NRIs urged to check tax rules before filing Income Tax Returns for 2025-26

Key Takeaways

• NRIs must file Income Tax Returns by May 23, 2025, following current rules for AY 2025-26.
• Capital gains tax rates and TDS rules for NRIs remain unchanged for AY 2025-26.
• TDS must be deducted by buyers and tenants when paying NRIs, increasing compliance needs.

As of May 23, 2025, Non-Resident Indians (NRIs) are facing a critical period for tax compliance, with the deadline for filing Income Tax Returns (ITR) for Assessment Year (AY) 2025-26 approaching. The Indian government has issued strong advisories for NRIs to carefully review the latest tax rules on capital gains, business income, and rental income before submitting their returns. While the much-anticipated Income Tax Bill 2025 promises sweeping changes to the tax system, most of its provisions will only take effect from April 1, 2026. For now, NRIs must follow the existing rules, with a few notable updates in exemption thresholds and compliance requirements.

This article provides a comprehensive guide for NRIs on the current tax landscape, practical steps for ITR filing, and the implications of recent and upcoming policy changes. It also addresses common scenarios, highlights compliance pitfalls, and offers actionable advice for a smooth tax filing experience.

What’s New for NRIs in AY 2025-26?

NRIs—Indian citizens living abroad for work, study, or other reasons—are taxed in India only on income earned or received in India. This includes salary from Indian sources, rent from property in India, capital gains from selling Indian assets, and interest on certain bank accounts. The rules for AY 2025-26 largely continue from previous years, but with some important updates:

• Tax-free income limit: The basic exemption limit under the new regime will rise from ₹2.5 lakh to ₹4 lakh, but this change applies only from the next assessment year (AY 2026-27). For AY 2025-26, the exemption is ₹2.5 lakh (old regime) and ₹3 lakh (new regime).
• Rebate: The rebate under Section 87A has increased to ₹60,000 for FY 2025-26, making income up to ₹12 lakh effectively tax-free for residents. However, this does not apply to special incomes like capital gains.
• No change to capital gains tax: The tax rates and TDS (Tax Deducted at Source) rules for capital gains remain unchanged.
• TDS compliance: Buyers and tenants must deduct TDS when making payments to NRIs, increasing the need for careful documentation and compliance.

Key Tax Rules for NRIs: Capital Gains, Business Income, and Rent

Capital Gains Tax

Capital gains tax applies when NRIs sell assets such as shares, mutual funds, or real estate in India. The tax rate depends on the type of asset and the holding period:

• Listed Shares/Equity Mutual Funds:
  • Long-term (held >12 months): 10% on gains above ₹1 lakh (without indexation).
  • Short-term: 15% on gains.
• Unlisted Shares/Other Assets:
  • Long-term: 20% with indexation (adjustment for inflation).
  • Short-term: Taxed at slab rates.
• Real Estate:
  • Long-term (held >24 months): 20% with indexation.
  • Short-term: Taxed at slab rates.
• TDS on Property Sales: Buyers must deduct 20% TDS on long-term and 30% on short-term capital gains when purchasing property from an NRI. The deducted amount is paid directly to the Indian government.

Example:
If an NRI sells a flat in Mumbai after holding it for three years, the gain is considered long-term and taxed at 20% after adjusting for inflation. The buyer must deduct TDS before paying the NRI seller.

Business Income

NRIs earning business income from India must pay tax at the applicable slab rates. However, business income is taxable only if the business is controlled or set up in India.

• ITR-3 Form: Required for NRIs with business or professional income.
  Access ITR-3 Form on the official portal

Example:
An NRI running a consultancy firm registered in Delhi must file ITR-3 and pay tax on profits earned in India.

Rental Income

Rental income from property in India is taxable for NRIs, after a standard deduction of 30% for repairs and maintenance.

• Taxed at slab rates: After the 30% deduction.
• TDS by Tenant: The tenant must deduct 30% TDS before remitting rent to the NRI landlord.

Example:
If an NRI owns an apartment in Bengaluru and receives ₹50,000 monthly rent, the tenant must deduct ₹15,000 (30%) as TDS and deposit it with the government.

Interest Income

• NRO Accounts: Interest is fully taxable and subject to TDS.
• NRE/FCNR Accounts: Interest is tax-free.

Double Taxation Avoidance

India has Double Taxation Avoidance Agreements (DTAA) with many countries. NRIs can claim credit for taxes paid in India when filing returns in their country of residence, provided they maintain proper documentation.

Step-by-Step Guide: Filing ITR for NRIs (AY 2025-26)

Filing Income Tax Returns can seem daunting, especially for NRIs dealing with multiple income sources and compliance requirements. Here’s a practical, step-by-step guide:

1. Determine Your Residential Status

• Use the 120-day rule and other criteria to confirm NRI status for the financial year.
  If you spent less than 120 days in India and meet other conditions, you are considered an NRI for tax purposes.

2. Choose the Correct ITR Form

• ITR-2: For NRIs with income from salary, house property, capital gains, etc.
• ITR-3: For NRIs with business or professional income.

