The Income Tax Act, 2025, which came into force on 1 April 2026, has been widely discussed from the perspective of the resident Indian salaried taxpayer and pensioner. What has received comparatively less systematic attention is its impact on the Non-Resident Indian: the member of the diaspora whose financial life straddles two or more jurisdictions, whose bank accounts carry different designations depending on the source of funds, whose property transactions in India attract a web of compliance obligations upon the buyer as much as the seller, and whose tax position is further complicated by the domestic laws of the country in which he or she resides.
This article examines the NRI’s position under the new Act without assuming that all NRIs form a single class. The information technology professional in New Jersey, the retired government servant settled in Dubai, and the woman holding a Green Card while continuing to own ancestral property in Punjab each faces a different matrix of rights, liabilities, and compliance risks.
The starting point: who is an NRI for tax purposes?
India’s tax law does not define an NRI by reference to passport, visa, or FEMA classification. It defines residency, and non-residency is simply its absence. An individual is treated as a tax resident of India if he or she stays in India for 182 days or more during a financial year, or for 60 days in the relevant year and 365 days or more during the preceding four years. Residential status is further classified as Resident and Ordinarily Resident, Resident but Not Ordinarily Resident, and Non-Resident. This distinction is fundamental because it determines the entire scope of taxability. If an individual is a Resident and Ordinarily Resident, global income is taxable in India. If the individual is a non-resident, only income accruing, arising, or received in India is taxable.
The Income Tax Act, 2025 carries forward a provision introduced earlier that deserves special attention from NRIs living in Gulf jurisdictions. Deemed residency applies to Indian citizens earning ₹15 lakh or more from Indian sources who are not liable to tax in any other country. This provision particularly affects Indians residing in tax-free jurisdictions such as the UAE and Saudi Arabia. Such individuals may be treated as tax residents of India even without a physical presence in the country, although they are generally classified as Resident but Not Ordinarily Resident, with the important consequence that only Indian-sourced income, and not global income, is taxed in India. The relief lies in avoiding full resident status, but the larger lesson remains: mere physical absence from India does not automatically place a citizen beyond the reach of Indian tax law.
A separate tightening applies to higher-income NRIs who do visit India. For individuals earning more than ₹15 lakh from Indian sources, the old 182-day relaxation no longer fully holds good, and a modified 120-day rule comes into play. This is a significant change for those who return to India for extended family visits, seasonal stays, or business-related engagements.
Dr Avinash Gupta, Chartered Accountant, of APT Global, speaking exclusively to The KBS Chronicle, said the new law should not lull NRIs into a false sense of comfort. “While the new Act appears broadly benign, the rules notified under it are especially stringent in matters of compliance concerning NRIs,” he said. He advised that any notice issued by the Income Tax authorities to an NRI should be taken seriously and answered within time, and only after consultation with a qualified tax adviser.
NRE, NRO, and FCNR accounts: the three pillars
The classification of bank accounts remains among the most practically important aspects of NRI taxation, and the new Act leaves the existing position substantially undisturbed. Interest on NRE and FCNR accounts continues to be exempt from tax in India. Interest on NRO accounts remains fully taxable.
The logic behind this distinction deserves to be stated plainly, because it is often misunderstood. NRE accounts hold funds remitted from abroad, that is, foreign earnings brought into India. Their interest is exempt because the principal represents inward remittance from foreign earnings. NRO accounts, by contrast, hold rupee income earned in India, such as rent, pension, dividends, and similar receipts. These are taxable accordingly. FCNR deposits are foreign currency deposits maintained with Indian banks; they are both tax-free and freely repatriable.
Tax deducted at source on NRO account interest generally continues at 30 per cent, often with surcharge and cess increasing the effective rate. An NRI whose NRO deposit interest suffers deduction at this rate will often discover that the final tax liability, calculated after deductions and slab benefits where available, is lower than the amount already deducted. Filing an Indian income tax return therefore becomes not merely a compliance exercise but a financially worthwhile step, since it may result in a refund of excess TDS.
