New Income Tax Act 2025: What NRIs Need to Know About April 2026 Tax Reforms

The Big Picture: What's Changing

India is replacing its entire income tax framework with the New Income Tax Act, 2025, coming into effect from April 1, 2026. This is not a minor tweak—it's a comprehensive overhaul designed to simplify how you file returns, pay taxes, and claim relief on foreign income. If you're an NRI earning money across multiple countries or investing in India, this matters to you.

The Union Budget 2026-27, presented by Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman on February 1, 2026, packages these reforms alongside practical changes to TDS (Tax Deducted at Source), return filing timelines, and presumptive taxation rules. The new Act follows guiding principles of textual clarity with no policy or rate changes—meaning your existing DTAA benefits, capital gains rates, and deduction limits stay intact, but the language becomes clearer and more NRI-friendly. Simplified forms and procedures will be notified shortly after the Act comes into force.

The government has explicitly prioritized ease of living by redesigning tax forms for ordinary citizens, rationalizing penalty and prosecution provisions, and reducing the multiplicity of proceedings that previously burdened non-resident taxpayers. This signals a shift from aggressive enforcement toward encouraging voluntary compliance.

Critical Update: New Residency Rules for Indian Citizens (NRIs)

One of the most significant changes in the New Income Tax Act 2025 affects how the tax department classifies you as a resident or non-resident. These rules apply from April 1, 2026 (FY 2026-27 onwards). For FY 2025-26 (April 1, 2025–March 31, 2026), the old Income Tax Act, 1961 continues to apply.

The 120-Day Threshold (Up from 60 Days)

If you are an Indian citizen earning ₹15 lakh or more from Indian sources in a financial year, you are now classified as Resident but Not Ordinarily Resident (RNOR) if you stay 120 days or more in India during that financial year, plus 365 days or more over the prior four years combined.

This is a major change. Previously, the threshold was 60 days. The new 120-day rule gives you more flexibility to spend time in India without triggering full resident status and the associated tax on worldwide income.

Important clarification: The ₹15 lakh threshold applies only to Indian-sourced income (such as rental income, interest from Indian bank accounts, or business profits earned in India). Foreign income is excluded from this calculation.

Deemed Residency for Tax-Free Jurisdictions

If you are an Indian citizen living in a low-tax or no-tax jurisdiction and earning ₹15 lakh or more from Indian sources, you are automatically classified as RNOR, regardless of how many days you spend in India. This rule prevents tax avoidance through residence in tax havens.

What RNOR Status Means for You

As an RNOR, you enjoy a key benefit: your foreign income is not taxed in India. Only your Indian-sourced income is subject to Indian tax. This is different from a full resident, whose worldwide income is taxable in India.

However, RNOR status requires you to:

Track your days in India carefully each financial year
Maintain clear records of Indian-sourced versus foreign-sourced income
File returns showing both categories of income
Claim DTAA relief on foreign income to avoid double taxation in your country of residence

Transitional Rules for FY 2025-26

For the financial year April 1, 2025–March 31, 2026, the old Income Tax Act, 1961 continues to apply. Your ITR filing for Assessment Year 2026-27 (covering FY 2025-26) will use the old rules and forms with minor updates. The new Act's residency rules and forms take effect from FY 2026-27 onwards.

This transitional period gives you time to understand the new rules and adjust your tax planning accordingly.

Key Benefit 1: MAT Exemption for Non-Residents on Presumptive Income

Here's one that directly puts money back in your pocket.

If you're a non-resident earning income on a presumptive basis—meaning you don't need to maintain detailed books of accounts—you will now be exempt from Minimum Alternate Tax (MAT) effective from FY 2026-27 (Assessment Year 2027-28).

What does this mean in plain terms? If you run a small shipping business, operate as a freelancer, or have other qualifying presumptive income under Sections 44B or 44BBA, you won't face the burden of MAT calculations on top of your regular income tax. This exemption applies specifically to non-residents, recognizing that you often have passive or short-term income streams in India that shouldn't trigger additional tax layers.

Key Benefit 2: Extended Return Revision Deadline

You now have more time to fix mistakes on your tax return.

Under the new rules, you can revise your income tax return until March 31 of the assessment year, instead of the old December 31 deadline. This is a three-month extension that matters if you're:

Waiting for DTAA (Double Taxation Avoidance Agreement) residency certificates from your country of residence
Clarifying which income is taxable in India versus your home country
Correcting foreign income apportionment or DTAA relief claims

There is a nominal fee for this revision, but the flexibility is invaluable for NRIs managing complex cross-border tax situations. This change applies from FY 2026-27.

