- What are the major changes for NRIs under the new income tax rules?
- How does the new 120-day rule change who qualifies as an NRI, especially for those earning over Rs. 15 lakh from India?
- Will NRIs who spend 120–180 days a year in India now risk becoming tax residents even if they live and work abroad?
- What new reporting or tax risks do the draft rules create for NRIs holding Indian assets through overseas structures?
The Union Budget 2026 and the draft Income Tax Bill propose a series of tax reforms aimed at easing compliance and reducing the tax burden for Non-Resident Indians (NRIs). The changes focus on overseas income, property transactions, foreign asset disclosures and foreign remittances.
In an exclusive interaction with Financial Express (India), CA Parul Aggarwal, Proprietor, International Taxation & Transfer Pricing, Parul Aggarwal & Associates, explains the implication of the changes on NRIs.
What are the major changes for NRIs under the new income tax rules?
- Five-year tax exemption on overseas income
As per the Union Budget 2026 proposal, NRIs or professionals who come to India temporarily may be granted a five-year exemption on overseas income while working or visiting India.
Suitable schemes under which this relaxation will be provided are to be notified by the Government or the Central Board of Direct Taxes (CBDT). The proposal is aimed at attracting global talent back to India.
In simple terms, If an NRI comes to India for work but continues to earn income abroad, that foreign income may not be taxed in India for five years.
- Simplification of property sale rules
Currently, when a resident individual buys an immovable property from another resident, there is no requirement to obtain a Tax Deduction and Collection Account Number (TAN) for deducting tax at source (TDS). However, if the seller is a non-resident, the resident buyer must obtain a TAN, even if it is a one-time transaction—creating unnecessary compliance burden.
To address this, Budget 2026 proposes to amend Section 397(1)(c) of the Act to provide that a resident individual or Hindu Undivided Family (HUF) will not be required to obtain a TAN to deduct TDS on consideration paid for the transfer of immovable property under Section 393(2).
Alternatively, it is proposed that TDS on the sale of immovable property by an NRI may be deducted and deposited using the resident buyer’s PAN-based challan, instead of requiring a TAN.
This change is expected to significantly simplify property transactions involving NRIs and reduce compliance hurdles for buyers.
- New disclosure window for foreign assets
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 applies to resident taxpayers and becomes especially relevant for returning NRIs who, after 2–3 years of return, become ordinary residents in India.
Many such individuals continue to hold minor foreign assets, such as:
ESOPs or RSUs
Dormant or low-value foreign bank accounts (often from student years)
Savings or insurance policies abroad
Assets held during overseas deputation
Under the Black Money Act, these assets must be disclosed while filing Indian income tax returns.
When the Act was introduced, a one-time compliance window was provided from 1 July 2015 to 30 September 2015. Budget 2026 now proposes a similar time-bound disclosure scheme for foreign assets and foreign-sourced income.
Under the proposed scheme:
Tax or fee will be payable based on the nature and source of acquisition
Limited immunity from penalty and prosecution under the Black Money Act will be granted
Cases involving prosecution or proceeds of crime will be excluded
The scheme will form part of the Finance Bill, 2026, and will come into force from a date to be notified by the Central Government.
Additionally, it is proposed to amend Sections 49 and 50 so that these provisions will not apply to foreign assets (other than immovable property) where the aggregate value does not exceed ₹20 lakh. These amendments will apply retrospectively from 1 October 2024.
- Reduction and rationalisation of TCS on foreign remittances
Section 394(1) of the Act currently prescribes multiple rates for Tax Collected at Source (TCS) on foreign remittances, ranging from 5% to 20%.
Budget 2026 proposes to rationalise and reduce TCS rates, especially to provide relief to NRIs and their families sending money abroad for education or medical purposes.
A uniform TCS rate of 2% is proposed for the following:
Overseas tour packages
Foreign remittances for education
Foreign remittances for medical treatment
This change will make overseas payments and remittances significantly cheaper. The amendment will take effect from 1 April 2026.
