New Income Tax Bill 2025: A Game-Changer for NRIs on Unlisted Share Gains

The much-anticipated New Income Tax Bill, 2025, brings a significant and beneficial change for Non-Resident Indians (NRIs) looking to invest in Indian companies. A proposed provision, known as the 'forex fluctuation benefit', aims to reduce the long-term capital gains (LTCG) tax burden on the sale of unlisted equity shares of Indian companies. This move is expected to make India a more attractive investment destination for the global Indian diaspora. 

How Will the New Income Tax Bill 2025 Help NRIs?

Previously, NRIs faced a unique challenge. When they invested in unlisted Indian equity shares, they converted their foreign currency (like USD) into Indian Rupees (INR). However, if the rupee depreciated against the dollar during the holding period, the INR value of their investment might have increased, even if the actual value in their home currency remained the same or even decreased. Despite no real economic gain in their home currency, they were taxed on this "artificial" gain in INR terms. 

The new 'forex fluctuation benefit' directly addresses this issue. As per calculations, if this provision is implemented in the final act, NRIs could see their LTCG tax on unlisted shares reduced by as much as 72%. This is because they will now only be taxed on their actual gains in USD (or their original foreign currency) terms, rather than on inflated INR figures caused by currency depreciation. 

How Does the Forex Fluctuation Benefit Work?

Let's consider an example: An NRI invests 1 USD when it equals ₹60. Later, they sell the share when 1 USD equals ₹80. If the share price also rose from ₹60 to ₹80, from the NRI's perspective, they made no actual gain in USD terms (1 USD invested, 1 USD returned). However, under the old system, they would have been taxed on the ₹20 increase. The new bill will allow them to compute their gains in the original foreign currency, eliminating this unfair taxation on notional gains.

Implications of the New Income Tax Bill 2025 for NRI Investors

This proposed change, outlined in Clause 72(6) of the New Income Tax Bill 2025, applies specifically to unlisted Indian equity shares and debentures. It will not apply to listed equity shares.

This method is designed to ensure capital gains reflect the true economic gain or loss in the investor's home currency. This effectively neutralises the distorting impact of currency fluctuations, preventing over-taxation and aligning the tax liability with the actual financial outcome.

This benefit will significantly reduce the effective tax burden for non-residents, especially given the considerable depreciation of the Indian rupee against major global currencies over the years. This adjustment will align tax liability more accurately with real economic gains or losses from the perspective of non-residents.

Read more on: Income Tax AY 2025-26 Guide: Claiming Pre-Construction Interest on Home Loans in ITR 

Conclusion 

The introduction of the 'forex fluctuation benefit' in the New Income Tax Bill, 2025, marks a progressive step by the Indian government. By addressing a long-standing concern of foreign investors, this provision enhances India's competitiveness as an investment destination, particularly for long-term non-resident and NRI investors in unlisted companies.  

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.