Forex Fluctuation Relief for NRIs: Why Clause 72(6) Changes the Game

If you're an NRI investing in Indian start-ups or private companies, chances are you've paid more tax than you should have. Not because you made too much money, but because of how the rupee behaves.

Until now, the problem was, that whenever you sold your unlisted Indian equity or debentures, your capital gains were calculated in Indian rupees, even if your investment was made in dollars, pounds, or dirhams. This means if the rupee depreciated during your holding period (which it often does), your gains would appear bloated in INR, even if you made no real profit in your own currency.

You were effectively taxed on currency depreciation, not actual income.

This wasn't just unfair; it actively discouraged many NRIs from investing in India’s booming unlisted space.

What Clause 72(6) Changes and Why It Matters

Enter the New Income Tax Bill, 2025 with a welcome fix. Clause 72(6) proposes a straightforward, fairer way to calculate capital gains for NRIs. Here’s what it says:

If you’re an NRI who invested in unlisted Indian shares or debentures, you can now calculate your gains in the same foreign currency you originally invested with. Once you’ve figured out your actual gain (say, in USD), you then convert only that amount into INR at the exchange rate on the sale date—and pay tax accordingly.

In short:

• No more artificial inflation due to rupee depreciation
• No more tax on notional gains
• You pay tax only on real profit

This may sound technical, but its impact is real. In many cases, this small change could reduce NRI tax liability by 25–70%, especially in long-term holdings where currency movements exaggerate gains.

Who Gets This Benefit (And Who Doesn’t)?

Before you call your CA with excitement, let’s clarify who this clause actually applies to.

This benefit is for NRIs—Non-Resident Indians—who have invested in unlisted equity shares or debentures of Indian companies. That includes people funding startups, pre-IPO ventures, or investing directly in privately held businesses.

It does not apply to:

• Listed stocks (like shares traded on NSE/BSE)
• Foreign Portfolio Investors (FPIs)
• Domestic investors (the clause is NRI-specific)

In other words, this is a surgical fix, meant specifically to encourage global Indian investors to put money into India’s real economy, not just the stock market.

Let’s Break It Down: A Simple Example of Forex Fluctuation Benefit

Let’s say you, an NRI in the U.S., invested $100,000 in a private Indian company five years ago. At the time, the exchange rate was ₹70 per USD, so your cost of acquisition was ₹70 lakhs.

This year, you sell your shares for $150,000. The exchange rate now? ₹90 per USD. So, your sale proceeds in INR = ₹1.35 crores.

Under the old system, your gain would be ₹1.35 crores – ₹70 lakhs = ₹65 lakhs. That’s the amount you’d be taxed on—even though most of that “gain” came from rupee depreciation, not real profit.

Under Clause 72(6):

• Gain = $150,000 – $100,000 = $50,000
• Converted at today’s rate (₹90) = ₹45 lakhs
• You pay LTCG tax (12.5%) on ₹45 lakhs, not ₹65 lakhs

*** Numbers listed above are assumptions only to simplify the calculation and present an idea of how it is done, like the exchange rate.

That’s a tax saving of ₹2.5 lakhs straight up.

And in some cases where the rupee has fallen more steeply, the savings can go even higher, up to 72% less tax, according to tax experts.

Why This Change Is Bigger Than It Seems

At first glance, Clause 72(6) might look like a niche technical fix. But in reality, it marks a major shift in how India treats global investors.

For years, NRIs have been among the most active backers of Indian innovation—from funding startups in tech and healthcare to supporting legacy family businesses. Yet the tax system didn’t recognize the complexity of cross-border investing. By taxing gains in INR—regardless of actual profit—it quietly penalized many NRI investors.

Now, with this change:

• India is sending a message: we value your capital, and we want to tax it fairly.
• It encourages long-term, patient capital—exactly what unlisted businesses need.
• It brings India in line with international norms, where tax is typically levied on real economic gain, not exchange rate luck.

This tax adjustment is a policy signal aimed at unlocking more NRI investment into India's fast-growing private sector.

What NRIs Should Do to Make the Most of It

While the clause is a step in the right direction, NRIs will still need to be diligent to benefit from it. Here’s what you should keep in mind:

• Track the original currency used for investment—keep documentation of the amount and exchange rate.
• Maintain records of sale proceeds, again in the same currency, and the official exchange rate on the date of sale.
• Use a trusted tax advisor who understands international investments and the latest updates in Indian tax law.
• Stay updated: While the Income Tax Bill, 2025 is expected to come into effect from April 1, 2026, the exact implementation guidelines (such as accepted exchange rates, filing norms, and eligible instruments) will be clarified in notifications from the CBDT.

This isn’t automatic, you’ll need clean paperwork and expert help to ensure you claim the benefit right.

Quick Recap: What Clause 72(6) Really Means

If you're short on time, here’s the big picture—Clause 72(6) of the New Income Tax Bill, 2025:

• Lets NRIs calculate capital gains from unlisted Indian shares and debentures in the same foreign currency they invested in.
• Prevents over-taxation caused by rupee depreciation, which often inflates notional gains in INR.
• Applies only to NRIs, not domestic investors or FPIs, and does not cover listed securities.
• Expected to kick in from April 1, 2026, once the new law is enforced.
• May lead to significant tax savings—often 25% to 70% less than under the old method.

It’s a smart move that aligns India with global tax norms and makes cross-border investing fairer for the diaspora.