Key Benefit 3: Automated TDS Relief and Lower Certificates

Tax Deducted at Source (TDS) can be a headache for NRIs. The new rules introduce rule-based automated TDS certificates for small taxpayers, including NRIs.

Instead of filing applications with the assessing officer and waiting weeks for approval, you can now access lower or nil TDS certificates through a digital, automated process. This applies to:

NRIs supplying manpower services to India (TDS rates now set at 1% or 2%, down from higher rates)
NRIs receiving professional fees or consultancy income
Other small taxpayers with predictable, low-tax income

No more bureaucratic back-and-forth. The system verifies your eligibility based on rules and issues the certificate automatically. For property transactions above ₹50 lakh, TDS under Section 194-IA is eased by dropping TAN requirements for NRIs, reducing paperwork significantly.

Key Benefit 4: Rationalized TDS and TCS Thresholds

The Union Budget 2025-26 introduced significant rationalization of TDS and TCS thresholds to reduce compliance burden for NRIs making financial transactions in India:

TDS threshold on interest earned by senior citizens doubled from ₹50,000 to ₹1 lakh
TDS threshold on rent increased from ₹2.4 lakh to ₹6 lakh per annum
TCS collection threshold increased to ₹10 lakh
TCS rate for scrap and minerals rationalized to 2%
Decriminalization of delay in TDS and TCS payments, reducing penalties for technical non-compliance

These changes directly benefit NRIs who remit funds to India, receive rental income from Indian properties, earn interest from Indian bank accounts or bonds, or engage in commodity transactions. Higher thresholds mean less upfront tax withholding and simpler compliance.

Key Benefit 5: Staggered Return Filing

The new framework allows staggered return filing for FY 2026-27 (AY 2027-28) onwards. This means you won't face a single deadline crush if you're managing returns across multiple jurisdictions or waiting for documents from abroad.

Staggered filing also helps you:

Claim rebates under new tax slabs without rushing
Coordinate with your DTAA claims (especially Articles 15 and 16 for professionals and service providers)
Avoid penalties if you're still gathering foreign income documentation

Your annual ITR filing deadline remains July 31, but the staggered window gives you flexibility within that period. Specific staggered filing timelines will be notified by the CBDT.

Capital Gains Taxation: What You Need to Know as an NRI Investor

If you invest in Indian stocks, mutual funds, ETFs, InvITs, or property, capital gains taxation is critical to your returns.

Long-Term Capital Gains (LTCG):

Shares and listed securities: 12.5% flat rate (no indexation benefit post-July 2024)
Property: 12.5% flat rate (no indexation benefit post-July 2024)
Grandfathering applies: Assets held before July 2024 use pre-2024 indexation rules if sold after July 2024
Threshold: LTCG above ₹1.25 lakh is taxable

Short-Term Capital Gains (STCG):

Taxed at your applicable slab rate (20%, 25%, 30%, or 35% depending on your total income)

DTAA Override: If your bilateral tax treaty (India-US, India-UK, India-Singapore, India-France, etc.) specifies a lower rate on capital gains, the treaty rate applies. For example, the India-US DTAA allows 10% on dividends and may offer lower rates on capital gains for residents of the US.

NRI-Specific Rules:

You must link your PAN and Aadhaar to claim DTAA benefits
File Form 10F (DTAA Residency Certificate) with your ITR to claim treaty relief
Capital losses can only be set off against capital gains within 2 years
Unlisted share losses have a 4-year carry-forward window

NPS Withdrawals: 60% Tax-Free for NRIs

If you're an NRI with a National Pension System (NPS) account, withdrawal rules have become clearer under the new Act.

Tier-I Account (Mandatory for salaried NRIs):

At maturity (age 60+): 60% of the corpus is tax-free
Remaining 40% must be used to purchase an annuity (taxable as income)
Partial withdrawals: 50% of the corpus after 10 years is tax-free

Tier-II Account (Voluntary):

Withdrawals are fully taxable as income
No mandatory annuity purchase

NRI-Specific Consideration: If you transfer NPS funds abroad (non-repatriable), TDS at 30% applies. Keep funds in India-based NPS accounts to avoid this withholding.

TDS on Mutual Funds and Investment Income

As an NRI investor in Indian mutual funds, ETFs, or bonds, TDS rules are:

Mutual fund redemptions: 10% TDS on gains above ₹1 lakh in a financial year
Interest income: 20-30% TDS depending on your residency status and treaty benefits
Dividend income: 20% TDS (or lower under DTAA)
NPS withdrawals: 30% TDS if transferred abroad; no TDS if retained in India

You can claim DTAA relief via Form 10F to reduce these rates. For example, under the India-US DTAA, dividend TDS can be reduced to 10-15%.

What About DTAA and Double Taxation Relief?