The compliance climate has, however, become more exacting. Foreign asset reporting obligations have tightened, and failure to disclose foreign bank accounts, properties, or shareholdings can lead to serious consequences. The era in which undisclosed foreign assets could be treated as a private matter has, for all practical purposes, ended.
Remittances: some relief in upfront costs
On the remittance front, the Union Budget for 2026–27 has introduced welcome rationalisation. Tax Collected at Source on overseas tour packages has been reduced to a flat 2 per cent from the earlier 5 per cent. The same reduction applies to remittances for education or medical purposes under the Liberalised Remittance Scheme. These changes reduce the immediate cash-flow burden associated with sending money abroad and are of direct relevance to NRI families supporting dependants in India who, in turn, remit funds overseas for study or medical treatment.
For NRIs sending money into India, which remains the more common direction of flow, the principal instruments continue to be NRE and FCNR accounts. Repatriation from India of sale proceeds, interest income, or other Indian-sourced receipts still requires compliance with Forms 15CA and 15CB. In the case of sale of immovable property, these forms remain central to repatriating the proceeds through the authorised dealer bank. Broadly, repatriation up to the prescribed annual ceiling continues to be permitted subject to compliance.
When a resident Indian buys property from an NRI: TAN is gone
For decades, one of the most anomalous burdens in a property transaction involving an NRI seller fell not on the seller but on the resident Indian buyer. The buyer was required to obtain a Tax Deduction and Collection Account Number, or TAN, even if the transaction was a once-in-a-lifetime purchase. Since TAN is ordinarily associated with regular tax deductors and corporate entities, its application to an individual homebuyer was always structurally awkward and frequently led to confusion, delay, and inadvertent non-compliance.
The Union Budget for 2026–27 has now proposed a significant rationalisation. A resident individual or Hindu Undivided Family purchasing immovable property from a non-resident seller will no longer be required to obtain a TAN for deducting tax at source. Instead, the buyer may use the Permanent Account Number for reporting and depositing the tax. The process is intended to align more closely with the familiar mechanism already used in transactions between resident Indians. This amendment is proposed to take effect from 1 October 2026.
What has not changed, however, is equally important. The substantive TDS obligation remains. Where the seller is an NRI, tax is generally deducted at rates applicable to non-resident capital gains, and the deduction is often made on the gross sale consideration unless a lower deduction certificate has been obtained. It therefore becomes essential for the buyer to verify, before concluding the transaction, whether the seller is in fact a non-resident under Indian tax law. The consequences of misclassification can be substantial.
The NRI seller who considers deduction on the gross amount unduly harsh is not without remedy. A lower deduction certificate may be obtained in advance, enabling TDS to be aligned more closely with the actual capital gains tax liability. The practical point is that such relief must be sought before the transaction reaches the deduction stage; it is of little use as an afterthought.
Clubbing of income: the spouse at home
One dimension of NRI taxation that receives less attention than it deserves is the clubbing of income. Where an NRI transfers assets to a spouse who is resident in India, or makes gifts that generate income in the recipient’s hands, that income may in certain cases be clubbed back with the transferor’s own income for tax purposes.
This becomes especially important in family arrangements where the NRI husband or wife has substantial Indian income, whether by way of rent, fixed deposit interest, or capital gains, while the spouse in India also derives income from the same underlying asset base. In such cases, the question of whose return should disclose the income, and in whose hands it is lawfully taxable, requires careful structuring and scrupulous documentation. The new Act does not materially alter this position, and professional advice remains advisable.
DTAA: a shield that must be actively used
India’s Double Taxation Avoidance Agreements with numerous countries remain one of the most important protections available to NRIs. These treaties are designed to reduce or eliminate the risk of the same income being taxed twice in two jurisdictions. In practical terms, they frequently affect tax rates on interest, dividends, royalties, and similar categories of income.
