NRI taxation: NRIs can save up to 72% tax from forex-adjusted capital gains on unlisted shares; check how it works

The New Income Tax Bill, 2025, has introduced a key provision that could significantly reduce the tax burden for non-resident Indians (excluding Foreign Institutional Investors) on long-term capital gains (LTCG) earned from selling unlisted equity shares of Indian companies. This provision, known as the forex fluctuation benefit, allows NRIs to compute gains after factoring in exchange rate movements, thereby lowering their taxable income.

Estimates suggest that this amendment could slash the LTCG tax liability for NRIs by as much as 72%, provided the clause is enacted into law. Previously, under the Income Tax Act of 1961, NRIs often paid higher taxes because the depreciation of the Indian Rupee over time artificially inflated their rupee-denominated gains. The new rule corrects this by taxing only the actual profit in US dollars, not notional currency-driven gains.

"Under the proposed New Income Tax Bill, 2025, a significant relief has been provided for NRIs investing in shares of Indian companies. The draft legislation proposes Section 72(6), which allows for the adjustment of foreign exchange fluctuations while computing long-term capital gains (LTCG). Presently, capital gains are computed entirely in Indian Rupees (INR), without factoring in the movement of the rupee against foreign currencies during the investment period. As a result, NRIs are often taxed on notional gains that arise solely due to rupee depreciation, rather than actual economic gains in their base currency (e.g., USD)," CA (Dr.) Suresh Surana said. 

What is the forex fluctuation benefit?

When NRIs invest in unlisted Indian equity shares, they convert foreign currency (like USD) into INR. Later, when exiting the investment, they convert the proceeds back into foreign currency. Suppose an NRI bought a share when $1 equaled Rs 60, and later sold it when $1 equaled Rs 80. Even if the share price in INR rose from Rs 60 to Rs 80, the real value in dollars remains unchanged — they invested $1 and got back $1.

Under the old regime, this Rs 20 gain (caused purely by rupee depreciation) would still attract LTCG tax, despite no real profit being made. The New Income Tax Bill, 2025, resolves this by taxing gains only after adjusting for such currency fluctuations, thereby ensuring NRIs are taxed on genuine profits.

The proposed provision permits NRIs to first compute capital gains in the same foreign currency used for acquiring the shares (such as USD), and thereafter convert the net gain into INR using the exchange rate applicable on the date of sale. This method ensures that the gains reflect true economic value and not inflation arising from currency movement.

Source: CA Dr Suresh Surana

Tax calculation aligned with real gains

Currently, as per the Income Tax Act, 1961, NRIs do not enjoy this benefit when selling unlisted shares. This often results in inflated taxable gains when the INR weakens significantly during the holding period.

With the proposed change, the tax will reflect actual economic outcomes in the investor’s foreign currency, reducing the distortion caused by currency movement and preventing over-taxation due to INR depreciation.

Applicability limited to unlisted shares

This forex benefit is applicable only to capital gains earned from unlisted equity shares and debentures of Indian companies. As clarified in Clause 72(6) of the new bill: “In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in section 198) shall be computed—by converting the cost of acquisition, expenditure incurred, wholly and exclusively, in connection with such transfer and the full value of the consideration… into the same foreign currency as was initially utilised in the purchase….”

This makes the provision unavailable for listed shares like those traded on public exchanges.