The new rules don't explicitly amend any DTAA (Double Taxation Avoidance Agreement), but they align with OECD standards for treaty benefits. The simplified forms and procedures will make it easier to claim relief under your bilateral tax treaty—whether you're covered by the India-US, India-UK, India-Singapore, India-France, or any other treaty.

Key points:

Form 10F is mandatory: To claim DTAA benefits, you must file a DTAA Residency Certificate (Form 10F) with your ITR. Your CA or tax professional can obtain this from the Indian tax authority.
Enhanced forms: Updated ITR forms (likely ITR-2 and ITR-3 for NRIs) will include clearer sections for DTAA relief claims.
Residency clarity: The new Act clarifies residency rules. If you are an Indian citizen earning ₹15 lakh or more from Indian sources and spend 120 days or more in India in a financial year (plus 365 days or more over the prior four years), you're classified as RNOR. NRIs are non-residents or RNOR, so you claim treaty benefits to avoid double taxation.
No overlapping assessments: The rationalization of penalties and prosecutions prevents you from facing the same penalty twice for the same income under different sections.

India-France DTAA Amending Protocol

India and France signed an Amending Protocol to update their Double Taxation Avoidance Agreement, which dates back to 1992. This protocol brings the treaty in line with modern international tax standards and directly affects NRIs with cross-border income between the two countries.

Key changes in the updated DTAA:

Permanent Establishment (PE) Rules Refined: Updated thresholds clarify when a business presence in one country triggers tax obligations in the other. If you work in France on short-term assignments or run a business across both countries, clearer PE rules help you understand exactly when and where your business profits get taxed.
Royalty and Fees for Technical Services (FTS) Aligned with BEPS Standards: Articles on royalties and FTS now align with OECD/G20 Base Erosion and Profit Shifting standards. This prevents treaty shopping and double non-taxation, meaning the rules close loopholes while protecting genuine taxpayers from being taxed twice.
Principal Purpose Test (PPT) Introduced: If an arrangement lacks a bona fide business purpose and exists primarily to obtain treaty benefits, those benefits can be denied. NRIs who use holding structures for Indian investments should review whether their arrangements pass the PPT.
Stronger Exchange of Information (EOI): Article 26 now enables automatic and spontaneous exchange of information between tax authorities, improving transparency and reducing opportunities for tax evasion.

These changes provide greater tax certainty and aim to boost investment flows, technology transfer, and personnel mobility between India and France.

Rationalizing Penalties and Prosecutions

One of the biggest pain points for NRIs has been facing multiple overlapping assessments and penalties on the same income. The new Act tackles this by rationalizing penalties and prosecutions, reducing the multiplicity of proceedings.

What this means: You won't face the same penalty twice for the same income under different sections. This is especially important if you have global income taxed under DTAA provisions—the new framework prevents double-jeopardy situations. Reassessments under Section 148 are now limited to 3 years (post-2022 amendments), giving you more certainty.

IndAS-ICDS Convergence: Simpler Accounting for Indian Operations

If you run a business in India or have a permanent establishment (PE), accounting complexity has been a barrier. The new rules introduce IndAS (Indian Accounting Standards) modifications via a joint committee, which will eliminate separate ICDS-based accounting from tax year 2027-28.

What this means: Your financial statements for Indian operations will align with international accounting standards, making it easier to match your books with tax filings and DTAA claims. This is a game-changer for NRIs with Indian branches or subsidiaries. You can now use the same accounting standards globally without maintaining dual books.

A Joint Committee comprising the Ministry of Corporate Affairs and the Central Board of Direct Taxes has been constituted to incorporate Income Computation and Disclosure Standards (ICDS) requirements into Indian Accounting Standards (IndAS). Separate accounting requirements based on ICDS will be discontinued from tax year 2027-28.

Undisclosed Foreign Assets: Disclosure Window Until March 31, 2026

If you have unreported foreign income or offshore assets, there's a compliance window closing on March 31, 2026. The budget references a 60% tax on undisclosed foreign assets and income:

30% tax on the asset value
30% tax on the income generated
This applies to values up to ₹1 crore
Prosecution relief is granted if you voluntarily disclose

If you have offshore accounts, investments, or income you haven't reported to the Indian tax authorities, this is your window to come clean without facing criminal prosecution. After March 31, 2026, the tax authority can pursue you under criminal provisions. This is a genuine opportunity to regularize your position before the new Act takes effect.

