Skip to content

Direct Tax Laws and International Taxation · Assessment of Individuals including Non-residents

Special Provision for Computing Total Income of Non-residents (Section 213)

Updated 11 October 2026 · Fact-checked

Section 213 of the Income-tax Act, 2025 restricts deductions for a non-resident Indian. No expenditure or allowance is allowed against investment income. Chapter VIII deductions are barred if gross total income is only investment income or long-term capital gains. Otherwise, strip that income out first and compute Chapter VIII deductions on the rest.

Understand Special Provisions for Non-residents under Section 213

Section 213 is a special computation rule for one class of assessee: a non-resident Indian (NRI). It applies mainly to two kinds of income: investment income and long-term capital gains. The section is about computation. It does not decide residential status. Settle that first.

The first rule is in sub-section (1). In computing the investment income of an NRI, no deduction for any expenditure or allowance is allowed under any provision of the Act. So the investment income is taxed on the gross amount. Interest paid on a loan taken to make the investment, for example, cannot be set off against it.

The second rule is in sub-section (2) and deals with Chapter VIII deductions. Chapter VIII is the chapter of deductions from gross total income. There are two situations.

  • If the gross total income of the NRI consists only of investment income, or long-term capital gains, or both, no Chapter VIII deduction is allowed at all.
  • If the gross total income includes such income along with other income, you reduce the gross total income by that investment income or long-term capital gain. Then you allow Chapter VIII deductions as if that reduced figure were the gross total income.

The effect is simple. Chapter VIII deductions can be claimed only against the other income of the NRI, such as salary or business income. They cannot be claimed against investment income or long-term capital gains. Section 122 adds the general limit: total Chapter VIII deductions cannot exceed the gross total income. Under sub-section (2) of section 213 the working figure for the cap is the reduced gross total income.

The text you are given does not define "investment income" or "non-resident Indian" for this section. Use the definitions in your study material. Do not assume a meaning that the text does not give.

Key rules to remember

Investment income of an NRI
Investment income = gross receipts, with no deduction for any expenditure or allowance
Section 213(1). Applies to the investment income itself, whatever the provision under which a deduction is claimed.
Only investment income / LTCG
GTI consists only of investment income and/or LTCG ⇒ Chapter VIII deduction = Nil
Section 213(2)(a). Both parts must be checked: if any other income exists, this rule does not apply.
Mixed income
Reduced GTI = GTI − (investment income + LTCG); Chapter VIII deduction is allowed on Reduced GTI only
Section 213(2)(b). Deductions are limited to the reduced figure under the general cap in section 122(2).
Total income of the NRI
Total income = GTI − permitted Chapter VIII deductions
GTI means total income computed before Chapter VIII deductions (section 122(10)).

How to solve Special Provisions for Non-residents under Section 213 questions

Use this order for any question on a non-resident Indian with mixed income and Chapter VIII claims.

  1. 1Confirm the assessee is an NRI. Check residential status first. If the person is not an NRI, section 213 does not apply.
  2. 2List each income and tag it: investment income, long-term capital gain, or other income such as salary or business income.
  3. 3Compute investment income with no deduction for expenses or allowances. Take the gross figure.
  4. 4Compute the other heads normally, and add all heads to get gross total income.
  5. 5Test the composition. If GTI is only investment income and/or LTCG, Chapter VIII deduction is nil.
  6. 6If other income exists, deduct investment income and LTCG from GTI to get reduced GTI.
  7. 7Allow eligible Chapter VIII deductions up to the reduced GTI, per section 122(2). Check each deduction's own conditions.
  8. 8Total income = GTI − the deduction allowed. State the answer with a one-line reason.

Quickest way: Split and Cap method

When to use it: Use it in MCQs and short numerical questions when income figures are given and you need the total income or the deduction allowed.

  1. Write two buckets: A = investment income + LTCG; B = everything else.
  2. Never deduct expenses from bucket A.
  3. Deduction cap = B (if B is nil, deduction is nil).
  4. Allowed deduction = lower of the eligible deduction and B.
  5. Total income = A + B − allowed deduction.

Common mistakes in Special Provisions for Non-residents under Section 213

  • Deducting interest on borrowing from investment income of an NRI.

    Students apply the normal rule for income from other sources, where expenses are allowed.

    Fix: Section 213(1) bars any expenditure or allowance against investment income. Take the gross amount.

