NRI Tax in India: Complete Guide to the New Income Tax Act 2025, Residency Rules, and Compliance for FY 2026-27

The Big Picture: What's Changing and What's Not

India's central government introduced the Income Tax Bill 2025 to replace the Income Tax Act of 1961, which has governed Indian taxation for over six decades. The new Income Tax Act, 2025 takes effect from April 1, 2026, as confirmed by Finance Minister Nirmala Sitharaman in the Union Budget 2026-27 (presented February 1, 2026). This represents a fundamental legislative overhaul that consolidates 47 chapters into 23 and reduces 819 sections to 536 clauses.

The Income Tax Rules, 2026 were officially notified on March 20, 2026 via G.S.R. 198(E) and are available on the [Income Tax India portal](https://www.incometaxindia.gov.in/documents/d/guest/en-notified-it-rules-2026-20-03-2026-pdf) and the e Gazette. The Department simultaneously launched the PRARAMBH outreach campaign (Policy Reform and Responsible Action for Mission Viksit Bharat) to help taxpayers transition smoothly, featuring simplified forms, FAQs, multilingual resources, and an AI powered chatbot called Kar Saathi.

Here's what matters most if you're an NRI: your core tax principle remains unchanged — you continue to be taxed only on India-sourced income, not your global income (unless you cross the 182-day threshold and become a full resident). However, the rules determining when you become resident have been tightened, especially for high-income earners. You need to get familiar with the new residency thresholds, forms, slab rates, and compliance tools before FY 2026-27 begins.

---

Understanding Your Residential Status: The Updated Rules

Your tax life in India hinges on one question: Are you a resident or non-resident for tax purposes? The Income Tax Department uses clear rules under Section 6 of the Income Tax Act, 1961 (and equivalent provisions in the new Act) to determine this. These rules have been refined for FY 2026-27 to capture high-income NRIs more effectively.

You are a Resident if you meet either of these conditions:

1. The 182-day rule: You are physically present in India for 182 days or more during the previous year (April 1 to March 31). 2. The 60+365 rule: You are in India for 60 days or more in the previous year AND 365 days or more across the preceding four years combined.

If you do not meet either condition, you are a Non-Resident Individual (NRI) for tax purposes.

Special Rules for Indian Citizens and Persons of Indian Origin (PIO)

If you are an Indian citizen or PIO visiting India, stricter thresholds apply:

If your Indian-sourced income exceeds ₹15 lakh in the previous year (excluding foreign income), the 60-day rule does not apply to you. Instead, you must be in India for 182 days or more to be classified as resident.
If you are not liable to tax in any other country (under Section 6(1A)), the same 182-day threshold applies.
Indian citizens working abroad or crew members of Indian ships are now exempt from the 60-day rule entirely under the new bill.

This means even if you spend fewer than 182 days in India, you may still be classified as a resident if your Indian income is high or you have no tax residency elsewhere. Plan your visits carefully if you want to preserve NRI status.

The 120-Day Rule for High-Income NRIs (Updated Under Income Tax Act 2025)

One of the most significant changes in the new bill targets NRIs and PIOs earning ₹15 lakh or more from Indian sources. You will be classified as RNOR (Resident but Not Ordinarily Resident) if you:

Stay in India for 120 days or more in a tax year (updated from the previous 60-day threshold), AND
Have stayed in India for 365 days or more over the past four years

As an RNOR, only your Indian income faces taxation. Your global income remains exempt. However, if you cross the 182-day mark, you become a full resident, and India can tax your worldwide income. So the RNOR classification acts as a middle ground that protects your foreign earnings from Indian taxation. This 120-day threshold is stricter than before, meaning high-income NRIs now need to be more careful about their days spent in India.

Understanding Not Ordinarily Resident (NOR) Status

You qualify for NOR status if you meet any of these conditions:

You held NRI status for 9 out of the last 10 years
You spent 729 days or fewer in India over the last 7 years
You are an Indian citizen or PIO with Indian income exceeding ₹15 lakh and have stayed in India for 120 to 182 days in a financial year

NOR status means only your Indian income faces taxation while your global income remains exempt. This gives returning NRIs a transition period before full residency kicks in.

The Deemed Residency Rule: Indians in Tax-Free Countries (Strengthened)

The new bill introduces a deemed residency rule that applies to Indian citizens who:

Earn ₹15 lakh or more from Indian sources (excluding foreign income), AND
Do not pay tax in any other country

This rule now catches Indian citizens living in tax-free jurisdictions like the UAE, Saudi Arabia, or Monaco who have significant earnings from India. Even if you never set foot in India (zero days), you can still be classified as a tax resident under this rule, making your global income taxable in India. This is a significant change, so if you live in a tax-free country and earn substantial income from India, consult a tax professional immediately.

---

What Income Gets Taxed as an NRI

Here is the golden rule: As an NRI, you are taxed only on India-sourced income. Foreign income is exempt.

India-sourced income includes:

Rental income from Indian property (subject to 30% standard deduction)
Capital gains from selling Indian real estate, stocks, or other Indian assets
Interest on NRO (Non-Resident Ordinary) bank accounts
Dividends from Indian companies
Business income derived from operations in India
Salary earned in India (if you work there)

Foreign income—such as salary from your employer abroad, rental income from overseas property, or capital gains from foreign assets—remains completely outside India's tax net.

