Section 115AD of the Income-tax Act currently sets the tax rate for long-term capital gains from securities for Foreign Institutional Investors (FIIs) and specified funds at 10%. The Finance (No.2) Act, 2024 raised the rate for long-term gains under section 112A to 12.5%, aligning it with resident rates, while leaving gains not covered under section 112A at 10%. To further harmonize the tax treatment, the Finance Bill, 2025 proposes to amend section 115AD, raising the rate of taxation on long-term capital gains from securities not covered under section 112A to 12.5%. This amendment will take effect from April 1, 2026, and will apply for the assessment year 2026-27 and subsequent years.
Budget 2025: Rationalisation of taxation of capital gains on transfer of capital assets by non-residents
The existing provisions of Section 115AD of the Act provide that where the total income of a specified fund or Foreign Institutional Investor includes—
(a) income received in respect of securities (other than units referred to in section 115AB); or
(b) income by way of short-term or long-term capital gains arising from the transfer of such securities,
the income-tax on the income by way of long-term capital gains referred to in clause (b), if any, included in the total income, shall be calculated at the rate of ten per cent.
2. Certain amendments were carried out in the above provisions by the Finance (No.2) Act, 2024. The rate of taxation on long-term gains arising from the transfer of capital assets was amended to twelve and one-half per cent in the case of all assessees, whether resident or non-resident, with effect from 23.07.2024. It was seen that while the rates of taxation in the case of specified fund or FIIs in case of long-term gains referred to in section 112A have been brought to parity with the rates applicable for residents, the rate of income-tax calculated on the income by way of long-term capital gains not referred to in section 112A were retained at ten per cent vide Finance (No.2) Act, 2024.
3. It is proposed to amend the provisions of section 115AD to provide that income-tax on the income by way of long-term capital gains on transfer of securities (other than units referred to in section 115AB) not referred to in section 112A, if any, included in the total income, shall be calculated at the rate of twelve and one-half per cent.
4. These amendments will take effect from the 1st day of April, 2026, and shall accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.
[Clause 23]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 23 of the Bill seeks to amend section 115AD of the Income-tax Act relating to tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer.
Sub-section (1) of the said section, inter alia, provides that where the total income of a specified fund or Foreign Institutional Investor, includes income received in respect of securities (other than units referred to in section 115AB) or income by way of short-term or long-term capital gains arising from the transfer of such securities, the income-tax on the income by way of long-term capital gains on transfer of securities referred to in clause (b), but not covered under section 112A, if any, included in the total income, shall be calculated at the rate of ten per cent.
It is proposed to amend the said sub-section to provide that the income-tax on the income by way of long-term capital gains on transfer of securities referred to in clause (b), but not covered under section 112A, if any, included in the total income, shall be calculated at the rate of twelve and one-half per cent.
This amendment will take effect from 1st April, 2026, and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
23. Amendment of section 115AD.
In section 115AD of the Income-tax Act, in sub-section (1), in clause (iii), in the long line, for the words “ten per cent.”, the words “twelve and one-half per cent.” shall be substituted with effect from the 1st April, 2026.
