Section 213: special provision for computing total income of non-residents

Introduction

This computation rule uses the Section 212 definitions of non-resident Indian, investment income and long-term capital gains. It separates deductions against investment income from Chapter VIII deductions against the rest of gross total income.

Key takeaways

No deduction for expenditure or allowance

No deduction in respect of any expenditure or allowance is allowed under any provision of the Act while computing the investment income of a non-resident Indian.

Chapter VIII deduction restriction

For a non-resident Indian assessee:

• If gross total income consists only of investment income and/or long-term capital gains (as defined in section 212), no deduction is allowed under Chapter VIII.
• If gross total income includes investment income and/or such long-term capital gains among other income, the gross total income is first reduced by that income, and Chapter VIII deductions are then allowed as if the reduced amount were the gross total income.

When this provision applies

Classify the income using Section 212 before applying the restriction. Investment income in this provision means income from a qualifying foreign exchange asset; it is not a shorthand for every receipt that a taxpayer describes as an investment return.

Keep the two rules distinct. Subsection (1) denies expenditure or allowance in computing investment income. Subsection (2) separately governs Chapter VIII deductions by reference to gross total income containing the covered investment income or long-term capital gains.

Limits and procedural safeguards

The reduced gross-total-income figure is a base for testing deductions, not an automatic deduction of that amount. The particular Chapter VIII provision and other applicable restrictions must still be satisfied.

Do not extend subsection (1)’s investment-income expense rule to every unrelated receipt or treat it as a complete capital-gains computation provision. Identify the income category and the separate computation rule before adjusting any expense.

Step-by-step review

1. Classify the covered investment income and long-term capital gains under Section 212.

2. Compute investment income without the expenditure or allowance barred by subsection (1).

3. Determine whether gross total income contains only the covered categories or also other income.

4. For mixed income, remove the covered components from the Chapter VIII base and test each otherwise available deduction against the balance.

Records to prepare

Asset classification and a component-by-component gross-total-income schedule.

An expense schedule identifying amounts barred in computing investment income.

The reduced Chapter VIII base and evidence supporting each deduction actually claimed.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 213 and related provisions

Practical checklist

Glossary

Investment income

Income derived from a foreign exchange asset, as defined in section 212(b).

Gross total income

The starting amount used for the Chapter VIII restriction in section 213(2).

Reduced deduction base

Gross total income after removing the covered components for the Section 213(2)(b) Chapter VIII calculation.

Frequently asked questions