Disclaimer: The content on this article is only to give an overview and general guidance and is not exhaustive. For complete details and guidelines, please refer India Income Tax Act and Rules.
Union Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025, in the Lok Sabha on Thursday, aiming to simplify tax laws, enhance transparency, and make them easier to interpret. One of the key areas of focus in the new bill is taxation for Non-Resident Indians (NRIs), significantly altering tax implications for individuals with foreign income and assets.
Under the revised rules, NRIs who stay in India for 120+ days and earn ₹15 lakh+ in India will now be taxed as residents, lowering the previous 182-day threshold. This means that more NRIs will now be liable for taxation on their global income, including foreign bank interest, dividends, and capital gains from overseas assets. This change particularly impacts those who frequently travel to India or maintain financial ties with the country, requiring careful planning to avoid higher tax liabilities.
Additionally, NRIs and residents must disclose all foreign assets, including bank accounts, stocks, real estate, and cryptocurrency holdings. The Indian government has introduced stringent measures to curb tax evasion, with severe penalties for non-compliance, including fines of up to 300% of the tax due and potential criminal prosecution. These measures align with India’s broader effort to improve financial transparency and prevent black money hoarding.
Foreign remittances under the Liberalized Remittance Scheme (LRS) will also be subject to stricter tracking, with higher Tax Collected at Source (TCS) on amounts above ₹7 lakh. This change affects individuals sending money abroad for investments, education, or other purposes. Furthermore, foreign businesses serving Indian clients remotely may now be taxed under the Significant Economic Presence (SEP) rule, extending India’s tax net to include international firms earning revenue from Indian customers, even without a physical presence in the country.
Stricter Double Tax Avoidance Agreement (DTAA) documentation is another major change, requiring NRIs to report all foreign taxes paid and refunds received. The new compliance norms aim to prevent abuse of tax treaties and ensure that individuals rightfully claim benefits without evasion. Foreign pension withdrawals, such as those from 401(k) accounts in the U.S. or superannuation funds in Australia, may also be subject to taxation in India, adding another layer of complexity for NRIs planning their financial future.
Returning NRIs will receive a two-year tax relief before their global income becomes fully taxable in India. This transitional period allows them to adjust to the new tax regime, but after two years, they will be subject to full Indian taxation. The Income Tax Bill, 2025, marks a significant shift in tax policies, making it crucial for NRIs to reassess their financial strategies, consult tax professionals, and stay compliant to avoid unexpected liabilities.
