Intro:
The special taxation regime for non-residents is evolving. Clause 212 of the Income Tax Bill, 2025, aims to replace Section 115C of the Income-tax Act, 1961. This blog breaks down the new rules, key differences, and what non-residents and foreign companies should expect going forward.
What is Clause 212 of the Income Tax Bill, 2025?
Clause 212 introduces a new Chapter XII-A titled “Special Provisions Relating to Non-Residents.” It aims to consolidate and modernize tax provisions applicable to:
- Non-resident individuals
- Foreign companies
- Foreign Institutional Investors (FIIs)
It replaces the old Section 115C to 115I of the 1961 Act.
Key Highlights of Clause 212
- Applies to income earned from specific assets: Shares, debentures, government securities, and units of mutual funds.
- Flat tax rate on investment income: 20% on interest, dividends, and long-term capital gains.
- Exemption from filing ITR: If only special income earned and TDS deducted.
- No deduction for expenses: Gross income taxed without allowing deductions.
Comparison Table: Clause 212 vs Section 115C
| Feature | Section 115C (Old) | Clause 212 (New) |
|---|---|---|
| Applicability | NRIs only | NRIs + foreign cos + FIIs |
| Income covered | Investment income, LTCG | Expanded to more asset classes |
| Tax rate | 20% (generally) | 20% (specified income only) |
| Deductions allowed | Not allowed | Not allowed |
| ITR Filing Exemption | If only special income earned | Same, with more clarity |
| Asset definition clarity | Vague | Sharper classification via Rule-making power |
Legal References
- Income-tax Bill, 2025 – Clause 212
- Old Income-tax Act, 1961 – Sections 115C to 115I
- Explanatory Memorandum to the Bill – Consolidation of NRI provisions
- Relevant FAQ on TaxManagementIndia
Expert Tip:
NRIs investing in Indian capital markets should reassess their strategy. The new regime makes compliance easier but removes flexibility on deductions. Consider shifting to eligible instruments where TDS is deducted correctly to avoid filing.
Why This Matters
Foreign investors and NRIs often struggled with outdated definitions and compliance ambiguity. Clause 212 simplifies this with:
- Broader scope
- Predefined rates
- Clearer filing exemptions
It’s part of India’s larger push to attract transparent foreign capital without complex litigation traps.
Final Thoughts
The shift from Section 115C to Clause 212 reflects India’s effort to simplify tax rules for global investors. At Efiletax, we help non-residents and foreign companies navigate such transitions with clarity and compliance.
Optional FAQ
Q1. Does Clause 212 apply to residents?
No, it is exclusively for non-residents and foreign entities.
Q2. Do I need to file returns under Clause 212?
Not if your only income is covered under this clause and TDS is fully deducted.
Q3. Can I claim deductions under Section 80C?
No, Clause 212 overrides regular provisions and disallows deductions.
Clause 212 of the Income Tax Bill, 2025 replaces Section 115C to simplify NRI and foreign company taxation. It offers a flat 20% tax on investment income, disallows deductions, and exempts ITR filing if TDS is deducted—ideal for low-compliance investing in India.