: Early conversion
Assume ₹2,40,000 of original gain was validly uncharged and the new asset is converted into money within the three-year condition. Section 215(3)’s original-relief clawback is ₹2,40,000. If records also show ₹20,000 separately assessed new-asset income or gain, keep that separate; the two recorded amounts total ₹2,60,000 but are not one automatically classified statutory gain.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Establish NRI status | Section 212 definition and residence evidence. |
| 2 | Identify original asset | Category and convertible foreign-exchange acquisition. |
| 3 | Verify long-term treatment | Applicable holding and classification rules. |
| 4 | Compute original gain | Supported capital-gains working. |
| 5 | Compute net consideration | Consideration and eligible transfer expenditure. |
| 6 | Identify new asset | Specified category and actual cost. |
| 7 | Test six months | Transfer and acquisition chronology. |
| 8 | Calculate relief branch | Full comparison or supported fraction. |
| 9 | Track three years | Transfer or conversion of the new asset. |
| 10 | Reconcile filing | Claim, annual choices, later clawback and separate new-asset tax. |
Sixteen practitioner FAQs
1. Does the section cover every NRI asset sale?
No. The original asset and gain must meet its conditions.
2. What makes the original asset a foreign exchange asset?
Apply section 212’s specified-category and acquisition-funding definitions.
3. Is an overseas address enough?
No. Establish the statutory asset and NRI conditions.
4. What is the reinvestment window?
Within six months after the original transfer.
5. Must the gain alone be reinvested for full relief?
Full relief compares cost with net consideration.
6. How is partial relief computed?
Whole gain multiplied by new-asset cost divided by net consideration.
7. What is net consideration?
Transfer consideration less qualifying transfer expenditure.
8. Is every bank deduction qualifying transfer expenditure?
No. Verify the actual legal basis.
9. How is a covered new deposit’s cost measured?
By its deposit amount under section 215(2)(a).
10. Does future interest enlarge that deposit cost automatically?
No.
11. Can relief exceed the original gain when investment is larger?
The full-relief branch does not create excess exemption.
12. What later holding condition matters?
The three-year transfer/conversion clawback provision.
13. Which amount is clawed back?
The original gain previously not charged on the stated basis.
14. Is the new asset’s own gain the same amount?
No. Assess it separately.
15. Should a section 217(2) choice be checked?
Yes, where relevant to application of this framework.
16. Do examples calculate final tax?
No. They compute relief and remaining or clawed-back gain only.
Conclusion
Section 215 compares qualifying reinvestment with net consideration, not merely capital gain. Track the six-month investment window and subsequent three-year clawback.