NRI LTCG Relief Under Section 115F Faces Clawback If Reinvested Asset Sold Same Year

(INDIA) — March 31, 2026 is the key cutoff for NRIs who sold Indian shares during FY 2025–26 and claimed long-term capital gains (LTCG) relief by reinvesting the proceeds. If you sell the reinvested asset on or before March 31, 2026, you can trigger a clawback that makes previously exempt LTCG taxable again in the same year.

This deadline matters most for NRIs who used reinvestment routes such as Section 115F, Section 54, Section 54EC, or Section 54F after selling shares. It also matters for many U.S.-based NRIs, including investor-visa families, because the India transaction often must still be reported on a U.S. return.

📅 Deadline Alert: If your original share sale happened in FY 2025–26 (April 1, 2025 to March 31, 2026), avoid selling the reinvested asset before March 31, 2026 to reduce clawback risk.

Overview: NRI LTCG relief and the clawback risk

India allows certain NRIs to reduce LTCG on share sales by reinvesting sale proceeds in eligible assets. The catch is timing.

If you sell the reinvested asset in the same financial year as the original share sale, the exemption may be recaptured. That recapture is commonly called a clawback.

The clawback generally brings back the exempted gain as taxable income for that year. The recapture is typically proportional when only part of the proceeds stayed invested.

Key provisions for NRI LTCG relief on share sales

Two provisions come up often for NRIs selling shares:

• Section 115F (foreign exchange assets)
  This generally applies when the shares qualify as “foreign exchange assets,” meaning they were bought using foreign currency. The exemption is proportional. The reinvestment window is 6 months from the date of transfer.
  Exemption formula conceptually follows:
  Exempt LTCG = Total LTCG × (Reinvested amount ÷ Net sale consideration)
• Section 54F (reinvest in a residential house)
  This can allow exemption on LTCG from shares when net sale proceeds are reinvested in a residential house. Full exemption may depend on owning no other house, and partial reinvestment usually yields proportional relief.

Both paths can reduce current-year tax, but both can also create a same-year clawback problem.

How the clawback is triggered (and calculated)

The trigger is mechanical: sell the new qualifying asset in the same financial year as the original share sale, and the earlier exemption can unwind.

For FY 2025–26 transactions, the financial year ends March 31, 2026. That date is why February and March planning matters.

When a clawback applies, the taxable amount generally follows this relationship:

Taxable (recaptured) amount = Original exempted gain × (Sale proceeds of reinvested asset ÷ Original net consideration)

If the reinvested asset is sold in a later financial year, the clawback rule described here generally does not apply. The holding period rules for the new asset still matter.

Tax rates and TDS often seen for NRIs (rates referenced in recent updates)

The following rates are commonly cited in recent India rule updates for share-related gains:

A common cash-flow issue is that TDS may be deducted on the transaction consideration. Refunds are generally claimed through the India income tax return, if eligible.

Deadline summary table (what to watch now)

U.S. reporting angle for U.S.-based NRIs and investor-visa families

If you are a U.S. tax resident under the green card test or substantial presence test, you generally report worldwide income, including India capital gains, on Form 1040. See IRS Publication 519 (U.S. Tax Guide for Aliens) at irs.gov/pub/irs-pdf/p519.pdf.

Common U.S. items that intersect with India LTCG planning include:

• Foreign tax credit claims (often Form 1116), when India tax was paid on the gain.
• Treaty positions, when relevant. See IRS Publication 901 and the international portal at irs.gov/individuals/international-taxpayers.
• FBAR and FATCA reporting, if sale proceeds sit in Indian accounts. FBAR uses the $10,000 aggregate threshold.

📅 Disaster relief note: If IRS disaster relief applies to your area, deadlines can shift. Confirm on irs.gov/newsroom.

What to do this month (practical preparation)

1. Check whether your original India share sale fell in FY 2025–26.
2. If it did, review whether selling the reinvested asset before March 31, 2026 creates a clawback.
3. For Section 115F, verify the 6-month reinvestment window from the sale date.
4. If TDS will be high relative to your expected taxable gain, ask your India tax advisor about a lower TDS certificate (Form 13) before the sale.
5. If you are also a U.S. filer for tax year 2026 (filed in 2027), gather India broker statements and tax paid certificates for Form 1040 reporting and possible foreign tax credit support.