Chapter XIII - Determination of Tax in Special Cases
Section 212
Section 212: definitions for the NRI investment income provisions
Section 212 defines terms used in the following provisions, including foreign exchange asset, investment income, long-term capital gains, non-resident Indian and specified asset. Apply each definition together with the operative section being considered.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
In sections 213 to 218,—
(a) “foreign exchange asset” means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange;
(b) “investment income” means any income derived from a foreign exchange asset;
(c) “long-term capital gains” means income chargeable under the head “Capital gains” relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset;
(d) “non-resident Indian” means an individual, who is not a resident and is—
(i) a citizen of India; or
(ii) a person of Indian origin;
(e) “specified asset” means any of the following assets:—
(i) shares in an Indian company; or
(ii) debentures issued by an Indian company which is not a private company as defined in the Companies Act, 2013; or
(iii) deposits with an Indian company which is not a private company as defined in the Companies Act, 2013; or
(iv) any security of the Central Government as defined in section 2(f) of the Government Securities Act, 2006; or
(v) such other assets as the Central Government may specify in this behalf by notification.
Introduction
Section 212 defines terms for the special treatment of certain non-resident Indian investment income and capital gains in the following provisions.
The definitions of foreign exchange, investment income and specified asset determine whether those benefits can apply.
Key takeaways
Definitions for the NRI provisions
Use the Section 212 definitions with the operative provision. The current Section 217 contains continuation and opt-out rules; amended Section 218 separately concerns specified banking or IFSC unit income.
Foreign exchange and assets
The defined terms determine whether an investment is a foreign exchange asset or specified asset for those rules.
Defined terms
For the purposes of sections 213 to 218, the following definitions apply:
| Term | Meaning |
|---|---|
| "Foreign exchange asset" | Any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange |
| "Investment income" | Any income derived from a foreign exchange asset |
| "Long-term capital gains" (for this Part) | Income chargeable under the head "Capital gains" relating to a capital asset that is a foreign exchange asset which is not a short-term capital asset |
| "Non-resident Indian" | An individual who is not a resident and who is either (i) a citizen of India, or (ii) a person of Indian origin |
What counts as a "specified asset"
A "specified asset" is any of the following:
- Shares in an Indian company;
- Debentures issued by an Indian company that is not a private company under the Companies Act, 2013;
- Deposits with an Indian company that is not a private company under the Companies Act, 2013;
- Any security of the Central Government as defined in section 2(f) of the Government Securities Act, 2006; or
- Any other asset the Central Government specifies by notification.
When this provision applies
Test the person and the asset separately. For this definition, the person must be a non-resident individual who is an Indian citizen or a person of Indian origin; an overseas company is not an individual merely because its owners are Indian.
Then establish both the specified-asset category and the convertible-foreign-exchange acquisition, purchase or subscription condition. An asset can fall in the list without satisfying the additional funding condition needed to be a foreign exchange asset.
Limits and procedural safeguards
The non-private-company restriction applies to the listed debentures and deposits, not to shares in an Indian company. Avoid applying one category’s issuer restriction across the entire list.
Do not assume every asset bought with foreign currency is covered. Property or another investment outside the listed categories needs an applicable notification under clause (e)(v) before that category can be relied on. Classification here does not by itself grant every subsequent tax benefit.
Step-by-step review
1. Establish the individual’s residence and citizenship or Indian-origin position for the relevant period.
2. Identify the exact specified-asset clause and the issuer’s relevant legal status.
3. Trace the funds used to acquire, purchase or subscribe to the asset.
4. Map each income or gain to the applicable following provision and its separate conditions.
Records to prepare
Residence and citizenship or Indian-origin evidence relevant to the statutory definition.
Instrument, issuer and asset-category records, including any notification relied on.
Purchase or subscription records and the convertible-foreign-exchange funding trail.
Official amended Act source
Practical checklist
Do
- Map the asset and source of purchase funds to each statutory definition.
- Keep purchase, remittance and holding records for specified assets.
- Residence and citizenship or Indian-origin evidence relevant to the statutory definition.
- Instrument, issuer and asset-category records, including any notification relied on.
- Purchase or subscription records and the convertible-foreign-exchange funding trail.
Avoid
- Apply the Chapter benefit to an asset outside the defined list.
Illustrative example
Hypothetical asset classification
Hypothetical facts (illustration only, not a real taxpayer): A non-resident Indian buys shares in a private Indian company with convertible foreign exchange and separately places a deposit with that company.
Classify the shares
Section 212(e)(i) covers shares in an Indian company without excluding private companies. The assumed foreign-exchange purchase can also meet section 212(a).
Classify the deposit
Section 212(e)(iii) excludes a deposit with a private Indian company from this specified-asset category, even if funded in convertible foreign exchange.
Outcome
- The two holdings can receive different treatment under these definitions. This example determines only classification, not the ultimate tax liability.
Glossary
- Foreign exchange asset
- A specified asset acquired, purchased or subscribed to in convertible foreign exchange; an asset's inclusion in the specified list alone is insufficient.
- Specified asset
- One of the assets listed in section 212(e), including shares in an Indian company and, subject to the company-type restriction, certain debentures or deposits.
- Funding condition
- The requirement that the specified asset was acquired, purchased or subscribed to in convertible foreign exchange.
Frequently asked questions
Which sections does Section 212 apply to?
The statutory opening refers to Sections 213–218. Read that reference with the current operative text: Section 217 now contains continuation and opt-out rules for Sections 212–216, while substituted Section 218 deals with specified banking or IFSC unit income.
Do shares in a private Indian company count as a specified asset?
Yes, shares in an Indian company fall within section 212(e)(i), including shares of a private Indian company. The non-private-company restriction applies to debentures and deposits under clauses (ii) and (iii), not shares. The asset must still satisfy the foreign-exchange acquisition condition to be a foreign exchange asset.
Does foreign-currency funding alone make any investment a foreign exchange asset?
No. The investment must also fall within the specified-asset definition.
Does an overseas company qualify as a non-resident Indian under this definition?
No. Section 212(d) defines a non-resident Indian as an individual satisfying its residence and citizenship or origin conditions.
Need help applying this provision to your situation?
Get help understanding your NRI investment income tax treatmentLast updated 10 October 2026