NRE vs NRO Accounts: Tax Treatment

NRE (Non-Resident External) Accounts

Interest earned is fully exempt from Indian tax
This exemption holds as long as you maintain your NRI status
You do not need to report this interest in your ITR
FCNR (Foreign Currency Non-Resident) accounts receive the same tax-free treatment

NRO (Non-Resident Ordinary) Accounts

Interest earned is fully taxable in India
Banks deduct TDS (Tax Deducted at Source) at 30% plus surcharge and cess (approximately 31.2% effective rate)
You can reduce this TDS to 10-15% by submitting Form 10F (Tax Residency Certificate from your country of residence) and Form 15G/15H (if applicable)
If your total Indian income exceeds the basic exemption limit, you must file an ITR
You can claim a refund of excess TDS by filing your ITR

---

Tax Deductions and Exemptions Available to NRIs

You are eligible for several deductions on your India-sourced income:

Section 80C: Up to ₹1.5 lakhs for investments in life insurance, EPF, NSC, or ELSS mutual funds
Section 80D: Health insurance premiums (up to ₹25,000 for self and spouse; ₹50,000 if you are 60 years or older)
Section 80E: Interest on education loans
Section 80G: Donations to charitable organizations
Standard deduction on rental income: 30% of gross rental income (no need to claim actual expenses)

Capital Gains Exemptions

If you sell Indian property or other assets, you may claim exemptions under:

Section 54: Exemption on long-term capital gains from residential property if you reinvest in another property within specified timelines
Section 54F: Exemption on long-term capital gains from any asset if you buy residential property
Section 54EC: Exemption on long-term capital gains if you invest in specified bonds (₹50 lakhs limit)

Capital Gains Taxation Rates (Updated for FY 2026-27)

Capital gains taxation varies by asset type and holding period:

| Asset Type | Holding Period | Tax Rate | Notes | |---|---|---|---| | Equity Shares/Mutual Funds | Short-term (<2 years) | 15% | DTAA may vary | | Equity Shares/Mutual Funds | Long-term (>2 years) | 10% (on gains >₹1 lakh) | DTAA may vary | | Property | Short-term (<2 years) | 30% | Varies with DTAA | | Property | Long-term (>2 years) | 20% with indexation benefit | Exemptions under Sections 54/54F/54EC available |

---

Filing Your Income Tax Return (ITR)

You must file an ITR if your total Indian income exceeds the basic exemption limit.

Basic Exemption Limits for FY 2025-26 and FY 2026-27

Old Tax Regime

Exemption limit: ₹2.5 lakh (FY 2025-26 and earlier)
You can claim deductions under sections like 80C (investments), 80D (health insurance), and other exemptions
Works well if you have significant deductible expenses or investments in India

New Tax Regime

Exemption limit: ₹3 lakh (for FY 2024-25)
Exemption limit: ₹12 lakh (for FY 2025-26 onward under Budget 2026)
Most traditional deductions and exemptions are not available
Simpler structure that suits NRIs with straightforward income like rental income, NRO interest, or capital gains
Tax-free income up to ₹12 lakh with slabs up to 30% above ₹24 lakh

The new tax regime now offers significantly higher exemptions under Budget 2026, making it increasingly attractive for many NRIs.

Which ITR Form Should You Use?

As an NRI, you cannot use ITR-1 (Sahaj). You must file either:

ITR-2: If you have capital gains, foreign assets, or income from multiple sources
ITR-3: If you are self-employed or have business/professional income

Make sure you select "Non-Resident" as your residential status during e-filing on the Income Tax portal. Misclassification can trigger notices and lead to global income taxation.

ITR Filing Deadlines

For FY 2024-25 (AY 2025-26)

Standard deadline: July 31, 2025
Extended deadline (due to technical glitches): September 16, 2025 (per CBDT Circular No. 06/2025)
With statutory audit: October 31, 2025
With transfer pricing or international reporting: November 30, 2025

For FY 2025-26 (AY 2026-27) onward

Check the official Income Tax India portal for updated deadlines as the new Act takes effect

What Happens If You Miss the Deadline?

Missing the deadline does not mean you cannot file at all, but it does come with consequences.

Belated Return You can file a belated return up to December 31 of the assessment year. This keeps you compliant, but you lose certain benefits.

Updated Return After December 31, you still have the option to file an updated return until March 31 of the fourth year from the end of the relevant assessment year. However, updated returns come with additional tax liabilities, and you cannot use them to declare losses or increase refunds.

Revised Return (New Under Income Tax Act 2025) Under the new framework, you can now file revised returns until March 31 of the assessment year (previously December 31) with a nominal fee. This is a meaningful change for NRIs who often discover DTAA-related errors or foreign income disclosures after the earlier deadline. The extra three months give you breathing room to correct mistakes, claim missed foreign tax credits, or update foreign asset disclosures without facing penalties.

