NRI Tax Residency 2025-26: 120-Day Rule and Deemed Residency

Non-Resident Indians (NRIs) filing Income Tax returns for FY 2025-26 face a two-part job: first, prove their residential status with day-count evidence; second, report and pay tax on Indian-sourced income under the old or new tax regime. The rules stay in place until March 31, 2026, but a fresh round of tighter residency tests under the Income Tax Bill 2025 is set to start on April 1, 2026, including wider use of deemed residency for certain high-income Indians who are not taxed abroad.

According to analysis by VisaVerge.com, the safest approach is to treat residency, withholding, and filing as one connected process, because a small error on days in India or missed advance tax can trigger interest and notices.

Step 1: Build your “days in India” record before you count anything

Residential status under Section 6 of the Income Tax Act, 1961 depends on physical presence, not passports. Start by creating a clear record of entry and exit dates for the financial year April 1, 2025, to March 31, 2026.

Practical steps that reduce disputes later:
– Copy passport stamps and flight tickets into one folder.
– Keep a simple spreadsheet of entry/exit dates and total days in India.
– Be prepared to provide a sworn statement or affidavit about days spent in India if you have large remittances, property deals, or other high-value activity.

People who travel often should do this monthly, not just at filing time, because small gaps add up.

Step 2: Apply the FY 2025-26 residency tests in the right order

For FY 2025-26, you are a tax resident if you meet either test:
1. You are in India for 182 days or more in the financial year, or
2. You are in India for 60 days in the financial year and 365 days across the prior four financial years.

Important exception:
– If your Indian income (excluding foreign sources) is over ₹15 lakh, the 60-day threshold expands to 120 days.
– Indian citizens leaving India for employment abroad, or those working as ship crew, generally remain under the 182-day standard.

Timing and practical tip:
– You can usually decide your status soon after March 31, 2026, once you total the days for the year.
– If you are close to the limits, re-check before booking extra travel.

Step 3: Pressure points during family visits and return moves

Residency tests are simple on paper but can change your tax position dramatically.

Example scenarios:
– An NRI with 150 days in India in FY 2025-26 and ₹20 lakh of rental income can become a resident, which may subject worldwide income to Indian tax.
– You might be a non-resident in one year and a resident (or RNOR) in the next.
– A person arriving in December 2025 and staying 120 days may still be NRI for FY 2025-26, but similar patterns can make them resident or RNOR in FY 2026-27.

Practical note:
– If you have a spouse, children, or a home in India, keep records of where you worked and where you earned income. These facts matter for DTAA (Double Taxation Avoidance Agreement) claims.

Key takeaway: small differences in timing or family ties can shift your tax residency and bring foreign income into Indian tax net.

Step 4: Map your Indian-sourced income, line by line

Once you know you are a non-resident, list income that is “received or deemed received” in India or that accrues or arises in India. Common taxable streams for NRIs include:
– Business income linked to India
– Rent from Indian property
– Capital gains from Indian assets (shares, real estate)
– Salary for services rendered in India
– Dividends from Indian companies
– Interest on NRO accounts and fixed deposits — often with TDS at 30%+
– Royalties and technical fees from India

Notes:
– Foreign income generally remains outside Indian tax for a true NRI.
– Interest on NRE and FCNR accounts is tax-free under current rules.

Step 5: Choose the old or new regime and check the basic exemption

For FY 2025-26, NRIs may select:
– The old regime (more deductions), or
– The new regime under Section 115BAC (fewer deductions, different slabs).

Basic exemption and filing thresholds:
– Old regime basic exemption: ₹2.5 lakh
– New regime basic exemption (default): ₹3 lakh

Other points:
– Slab rates match resident rates.
– A 4% Health & Education Cess applies.
– Surcharges can apply at higher incomes, with a 15% cap on dividends and capital gains in certain cases.
– Marginal relief may smooth the tax jump when income barely crosses a surcharge threshold.

Step 6: Plan deductions early if you want the old regime

If you choose the old regime, you may claim several deductions (subject to NRI-specific limits).

Common deductions (old regime):
– Section 80C/CCC/CCD(1): up to ₹1.5 lakh
– Note: some instruments like PPF are barred for NRIs.
– Section 80CCD(1B): additional ₹50,000 for NPS
– Section 80D: health insurance — ₹25,000 for self/family; ₹25,000/₹50,000 for parents depending on age
– Section 80E: interest on education loans
– Section 80G: eligible donations
– Section 24(b): home-loan interest up to ₹2 lakh for a self-occupied house

Under the new regime:
– Far fewer breaks are available, although home-loan interest under Section 24(b) may still apply (per the source material).

Step 7: Pick the correct ITR and watch the calendar

ITR choices:
– Most NRIs use ITR-2 (no business income) or ITR-3 (with business income).

Deadlines and filing:
– Standard due date for non-audit cases: July 31
– Belated filing option (with fees) typically available until December 31

Advance tax:
– If tax due after TDS is more than ₹10,000, you may need to pay quarterly advance tax.
– Missed advance tax payments can trigger interest under Sections 234B and 234C — a common surprise for those who rely solely on TDS.

Official resources:
– For rules, return filing tools, and the Annual Information Statement see the Income Tax Department’s portal: https://www.incometax.gov.in/iec/foportal/

Step 8: Use DTAA relief and keep proof for Form 10F

If you pay tax abroad, you may claim DTAA relief — but only with proper documentation.

Keep these documents:
– Tax Residency Certificate from the other country
– Copy of foreign tax returns or assessments (if available)
– Bank and broker statements that corroborate the income you report in India

Special caution:
– US Green Card holders and others with dual tax duties should consult a qualified adviser before selling property or taking large dividends, as timing and reporting rules can conflict.

Step 9: Prepare now for April 2026 changes, especially deemed residency

The Income Tax Bill 2025 (passed in 2025) applies from April 1, 2026 and tightens rules for high-income visiting Indians.

Key changes to model now:
– The 120-day rule becomes the central short-stay test for Indian citizens and PIOs with Indian income over ₹15 lakh.
– Staying 120–181 days plus 365+ days in prior four years can create RNOR status — a bridge where Indian income is taxed but foreign income may initially be outside the net.
– Deemed residency can treat an Indian citizen as resident even with zero days in India if they earn ₹15 lakh or more from Indian sources and are not liable to tax in any other country.

Practical mitigation:
– For high-income individuals, keep trips below 119 days where possible.
– Confirm annually that you are taxed where you live abroad to avoid being treated as deemed resident.

Warning: From April 1, 2026, the expanded deemed residency and tightened short-stay tests can unexpectedly pull non-resident Indians into Indian taxation — plan travel, documentation, and advance tax well in advance.

Quick checklist for NRIs filing for FY 2025-26

• Build a month-by-month days-in-India log (passport stamps, tickets).
• Decide residency status after totaling days post-March 31, 2026.
• Map all Indian-sourced income and confirm TDS rates (NRO interest often taxed at ~30%+).
• Choose old vs new tax regime and compute whether deductions are worth it.
• Pay advance tax if tax due after TDS > ₹10,000.
• Keep DTAA documentation plus Form 10F evidence where applicable.
• Use the Income Tax Department portal: https://www.incometax.gov.in/iec/foportal/

If you want, I can:
1. Help you draft a simple spreadsheet template for day-count and travel records.
2. Create a checklist tailored to your likely income streams (rent, salary, capital gains).
3. Summarize what to keep for DTAA/Form 10F in a one-page printable list.

Which would you prefer?