In a significant development for global Indian investors, the 2025 Income Tax Bill has introduced a transformative provision that promises substantial NRI tax relief for unlisted equity investment in India. This move is seen as a strategic push to attract overseas capital into the country’s burgeoning startup and private equity ecosystem.
In this Article
The Big Reform: Clause 72(6)
At the heart of the reform is Clause 72(6), which now allows Non-Resident Indians (NRIs)—excluding Foreign Portfolio Investors (FPIs)—to calculate long-term capital gains (LTCG) on unlisted Indian equity shares in the same foreign currency they used to acquire those assets. This means that NRIs can now adjust for foreign exchange fluctuations, ensuring their taxable gains are a fair reflection of actual returns, rather than inflated figures caused by rupee depreciation.
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Why This Matters: From INR to Real Gains
Previously, capital gains for NRIs were computed in Indian Rupees, often overstating taxable income due to unfavorable exchange rate shifts. Under the 1961 Income Tax Act, this meant NRIs paid tax on “paper gains” simply because the Indian rupee depreciated over time. With the 2025 update, this outdated system has been replaced by a currency-aligned computation model, allowing acquisition cost, sale value, and related expenses to be expressed in the same foreign currency—most commonly USD.
Tax experts estimate that this change could reduce LTCG tax liabilities by up to 72% for qualifying investors. That’s a powerful incentive, especially for NRIs funding India’s fast-growing startup scene where unlisted equity is the norm.
Scope of Applicability
It’s important to note that this tax relief is exclusively applicable to unlisted Indian equity shares—such as those in early-stage startups, private ventures, and pre-IPO companies. Listed equity shares (such as those traded on BSE and NSE) are excluded under Section 198 of the new bill.
This targeted relief is clearly designed to boost direct capital inflows into India’s private equity ecosystem, rather than stock market speculation.
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Expert Insight: A Strategic Move for India’s Growth
According to Advocate Sharanya Tripathi, a tax policy expert, this reform is a pivotal step in aligning India’s tax framework with global investor expectations.
“The forex-adjusted LTCG provision under Clause 72(6) corrects a long-standing disadvantage for NRIs and significantly improves the financial viability of investing in India’s unlisted equity markets. It’s a direct invitation for global Indians to participate in India’s innovation and growth story.”
Tripathi also emphasized the need for clear implementation guidelines, particularly regarding the source of exchange rates—suggesting RBI benchmarks or authorized dealer bank rates to avoid compliance conflicts.
Investor Benefits at a Glance
✅ Capital gains now computed in original foreign currency
✅ Up to 72% lower LTCG tax for qualifying NRIs
✅ No more over-taxation due to rupee depreciation
✅ Encourages NRI participation in Indian startups and private ventures
✅ Reinforces India’s positioning as an investment-friendly economy
Challenges & Compliance Needs
While this provision is a welcome relief, its success hinges on streamlined implementation. Tax consultants warn that without clear rules on exchange rate references, the provision may lead to confusion or litigation. Also, the exclusion of FPIs, though intentional, limits its scope to long-term, strategic investors rather than short-term market participants.
A Bold, Investor-First Reform
The NRI tax relief for unlisted equity investment introduced in the 2025 Income Tax Bill represents a forward-looking policy move that aligns with India’s broader goals of economic growth and startup empowerment. By correcting currency-related tax inefficiencies, it makes investing in Indian startups a smarter and more profitable option for NRIs.
With effect from this financial year, the clause is poised to reshape the NRI investment landscape—provided that regulatory clarity and execution follow.