Penalties and Interest

Late filing triggers two types of statutory costs:

| Provision | What It Means | |---|---| | Section 234A | Interest at 1% per month on your outstanding tax liability, calculated from the due date until you actually file | | Section 234F | A late filing fee of up to ₹5,000. If your total income does not exceed ₹5 lakh, the penalty caps at ₹1,000 |

Beyond these financial penalties, late filing also means:

You cannot carry forward certain losses (especially capital losses), which could hurt you in future tax years
Refund processing gets delayed
Repeated non-filing may invite scrutiny from tax authorities

---

Tax Deducted at Source (TDS) and Refunds

As an NRI, TDS is often deducted at higher rates on India-sourced income. However, you can reduce these rates by claiming DTAA (Double Taxation Avoidance Agreement) benefits.

Default TDS Rates on NRI Income (Without DTAA)

| Income Type | TDS Rate | Notes | |---|---|---| | Dividends (Indian stocks) | 20% + surcharge + cess | Approximately 31.2% effective rate | | NRO FD/Savings Interest | 30% + surcharge + cess | Approximately 31.2% effective rate; NRE interest is tax-free | | Property STCG (<2 years) | 30% | Varies with DTAA | | Property LTCG (>2 years) | 20% with indexation | Remains 20% even with DTAA | | Rental Income | 30% | Standard 30% deduction claimable | | Salary (India work) | Slab rates | As per income tax slabs |

Reducing TDS Using DTAA Benefits

India has Double Taxation Avoidance Agreements with over 100 countries. If your country of residence has a DTAA with India, you can reduce TDS rates significantly.

How to Claim DTAA Relief:

1. Obtain a Tax Residency Certificate (TRC) from your country of residence proving you are a tax resident there 2. Submit Form 10F to the Indian bank or payer along with your TRC 3. Provide your PAN (Permanent Account Number) 4. The bank will then deduct TDS at the DTAA rate (typically 10-15%) instead of the default 30%

Important: NRIs cannot use Form 15G or 15H (these are for residents only). You must use Form 10F with your TRC.

TCS (Tax Collected at Source) Updates Under Budget 2026

Budget 2026 has simplified TCS rules for NRIs:

LRS (Liberalized Remittance Scheme) remittances (education, medical, travel): TCS reduced to 2% on amounts exceeding ₹15 lakh (previously 5%)
Overseas tour packages: Flat 2% TCS (simplified from variable rates)
No TAN required for NRIs selling property (streamlined process)
PAN-based TDS for property purchases from NRIs (automated system)

Claiming TDS Refunds

If excess TDS has been deducted on your India-sourced income, you can claim a refund by filing your ITR. The refund process works as follows:

1. File your ITR showing your actual tax liability 2. If TDS deducted exceeds your tax liability, the difference is refunded 3. Refunds are typically processed within 90 days of ITR filing (though delays can occur) 4. Ensure your bank account details and PAN are correctly linked to speed up refunds

---

Higher NRI Investment Limits and Other Budget 2026 Benefits

Budget 2026 has introduced several investor-friendly changes for NRIs:

Increased Investment Limits in Listed Companies

NRI investment limit in listed Indian companies increased to 10% per NRI (from previous limits)
This allows NRIs greater flexibility in building equity portfolios in India
Applies to direct shareholding in listed companies

Voluntary Disclosure Window for Foreign Assets

NRIs can now voluntarily disclose foreign assets and income without facing penalties
This window is part of the government's push for transparency and compliance
Consult a tax advisor to understand eligibility and filing requirements

Simplified Compliance for NRIs

Automated lower TDS certificates reduce manual processing
Clearer DTAA processes with streamlined Form 10F submission
Simplified ITR forms via the PRARAMBH campaign
AI-powered Kar Saathi chatbot available for tax queries

---

Key Compliance Checklist for NRIs

Before the new financial year begins, ensure you have:

1. Determined your residential status based on days spent in India and income thresholds 2. Obtained a Tax Residency Certificate (TRC) from your country of residence if you plan to claim DTAA benefits 3. Submitted Form 10F to your Indian bank or income payers to reduce TDS rates 4. Tracked your days in India carefully, especially if you are close to the 120-day or 182-day thresholds 5. Reviewed your income sources to identify which are India-sourced and taxable 6. Chosen your tax regime (old or new) based on your deductions and income structure 7. Prepared documentation for capital gains, rental income, and foreign assets 8. Set a calendar reminder for ITR filing deadlines (September 16, 2025 for FY 2024-25) 9. Consulted a tax professional if you have complex income sources or DTAA questions

---

Important Notes

These rules apply for Assessment Year 2026-27 (covering FY 2025-26 from April 1, 2025 to March 31, 2026) and onward under the new Income Tax Act 2025
Your residency status is determined separately for each financial year. You may be resident in one year and non-resident in another
If you are unsure whether a particular day counts toward your residency test, maintain a travel diary with entry and exit dates
The Income Tax Department may ask for proof during an audit
Tax treaties and foreign tax credits may apply if you are resident in another country — consult a tax advisor for personalized guidance
All figures, rates, and thresholds mentioned are as per the latest notifications and Budget 2026; verify with the official Income Tax India portal (incometax.gov.in) for any updates