NRI investors to save more: New tax clause offers relief to NRIs investing in Indian startups, unlisted equity shares

Tax savings for NRIs: The Income Tax Bill, 2025, has introduced a significant tax relief for Non-Resident Indians (NRIs) investing in India’s unlisted equity markets through a new provision under Clause 72(6). This reform will allow NRIs, excluding foreign portfolio investors, to adjust the acquisition cost of unlisted shares for foreign exchange fluctuations, ensuring long-term capital gains (LTCG) are computed in the same foreign currency used during purchase.

According to the 2025 New Income Tax Bill, the benefits of forex fluctuation mentioned above apply solely to Non-Resident Indians (NRIs) for unlisted Indian equity shares such as NSE, among others, and not for listed equity shares like BSE, among others.

Clause 72(6) of the New Income Tax Bill 2025 states: “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 received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures; ….”

Previously, under the Income Tax Act, 1961, capital gains were taxed in Indian Rupees, often leading to inflated tax liabilities due to the depreciation of the rupee against foreign currencies. The new clause is a game-changer, especially for NRIs investing in high-growth sectors like technology and startups, where unlisted shares dominate the funding landscape.

The latest income tax bill of 2025 stipulates that the benefit of foreign exchange fluctuations will only apply to unlisted Indian equity shares, not to listed equity shares as outlined in Section 198.

“This move not only makes India’s unlisted equity space more financially viable for NRIs but also reinforces the government’s focus on fostering capital inflows,” said tax expert Advocate Sharanya Tripathi.

"The introduction of the forex fluctuation benefit under Clause 72(6) of the Income Tax Bill, 2025, is a pivotal reform for NRIs investing in unlisted Indian equity shares. This provision allows NRIs, excluding foreign portfolio investors, to adjust the acquisition cost of such shares for foreign exchange fluctuations, ensuring that long-term capital gains (LTCG) are computed in the foreign currency used for acquisition. Unlike the Income Tax Act, 1961, which taxed gains in Indian Rupees without accounting for currency depreciation, this reform mitigates inflated tax liabilities, making investments in India’s unlisted equity market, particularly in high-growth sectors like technology and startups, more financially viable. This measure underscores the government’s intent to incentivize NRI investments, fostering capital inflows and supporting India’s economic growth objectives," Tripathi added.

However, the reform’s success hinges on clear implementation guidelines, particularly in how exchange rates are applied. Experts stress the need for well-defined rules—possibly referencing RBI rates or authorized dealer bank rates—to avoid assessment disputes.

"Effective implementation of this provision requires clear regulatory guidelines, especially on exchange rates—preferably linked to RBI or authorized dealer rates—to avoid tax disputes. While excluding foreign portfolio investors narrows its reach, streamlined compliance can make India’s unlisted equity market a more attractive investment avenue for NRIs," Tripathi explained.

Lower LTCG tax outgo for NRIs

As per experts, if the Centre includes a favorable provision in the new tax bill for 2025, NRIs could see a significant reduction of up to 72% in their long-term capital gains tax compared to before. This substantial saving is attributed to the elimination of the previous disadvantage faced by NRIs under the old tax act of 1961, where they had to pay income tax on artificially high income due to the depreciation of the Indian Rupee. The updated rule now requires NRIs to only pay income tax on their actual gains in USD terms, thus rectifying the issue of over-taxation due to currency fluctuations.

While the exclusion of foreign portfolio investors limits its immediate scope, the provision is seen as a strong step towards positioning India as a preferred investment destination for global Indians—provided regulatory clarity and administrative ease are ensured.