Budget Fiscal Context: What It Means for NRI Investments

The Union Budget 2026-27 projects:

| Metric | Revised Estimates 2025-26 | Budget Estimates 2026-27 | |---|---|---| | Non-debt receipts | ₹34 lakh crore | ₹36.5 lakh crore | | Net tax receipts | ₹26.7 lakh crore | ₹28.7 lakh crore | | Total expenditure | ₹49.6 lakh crore | ₹53.5 lakh crore | | Capital expenditure | ₹11 lakh crore | As per budget documents | | Net market borrowings | — | ₹11.7 lakh crore | | Gross borrowings | — | ₹17.2 lakh crore |

These projections support stable fiscal policy and DTAA negotiations. For NRIs, this means India's tax framework is becoming more predictable and investor-friendly. The government is investing in infrastructure and PLI (Production Linked Incentive) sectors, which creates opportunities for NRI investments in Indian listed companies without foreign income taxation risks. Stable fiscal policy also means your DTAA benefits and treaty rates are unlikely to change abruptly.

The ₹11.7 lakh crore net market borrowing figure also signals continued government spending on infrastructure and development. For NRIs invested in infrastructure-focused funds, InvITs, or companies in the capital goods and construction sectors, this sustained capex pipeline supports long-term earnings visibility for Indian listed companies.

Tax-Free Thresholds and Slab Rates for NRIs

Under the new regime (applicable to NRIs filing in India):

No tax up to ₹12 lakh (general)
No tax up to ₹12.75 lakh (salaried individuals with standard deduction)
20% tax on income ₹8 lakh to ₹12 lakh
25% tax on income ₹12 lakh to ₹16 lakh
30% tax on income ₹16 lakh to ₹20 lakh
35% tax on income above ₹20 lakh

Note: These slabs apply to your total global income if you're a full resident. As an NRI or RNOR, you're taxed only on Indian-sourced income, but you must file ITR if your Indian income exceeds ₹2.5 lakh (old regime) or ₹3 lakh (new regime), even if TDS covers your liability.

Mandatory ITR Filing for NRIs

You must file an ITR if:

Your gross Indian income exceeds the basic exemption limit (₹2.5 lakh or ₹3 lakh depending on regime)
You have capital gains from property or shares
You have foreign income that's taxable in India
You want to claim a refund of TDS paid
You have NPS withdrawals or NRI account transactions

Filing deadline: July 31 annually (extended from June 30 in prior years for certain categories).

Pre-filled ITR: The new simplified forms will include pre-filled data from TDS certificates, bank statements, and the Annual Information Statement (AIS). This reduces your filing burden significantly.

Simplified Forms and DTAA Compliance

The new rules introduce simplified forms and procedures for income disclosure, DTAA claims, and foreign asset reporting. Forms will be redesigned specifically for easy compliance of ordinary citizens, reducing paperwork for returns involving overseas income taxable in India, such as:

Salary earned abroad but taxable in India under DTAA Article 15
Business profits under DTAA Article 7 or 14
Investment income from foreign sources

Enhanced forms will facilitate double taxation relief claims, making it easier to prove your treaty benefits and avoid paying tax twice on the same income.

Rationalized Safe Harbour Rules

The definition of accountant under Safe Harbour Rules has been rationalized to support the government's vision of developing home-grown accounting and advisory firms. This makes it easier for NRIs to access affordable tax compliance services in India.

Property Transactions: Streamlined TDS and Compliance

For NRIs buying, selling, or renting property in India, the new rules streamline TDS compliance:

TDS on property sales above ₹50 lakh: No TAN requirement for NRIs, reducing paperwork
Rental income TDS: Threshold increased to ₹6 lakh per annum, reducing upfront withholding
Simplified documentation: Pre-filled forms reduce the need for manual submissions

Key Takeaways for NRIs

1. Monitor your residency status carefully from April 1, 2026. The 120-day threshold and ₹15 lakh Indian income threshold determine whether you're classified as RNOR or non-resident. 2. Use the extended March 31 revision deadline to correct DTAA claims and foreign income disclosures. 3. Leverage automated TDS certificates to reduce upfront tax withholding on professional fees, rental income, and interest. 4. Plan capital gains strategically using the 12.5% LTCG rate and DTAA treaty benefits. 5. Regularize any undisclosed foreign assets before March 31, 2026 to avoid criminal prosecution. 6. Review your holding structures if you use them for Indian investments, especially in light of the India-France DTAA's Principal Purpose Test. 7. Align your accounting standards with IndAS from 2027-28 to simplify tax compliance. 8. File your ITR on time to claim refunds of TDS and DTAA relief, even if your income is below the filing threshold.

The New Income Tax Act 2025 represents a genuine shift toward taxpayer-friendly compliance. For NRIs, it means less paperwork, clearer rules, and more time to manage complex cross-border tax situations. Stay informed through official CBDT notifications and consult your tax advisor to optimize your position under the new framework.