How does the new 120-day rule change who qualifies as an NRI, especially for those earning over Rs. 15 lakh from India?
In the Draft Income Tax Rules 2026, nothing much changes for an NRI who is having India-sourced income less than Rs. 15 lakh and stays in India for less than 182 days as well. Hence, low-income NRIs can still get the 182-day benefit under the Draft Income Tax Rules.
The actual impact of the 120-day rule shall apply to those NRIs having Indian income of more than Rs. 15 lakh, whose stay in India is more than or equal to 120 days and whose total number of days of stay is more than or equal to 365 days in the last four years. In such cases, these NRIs become resident but not ordinary resident in India (RNOR).
Will NRIs who spend 120–180 days a year in India now risk becoming tax residents even if they live and work abroad?
No. NRIs who spend 120–180 days in India do not automatically become full tax residents under the proposed Draft Income Tax Rules, 2026. However, some of them can lose NRI status and become Resident but Not Ordinarily Resident (RNOR).
For becoming RNOR in India, the India-sourced income as well as the past stay of such NRI in India matters and makes a key difference in outcomes.
Can Indian citizens be treated as tax residents in India without staying here at all under the deemed-resident rule?
An Indian citizen can be treated as resident in India even with zero days of stay in India if the following combined conditions are met:
Their Indian income exceeds Rs 15 lakh in a tax year; and they are not liable to tax in any other country due to residence or domicile.
If both conditions are met, they are deemed to be resident in India. Even if deemed resident applies, they are treated as Resident But Not Ordinarily Resident (RNOR) in India.
If an NRI’s status shifts to RNOR or resident, which types of foreign income become taxable in India?
Once an NRI gains RNOR status under Income Tax Rules in India, the India-sourced income of such RNOR and the foreign-sourced income, if such income is obtained from an India business or profession, is taxable in India.
This was designed as an anti-abuse rule and is not targeted at genuine Indian expatriates residing globally.
What new reporting or tax risks do the draft rules create for NRIs holding Indian assets through overseas structures?
The Direct Tax Code / Income-tax Bill 2026 draft introduces stricter reporting and anti-avoidance rules for NRIs, especially pertaining to Indian assets held through foreign entities, cross-border transactions and high-value investments in India.
The key objective of the Draft Rules is to reduce tax leakage from NRIs, track real ownership of Indian assets and ensure detection of indirect transfers and undisclosed foreign holdings.
Accordingly, NRIs must do proper foreign asset disclosure for the following incomes:
NRIs (or any Indian tax resident) must report all Indian assets held via offshore entities in annual ITR, including shares of Indian companies held via a foreign trust or company, real estate in India owned via foreign entities, investments in LLPs, partnerships or REITs abroad that invest in India.
Penalty risk: Rs 5,000 per day of default in disclosure.
Implication: An NRI cannot own property in India through a foreign company to avoid reporting.
Further, the Draft Rules track the ultimate beneficial owner (UBO). Where the NRI controls Indian assets via offshore structures, they are considered to be effectively owning those assets, and income from such assets is taxable in India. This applies even if the income is received abroad.
NRIs also cannot avoid Indian capital gains tax by routing assets through foreign entities. Under the proposed indirect transfer provisions, sale of a foreign entity holding Indian shares may trigger Indian capital gains tax even if the transaction happens entirely abroad.
For LTCG – 12.5%
For STCG – 20%
Mandatory TDS on payments to offshore entities is also proposed where dividends, interest or rent are paid by Indian companies to foreign entities controlled by NRIs. TDS may apply at 10–30%, and the Draft Rules make the NRI personally liable to ensure compliance if they are the UBO.
Lastly, stricter anti-abuse rules such as the General Anti-Avoidance Rule (GAAR) will continue. The Draft Rules expand their scope to indirect holdings, trusts and offshore companies. Transactions structured mainly to avoid Indian tax may be disregarded by the tax department.
