Can NRIs Choose New Tax Regime in India?

Yes, NRIs can opt for a new tax regime while filing their ITR. The new tax regime offers relaxed tax rates with expanded slab limits. However, the new regime has removed some major tax exemptions and deductions.

In this blog, we will understand how the new tax regime impacts the taxable income of an NRI, including the benefits, tax treatment of NRI-specific income, and more.

Features Of The New Tax Regime For NRIs

The introduction of new tax regimes has simplified the tax rate and framework by providing expanded low tax rates while eliminating most tax exemptions.

For the current financial year, the slab rates under the new tax regime are as follows.

• Income up to Rs 4 lakh is completely exempted from tax.
• Income from Rs 4 lakh to Rs 8 lakh is taxed at 5%. This low entry tax rate benefits middle-income taxpayers, enabling them to keep more of their income.
• Income from Rs 8 lakh to Rs 12 lakh is taxed at 10%.
• Income from Rs 12 lakh to Rs 16 lakh is subject to 15%.
• Income between Rs 16 lakh and Rs 20 lakh is subject to a 20% tax.
• Income between Rs 20 lakh and Rs 24 lakh is taxed at 25%.
• Lastly, income of 24 lakh is taxed at a whooping 30%, the highest slab rate in the new tax regime.

Another key feature of this regime is that it applies by default when you file your return. Meaning, unless you specifically choose the old tax regime, the new tax regime is automatically applied when filing the income tax return.

Lastly, the overall design of the new tax regime is all about promoting transparency and ease of compliance. Now that the complexity of multiple tax exemptions and deductions has also been eliminated, it is easier for NRIs to quickly evaluate their tax liability and decide whether to continue with the default option or switch to the old regime.

Tax Implications On NRO and NRE Account In The New Regime

Under the new regime, any income earned through an NRO account, including rental income or other income sourced in India, will be taxable. The income from the NRO account will be taxed at the slab rate under the new tax regime.

Whereas the income in the NRE account remains tax-free under the Indian tax laws, irrespective of the tax regime the NRI taxpayer chooses. This is because, under Indian tax law, NRIs are taxed only on income earned or received in India.

Pros And Cons Of The New Tax Regime For NRIs

Every coin has two sides, and similar to the pros like expanded and low slab rate, the new tax regime also has cons.

Pros of the New Tax Regime

• Lower tax rates with expanded slabs.
• The complexity of managing multiple deductions is now eliminated.
• Streamline Compliance and easy ITR filing.

Cons of the New Tax Regime

• Major deductions, such as Section 80C and 80D, and other provisions, are not available.
• No section 87A rebate for NRIs.
• NRIs with significant investments may find it inefficient to opt for the new tax regime.

The Bottom Line

In a nutshell, yes, NRI can opt for the new tax regime. The new tax regime offers lower tax rates and a transparent tax framework. It was introduced in the financial year 2020-21 through the Finance Act 2020. Although the new tax regime has eliminated some major tax deductions and exemptions, it does offer a standard deduction of Rs 75,000.

NRIs, if you are still confused about the tax treatment, regime, tax rates, deductions, exemptions, rebates, refunds, and so on. Relax a little. Savetaxs is here to resuce your from this maze of NRI taxation. We have been helping NRIs from 90+ countries file their NRI ITRs in India, ensuring maximum refunds and minimum stress.

Our experts at Savetaxs provide end-to-end assistance throughout the tax filing process. Connect with us as we serve our clients 24/7 across all time zones.