With the Income Tax Bill 2025 coming into effect on April 1, 2026, NRIs and Indian citizens working overseas must stay informed about important tax changes. From taxation on global income and updated residency criteria to tougher reporting requirements, the tax landscape for NRIs is becoming more complex. Non-compliance could result in significant penalties or legal issues.
For NRIs, understanding these new rules isn’t just advisable—it’s essential. Let’s explore the key changes and, more importantly, how you can remain compliant while making the most of your financial planning.
Revised Residency Rule: The 120-Day Threshold
Previously, NRIs were considered Indian residents for tax purposes only if they stayed in India for more than 182 days during a financial year. Under the new tax regulations:
If you spend 120 days or more in India and earn over ₹15 lakhs from Indian sources, you will be classified as a resident for tax purposes.
This means your global income could become taxable in India if you qualify as a Resident but Not Ordinarily Resident (RNOR).
For NRIs who frequently visit India for longer durations, this change may lead to unexpected tax liabilities on income earned abroad.
Also read: [Who is an NRI? NRI Tax Status and Residency Rules Under the Income Tax Act]
Taxation on Global Income: Key Updates
One of the major changes involves the taxation of foreign income. The criteria for RNOR status have been significantly revised. Under the new rules, if you qualify as an RNOR, India can tax your foreign passive income, which includes:
Interest from foreign bank accounts
Dividends from international stocks
Capital gains from selling foreign assets (e.g., U.S. stocks, real estate in Dubai)
Rental income from overseas properties
For example, if you hold Apple shares in your U.S. portfolio or receive rent from a property in Dubai, these earnings may now be subject to Indian taxes
Mandatory Reporting of Foreign Assets
To enhance transparency and prevent tax evasion, the Indian government has introduced stricter reporting requirements for foreign assets. All NRIs must now disclose:
Foreign bank accounts
Overseas real estate holdings
International stocks and ETFs
Cryptocurrency holdings on foreign exchanges
Failure to declare these assets accurately can lead to severe penalties, including:
A penalty of up to 300% on undeclared tax dues
Possible criminal prosecution
This makes it essential for NRIs to maintain detailed and up-to-date records of all foreign income and assets.
Increased Scrutiny on Foreign Remittances
The Liberalized Remittance Scheme (LRS), which allows individuals to transfer money abroad, is now subject to tighter Tax Collected at Source (TCS) rules:
Transfers exceeding INR 7 lakhs abroad will attract higher TCS rates.
Exemptions remain for education and medical expenses but now require more extensive documentation.
The era of effortless cross-border money transfers is over. NRIs must now carefully plan and document their remittances to stay compliant.
Significant Economic Presence (SEP) Rule for Businesses
NRIs operating businesses internationally should be aware of the SEP rule. Even without a physical presence in India, a business can be liable for Indian taxes if it serves Indian customers. This affects:
SaaS companies
E-commerce platforms
Independent consultants working with Indian clients
Consequently, setting up businesses in tax-friendly jurisdictions like Dubai or Singapore may no longer shield you from Indian tax obligations. NRIs involved in global business should evaluate their tax exposure and consider restructuring if needed
Foreign Pension and Retirement Accounts Taxation
NRIs holding foreign pension funds such as the U.S. 401(k), Australia’s Superannuation, or UAE’s EPF should note:
Withdrawals from these accounts may be taxable in India, depending on your residential status and specific conditions.
Strategic planning of withdrawals can help reduce tax liabilities.
Two-Year Tax Relief for Returning NRIs
NRIs planning to return to India benefit from a two-year tax relief period under the RNOR status:
Foreign income earned before returning will not be taxed during this time.
After two years, your global income will become taxable in India.
This transition period offers a valuable opportunity to reorganize finances before full taxation applies
How NRIs Can Prepare for These Changes
To avoid penalties and unexpected tax burdens, NRIs should:
Monitor Residency Status: Keep accurate records of your days in India to avoid unintended residency status.
Review Foreign Investments: Maintain a comprehensive inventory of your global assets and income.
Restructure Business Operations: Consult international tax experts if your business serves Indian clients from abroad to ensure SEP compliance.
Ensure Proper Documentation: Adhere strictly to new reporting requirements to avoid penalties.
Plan Withdrawals Wisely: Strategize foreign pension fund withdrawals to optimize tax outcomes.
About the Author
Manisha
Manisha is an experienced writer known for simplifying complex legal topics into clear, practical insights. Her content helps entrepreneurs understand and navigate business laws with confidence, making it easier for them to launch and manage their ventures successfully.
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