  • Allowing Chapter VIII deduction against LTCG or investment income.

    Students apply the cap of total GTI without removing those incomes.

    Fix: Subtract investment income and LTCG from GTI first. Deductions are limited to the reduced figure.

  • Denying all Chapter VIII deductions whenever the NRI has investment income.

    The nil-deduction rule is remembered without its condition.

    Fix: Nil applies only when GTI consists solely of investment income and/or LTCG. With other income, claim against that other income.

  • Applying section 213 to a resident or to a non-resident who is not an NRI.

    The heading says non-residents, so students apply it to every non-resident.

    Fix: The text of sub-sections (1) and (2) refers to a non-resident Indian. Check the status and the definition in your study material.

  • Confusing section 213 with section 61 presumptive taxation.

    Both are special provisions for non-residents.

    Fix: Section 61 computes profits of specified businesses (ships, aircraft and so on) at a percentage of receipts. Section 213 restricts deductions for NRIs. Do not mix the two.

Worked examples

Example 1

Mr. Arjun Menon, an NRI, has for the tax year 2026-27: salary income computed at ₹6,00,000 and interest on investments of ₹2,00,000 (he paid ₹30,000 interest on a loan taken to make the investments). He has an eligible Chapter VIII deduction of ₹1,50,000. Compute his total income, assuming the deduction conditions are met.

Show the solution
  1. Investment income: no expenditure is allowed, so the ₹30,000 interest paid is ignored. Investment income = ₹2,00,000.
  2. Gross total income = ₹6,00,000 + ₹2,00,000 = ₹8,00,000.
  3. GTI includes investment income along with salary, so section 213(2)(b) applies.
  4. Reduced GTI = ₹8,00,000 − ₹2,00,000 = ₹6,00,000.
  5. Eligible deduction ₹1,50,000 is within the reduced GTI of ₹6,00,000, so ₹1,50,000 is allowed.
  6. Total income = ₹8,00,000 − ₹1,50,000 = ₹6,50,000.

Answer: Total income = ₹6,50,000. The loan interest of ₹30,000 is not deducted, and the Chapter VIII deduction of ₹1,50,000 is allowed against salary only.

Example 2

Ms. Kavya Rao, an NRI, has for the tax year 2026-27 only interest on investments of ₹3,50,000 and long-term capital gains of ₹4,00,000. She claims a Chapter VIII deduction of ₹1,00,000. State the deduction allowed and her total income.

Show the solution
  1. Gross total income = ₹3,50,000 + ₹4,00,000 = ₹7,50,000.
  2. GTI consists only of investment income and long-term capital gains.
  3. Under section 213(2)(a), no deduction under Chapter VIII is allowed.
  4. Deduction allowed = Nil.
  5. Total income = ₹7,50,000.

Answer: Deduction allowed is nil. Total income = ₹7,50,000.

Exam tips

  • Always start by confirming NRI status. A question may hide a resident in the facts.
  • In numerical questions, write the split of income into two buckets before any deduction. It earns method marks even if the final figure is wrong.
  • Do not subtract expenses from investment income. State section 213(1) in one line so the examiner sees the reason.
  • In MCQs, test whether other income exists. Only investment income and LTCG means nil deduction, while mixed income means reduced GTI.
  • Quote the section number only as section 213 with the sub-section, as in the text. Do not guess other section numbers.

Practice questions from Assessment of Individuals including Non-residents

Special Provisions for Non-residents under Section 213 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Special Provisions for Non-residents under Section 213: frequently asked questions

What does section 213 of the Income-tax Act, 2025 provide?

It is a special provision for computing the total income of non-residents. For a non-resident Indian, no expenditure or allowance is allowed against investment income. It also limits Chapter VIII deductions so they cannot be claimed against investment income or long-term capital gains.

Can an NRI claim Chapter VIII deductions?

Yes, but only against income other than investment income and long-term capital gains. If the gross total income is only those two types, no deduction is allowed. If there is other income, deductions are allowed on the reduced gross total income.

Is expenditure allowed against investment income of an NRI?

No. Section 213(1) says no deduction for any expenditure or allowance is allowed under any provision of the Act when computing the investment income of a non-resident Indian. The gross income is taken.

How is section 213 different from section 61?

Section 213 restricts deductions for NRIs. Section 61 computes profits of specified businesses of non-residents, such as ship or aircraft operation, as a percentage of specified receipts. They deal with different problems.