But treaty relief is not automatic. The taxpayer claiming reduced withholding or foreign tax credit must comply with documentary requirements, including a valid Tax Residency Certificate and the prescribed Indian forms. The Tax Residency Certificate must be current and must come from the tax authority of the country of residence. An expired certificate is of no practical value.
The mechanics of claiming foreign tax credit in India also remain exacting. The prescribed declaration must be filed within the relevant timeline, ordinarily by or along with the income tax return. What may appear to the taxpayer as a procedural omission can, in practice, jeopardise the tax credit claim itself. In this area, timing is not a matter of convenience; it is part of substantive compliance.
The US citizen and Green Card holder: a special case
Among all categories of NRIs, perhaps the most structurally complex is the Indian-origin individual who is either a citizen of the United States or a Green Card holder. The reason is simple: the United States taxes its citizens and permanent residents on worldwide income, irrespective of where they live. That means Indian salary, rental income, fixed deposit interest, mutual fund gains, and even interest on an NRE account that is exempt in India may all remain reportable and taxable in the United States.
This creates a serious asymmetry. India may exempt a particular category of income, but the United States may still tax it. NRO interest, for example, may suffer tax in India and then also be brought into the US tax computation, with relief available only through the foreign tax credit system. Such relief is real, but it is neither automatic nor simple. It must be actively claimed, and the compliance burden is often substantial.
The India-US tax treaty offers some protection, but its operation is limited by the well-known saving clause that allows the United States to continue taxing its citizens and Green Card holders substantially as if the treaty did not exist. In practical terms, this means that many treaty benefits available to ordinary residents of one contracting state are not equally available to US persons. The consequence is that a US citizen or Green Card holder with Indian property income, investment income, and capital gains must carefully co-ordinate compliance in both jurisdictions.
Green Card holders need special caution. Worldwide income reporting to US authorities generally begins from the point the Green Card is obtained and continues until it is formally surrendered through proper legal channels. A person who has not lived in the United States for years may nevertheless remain under a continuing US filing obligation. This is one of the most misunderstood aspects of transnational taxation.
From the Indian side, if such an individual also qualifies as a tax resident of India under domestic law and treaty tie-breaker principles do not shift residence elsewhere, India may also assert taxation over global income. In such situations, the direction of foreign tax credit, the determination of treaty residence, and the sequencing of filings acquire critical importance.
Foreign assets and the compliance imperative
The Black Money law continues to operate alongside the Income Tax Act and carries consequences far more severe than ordinary income tax defaults. The new tax regime does not dilute these obligations. On the contrary, the broader compliance environment now indicates closer scrutiny of foreign assets, foreign income, and mismatches between disclosures and available data.
Any limited disclosure or settlement window that may be notified by the Government should therefore be treated seriously by affected persons. For the NRI with any legacy non-disclosure problem, the risk calculus has shifted. What may once have seemed a manageable omission may now attract penalties and prosecution risks out of all proportion to the original tax amount involved.
The bottom line— NRI’s are NOT exempt
For most NRIs, the Income Tax Act, 2025 represents more of a structural consolidation than a complete reworking of tax policy. The basic framework remains familiar: Indian-sourced income is taxable in India; NRE and FCNR interest remain exempt; NRO interest remains taxable; TDS continues to play a central role in property transactions; and treaty relief remains available where properly claimed.
The real changes lie elsewhere. The statutory language is cleaner. Some compliance mechanisms are more streamlined. The proposed removal of the TAN requirement for resident buyers purchasing property from NRIs is an important practical reform. At the same time, the compliance regime has tightened, especially in relation to foreign asset disclosure, return reporting, and the increasing use of data analytics by the tax administration.
For the NRI who has been reasonably diligent, correctly classified accounts, filed returns when necessary, deducted tax where required, and made proper use of treaty relief, the new Act offers a clearer and more coherent framework. For the NRI who has treated Indian compliance obligations as casual or optional, it marks the narrowing of available escape routes.