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India’s central government has introduced the Income Tax Bill 2025 to replace the six-decade-old Income Tax Act of 1961, marking a major step toward a simpler and more efficient tax system. The Bill aims to simplify tax laws by removing outdated provisions, introducing a unified tax year, and enhancing transparency. As the Bill undergoes parliamentary review, it is expected to have significant implications for individuals and businesses, including Non-Resident Indians (NRIs). This article provides a detailed breakdown of NRI tax residency, key provisions affecting taxation, and expert insights from ECOVIS RKCA Advisors Ltd on what NRIs need to know.
Your residency status may change depending on factors such as travel or changes in your living arrangements. In order to calculate how much tax you are liable to pay in India, it is important to determine your residency status for each financial year. Your residency status must be reviewed annually.
Who is Considered a Resident in India for Tax Purposes?
A person is considered a Resident of India for income tax purposes if they meet either of the following conditions:
Resident Status for Indian Citizens Working Abroad
If you are an Indian citizen and leave India for employment outside the country, you will be considered a Non-Resident Indian (NRI) if you have spent less than 182 days in India in the previous year. Therefore, if you live outside India for 182 days or more, you will be considered an NRI for tax purposes.
Resident Status for Taxation of Indian Citizens and Persons of Indian Origin
A citizen of India or a person of Indian origin residing outside India but visiting India during the previous year is considered to be a resident for income tax purposes if his total income (excluding foreign sources) exceeds ₹15 lakh and he fulfils either of the following conditions
Deemed Resident Status for Indian Citizens
Who Qualifies as Resident but Not Ordinarily Resident (RNOR)?
An individual is classified as a Resident but Not Ordinarily Resident (RNOR) in a financial year if they meet either of the following conditions:
Taxation for Non-Resident Indians (NRIs)
Taxation for Resident but Not Ordinarily Resident (RNOR)
If you have recently returned to India, you can maintain RNOR status for up to three financial years after your return.
As an RNOR, your tax treatment remains similar to an NRI:
Once you attain the status of a Resident, your global income (both Indian and foreign) becomes taxable in India, except for any relief available under Double Taxation Avoidance Agreement) DTAA provisions.
New Income Tax Bill 2025 Leaves Tax Residency Rules Unchanged
The new tax bill introduced in Parliament on 13 February 2025 has left the tax residency criteria unchanged, bringing relief to (NRIs. Concerns had been raised that NRIs who earn ₹15 lakh or more in India and do not pay tax elsewhere could be classified as Residents instead of RNORs. However, under the new bill, such individuals will continue to be classified as RNOR, ensuring that only their Indian-sourced income is taxed in India.
Under the existing rules, an individual is considered to be a tax resident of India if they:
– Spend at least 182 days in India in a financial year OR
– Spend at least 60 days in India in a financial year and have stayed in India for 365 days or more in the preceding four years.
However, NRIs visiting India, and Indian citizens going abroad for employment or as crew members of Indian ships, are exempted from the 60-day rule. If NRIs visiting India earn more than ₹15 lakh (excluding foreign income), the 60-day requirement is extended to 120 days.
With the Income Tax Bill 2025 set to roll out on April 1, 2026, this decision maintains consistency with India’s current tax system, ensuring that NRIs are taxed fairly while addressing concerns about individuals exploiting NRI status for tax avoidance.
No Changes in NRI Tax Residency Rules: What It Means for You
Despite widespread speculation, the Bill does not change the definition of tax residency for NRIs. If you earn ₹ 15 lakh or more in India and do not pay tax elsewhere, you will continue to be classified as Resident but Not Ordinarily Resident (RNOR). This ensures that only your income earned in India is taxed and your global income remains tax-free in India.
Who Qualifies as a Resident in India?
A person is considered a resident for tax purposes if they:
Exceptions for NRIs & Indian Citizens Abroad:
Key Provisions Impacting NRIs in the Income Tax Bill 2025
The Bill simplifies the tax structure by consolidating 47 chapters into 23 and reducing 819 sections to 536 clauses, making tax compliance easier for NRIs. Here are the critical clauses affecting NRIs:
NRI Taxation Rates Under the New Bill
The Bill retains specific tax rates for NRIs on income earned in India:
TDS, Capital Gains, and Tax Recovery: What NRIs Must Know
Final Takeaway: What This Means for NRIs
The Income Tax Bill 2025 simplifies India’s tax system while strengthening measures against tax evasion. Key takeaways for NRIs are:
Enhanced Tax Recovery Measures:
Authorities have increased powers to recover NRI tax from Indian assets.
Conclusion
India has emerged as the world’s third largest economy and over the last decade has taken effective steps in all directions to achieve his goal. This time, the Income Tax Bill 2025, which is expected to come into force on 1 April 2026, aims to simplify the existing legal framework while ensuring greater efficiency and transparency. By reducing the number of sections and pages and removing explanatory notes or provisions, the Bill will be easier to read for taxpayers and administrators. The implementing rules will come into force after the promulgation of the draft law.
Let us hope that we can achieve our goals and make India a world leader and a highly attractive business destination.
Resource: https://www.ecovis.com/global/nri-tax-in-india-and-new-income-tax-bill-2025/
