Income Tax New Rules for NRIs in India

NRIs are liable to pay tax only on the income received or earned in India, including rent, capital gains, salary, or NRO interest. Considering this, staying updated with the Income Tax New Rules for NRIs post-budget 2026 is vital. It helps in staying compliant and saving taxes. For Assessment Year 2026-27 (Financial Year 2025-26), some changes have been made by the Indian government. They focus on simplifying slabs, refining capital gains rules, and increasing standard deductions. 

Confused? To help you out, this blog talks about the new income tax rules for NRIs in India, simplifying your tax filing. So read on and clear all your doubts. 

Who Is an NRI?

A non-resident Indian (NRI) is an individual who is a citizen of India or a person of Indian origin but not a resident Indian. Hence, to determine whether a person is an NRI or not, under Section 6, his/her residential status is determined. According to Section 6 of the Income Tax Act, 1961, a person is said to be an NRI or is deemed to be resident in India in any previous year if he/she satisfies any of the following conditions:

1. If you have stayed in India for 182 or more days during the previous year: or
2. If you have stayed in India for 60 or more days during the previous year and 365 days or more during four years immediately preceding the previous year. 

However, in respect of an Indian citizen or PIO who visited the country during the year, the timeline of 60 days as stated in (2) is substituted with 182 days. Considering this similar concession is also provided to citizens of India who leave the country in any previous year for job purposes or as crew members. 

The Finance Act, 2020, w.e.f. AY 2021-22 has amended the above exception to provide that 60 days period, as stated in (2) above, for Indian citizens and PIOs should be substituted with 120 days. However, it should only be applicable to individuals whose total income, other than income generated from foreign sources, is more than INR 15,00,000 during the previous year. Here, income from foreign sources means income that arises or accrues outside India. It does not include the income earned from a business controlled or a profession set up in India. 

*Note: Considering this, new section 6(1A) of the Income Tax Act, 1961, was introduced by the Finance Act 2020. According to this new provision, an Indian citizen shall be deemed to be an Indian resident if his/her gross income (excluding foreign income) is more than INR 15,00,000 during the previous year. 

However, such a person shall be deemed to be a resident Indian only when he/she is not liable to pay tax in any country or jurisdiction by reason of his/her residence or domicile or any other similar nature. 

Therefore, from AY 2021-22, an Indian citizen having gross income more than INR 15,00,00 other than foreign sources is deemed to be an Indian resident if he/she is not liable to pay tax in any foreign country. Additionally, a person will also be considered to have an Indian origin if he/she or either his/her parents or any of his/her grandparents were born in undivided India. 

So, as mentioned above, an NRI is an individual who is not resident in India. Moving ahead, let's know the latest income tax rules for NRIs in India. 

Latest Income Tax Rules for NRIs

In India, resident Indians and NRIs both have different taxation rules. Considering this, here are some essentials of the income tax rules for NRIs:

• The income slab rate of NRIs is based on their income in India. It does not depend on the gender, age, or other specifications of the individual.
• Nominal tax deductions are not applicable except under specific conditions on the income from the investment plan.
• All incomes of NRIs are taxed irrespective of any threshold value for TDS.
• If the income is subject to clauses under section 115G, NRIs generally do not need to file taxes on their income. 

However, the income slab rate remains the same for both Indian residents and NRIs in India. The table below showcases the income slab and tax rate as per the new tax regime for NRIs and resident Indians in India.

This was all about the latest income tax rules for NRIs in India. Moving further, let's know the tax exemptions for NRIs in India. 

Exemptions for NRIs

Under the new tax rule for NRIs in India, there are some tax exemptions also available. These are as follows:

• The interest earned by an NRI on an NRE or FCNR account is tax-free.
• Additionally, interest earned on notified savings certificates and government bonds is tax-exempt. 
• Gifts from relatives.
• Apart from this, subject to the following conditions, capital gain tax exemptions are also available if:
  • According to the Capital Gains Account Scheme of 1988, if a house property is held for more than 2 years is sold, and the capital gain from it is used to buy another property or deposited in a PSU or other banks. 
  • Any property other than a house property is sold, and capital gains from it are incurred, a tax exemption can be available in the purchase or construction of a new house in proportion to the investment of the net consideration. 
  • Long-term capital gains earned from the immovable property invested in 54EC bonds, such as the Rural Electrification Corporation and the National Highway Authority of India. You can redeem these bonds only after five years. Tax exemption is available up to a maximum amount of INR 50,00,000. 

This was all about tax exemptions available for NRIs in India. Moving ahead, let's know about the tax deductions available for NRIs in India. 

Deductions for NRIs

There are various sections available for NRIs to claim tax deductions in the Income Tax Act. These are as follows:

Deductions Under Section 80C

Deductions under section 80C of the Income Tax Act, 1961 include:

• Tax deduction available of up to INR 1,50,000 on NRI life insurance premium paid for self, spouse, or child.
• Deduction available on the principal payment on a loan taken for buying a house.
• Tax deduction available on the tuition fee paid to an educational institution in India for full-time study of a maximum of two children.
• Deduction available on premium paid for investment in ULIPs.
• Tax deduction available for paid interest on a housing loan for a vacant house. 

Deductions Under Section 80D

Under section 80D, a tax deduction is available on health insurance premiums. It includes health insurance premiums for immediate family and dependents, and preventive health check-ups according to limits. 

Deductions Under Section 80E

Tax deduction under section 80E includes interest paid for the education loan taken for higher studies for self, spouse, children, or dependent student. This tax deduction is available for a maximum period of 8 years or till interest is paid, whichever ends first. 

Deductions Under Section 80G

Section 80G of the Income Tax Act, 1961 allow NRIs to deduct donations made to approved, registered charitable institutions from their taxable income. Considering this, donations made to approved organizations like the National Defense Fund provide 50% to 100% tax deduction with or without limitations. 

Deductions Under Section 80TTA

Under section 80TTA, on the interest earned from the NRO savings account, NRIs can claim up to INR 10,000 tax deduction per financial year. This tax deduction applies to interest from a savings account held with banks, cooperative societies, or post offices. However, it does not apply to NRE accounts, as they are already tax-exempt. 

These are some of the tax deductions available for NRIs in India. Moving further, let's know about how you can avoid double taxation as an NRI. 

How Can I Avoid Double Taxation as an NRI?

To avoid double taxation on the same income twice, India has signed Double Taxation Avoidance Agreements (DTAA) with 90+ countries. Through this, NRIs can be exempt from paying tax in India while filing a tax return in their resident country. DTAA helps them avoid paying tax twice. 

Considering this, depending on the treaty provision, NRIs can claim the DTAA benefits through foreign tax credits, income exemptions, or reduced tax rates. Additionally, to claim DTAA relief, NRIs need to follow a structured compliance process. It includes determining tax residency under the applicable DTAA, obtaining a valid tax residency certificate (TRC), Form 10F, and identifying eligible income and mapping each stream to the relevant DTAA article. 

Final Thoughts

Lastly, the new income tax rules for NRIs prioritize simplification for the new tax regime. However, also allows the option to opt for the old tax regime for tax savings options under sections 80C and 80D. Understanding these provisions helps NRIs in making informed decisions and staying compliant with Indian tax laws.

Further, NRI tax filing can be daunting, specifically when you are not familiar with tax rules and procedures. Therefore, it is better to take help from professionals like Savetaxs. The experts in our team not only assist you in filing your ITR accurately but also maximize your tax refunds and avoid notices and penalties.