Based on the taxpayers’ residency status, India’s income tax laws differ. As a result, the laws for resident and non-resident Indians differ. The income tax also outlines the consequences in the event that an NRI’s residency status changes to the resident during an assessment year. NRIs often aren’t permitted to receive tax benefits under Chapter XII-A of the Income Tax Act. But, it does in the event of a change in residence. Herein lies the significance of Section 115H.

What is Section 115H?

Taxpayers who were NRIs the previous year but became Indian residents this fiscal year are subject to the provisions of this section. According to the clause, these taxpayers must provide a declaration to the assessment officer outlining these facts when they file their ITRs. The provisions of this section continue to be applied to assess the tax burden of such a taxpayer up until his assets are converted to money value.

Section 115H reads, “Where a person, who was a non-resident Indian in any previous year, becomes assessable as a resident in India in respect of the total income of any subsequent year, he may furnish to the Assessing Officer a declaration in writing, along with his return of income under Section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset, being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of clause (f) of section 115C ”.

“And if he does so, the provisions of this chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets,” it adds.

Benefits of Section 115H

In accordance with this clause, NRIs are eligible for a 20% tax credit on investment income as well as a 10% tax break on dividend income and long-term capital gains from certain assets. However, only income from foreign exchange assets is covered by the advantages under Section 115H. Even when deposits are moved from one bank account to another while maintaining their status as convertible foreign exchange, the preferential tax rates still apply.

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