  Access ITR-2 Form on the official portal

3. Collect All Required Documents

• PAN card
• Passport (for travel/residency proof)
• Indian bank statements
• Form 16A (TDS certificates)
• Property sale deeds, rent agreements
• Investment proofs

4. Calculate Total Taxable Income

Include all Indian-sourced income:
– Salary from Indian employers
– Rental income (after 30% deduction)
– Capital gains from sale of property, shares, or mutual funds
– Interest from NRO accounts
– Business income (if applicable)

5. Claim Deductions and Exemptions

• Standard deduction: 30% on rental income.
• Capital gains exemptions: Sections 54, 54EC, and 54F allow exemption if gains are reinvested in specified assets.
• Home loan interest: Deductible from rental income.

6. Check TDS Credits

• Ensure all TDS deducted by buyers, tenants, or banks is reflected in Form 26AS (available on the Income Tax portal).

7. File Return Online

• Use the Income Tax e-filing portal.
• E-verify using Aadhaar OTP, net banking, or by sending a signed ITR-V to CPC Bangalore.

8. Claim Refunds

• If excess TDS was deducted, claim a refund in your ITR. Refunds are processed directly to your Indian bank account.

Compliance Requirements and Practical Implications

Higher Exemption Limits (From Next Year)

The new regime will allow NRIs to earn up to ₹4 lakh tax-free from FY 2025-26 onwards. This is especially beneficial for those earning rental income or interest from fixed deposits in India.

No Change to Capital Gains Regime

Despite the upcoming Income Tax Bill 2025, the capital gains tax structure and TDS rates remain unchanged for AY 2025-26. NRIs selling property or shares must continue to follow the existing rules.

TDS Compliance

Buyers and tenants must deduct TDS when making payments to NRIs. Failure to do so can result in penalties for both parties. NRIs should ensure that TDS is properly deducted and credited to their PAN.

No Deductions on Special Investment Income

NRIs cannot claim Section 80 deductions (such as for ELSS mutual funds or life insurance) on certain investment incomes. It’s important to check eligibility before claiming any deductions.

Double Taxation Relief

DTAAs help NRIs avoid paying tax twice on the same income. However, proper documentation—such as tax residency certificates and proof of taxes paid in India—is essential to claim credits in the country of residence.

Expert Advice and Multiple Perspectives

Chartered Accountants

Tax professionals stress the importance of timely compliance, correct form selection, and maximizing exemptions under Sections 54, 54EC, and 54F for capital gains. They recommend NRIs maintain detailed records of all transactions and TDS certificates.

Financial Advisors

Experts advise NRIs to plan investments and property sales carefully to minimize tax liability and avoid double taxation. For example, selling property after holding it for more than two years qualifies for long-term capital gains tax and potential exemptions.

Tax Authorities

The Income Tax Department has enhanced its enforcement powers, especially for recovering taxes from Indian assets. NRIs are urged to ensure full compliance to avoid legal complications.

Common Scenarios for NRIs

Scenario 1: NRI Selling Property in India
Ravi, an NRI based in Canada 🇨🇦, sells his apartment in Pune after five years. The buyer deducts 20% TDS on the long-term capital gain. Ravi reinvests the gains in another property within the allowed period, claiming exemption under Section 54. He files ITR-2, attaches all supporting documents, and claims a refund for any excess TDS.

Scenario 2: NRI with Rental Income
Priya, living in the United States 🇺🇸, rents out her Delhi flat. Her tenant deducts 30% TDS on the rent and provides a TDS certificate. Priya claims the standard 30% deduction for repairs and maintenance, files ITR-2, and ensures the TDS is reflected in Form 26AS.

Scenario 3: NRI with Business Income
Amit, an NRI running a consulting business registered in India, files ITR-3 and pays tax at the applicable slab rates on his Indian profits.

Future Outlook: The Income Tax Bill 2025

The Income Tax Bill 2025, expected to take effect from April 1, 2026, aims to simplify the tax code, increase transparency, and raise exemption thresholds for all taxpayers, including NRIs. Key expected changes include:

• Higher exemption limits: More tax-free income for NRIs.
• Simplified structure: Fewer forms and clearer rules.
• No immediate change to capital gains or TDS: These remain as per current law for AY 2025-26.

According to analysis by VisaVerge.com, these reforms are designed to make compliance easier for NRIs and reduce the risk of double taxation. However, until the new law is in force, NRIs must continue to follow the current rules.

Summary Table: Key Tax Rules for NRIs (AY 2025-26)

Immediate Action Points for NRIs

• Review all Indian-sourced income for FY 2024-25.
• Ensure TDS has been correctly deducted and reflected in Form 26AS.
• Choose the correct ITR form (ITR-2 or ITR-3) based on your income sources.
• File your ITR by the deadline to avoid penalties.
• Consult a tax professional for large transactions or complex cases.

For official guidance and to file your return, visit the Income Tax Department portal. For personalized advice, consider reaching out to a qualified NRI tax advisor or chartered accountant.

In summary:
NRIs must stay updated on Indian tax rules, especially with the upcoming changes from the Income Tax Bill 2025. For AY 2025-26, the current rules apply, with careful attention needed for capital gains, business income, and rental income. Proper documentation, timely filing, and professional advice can help NRIs avoid penalties and make the most of available exemptions.

Learn Today

NRIs → Non-Resident Indians living abroad but earning income from India taxable under Indian laws.
Income Tax Return (ITR) → A document filed annually detailing income, deductions, and tax liability for individuals.
TDS (Tax Deducted at Source) → Tax collected at the time of payment by the payer to the government on behalf of the receiver.
Capital Gains → Profit from selling assets like property or shares subject to specific tax rates and holding periods.
Double Taxation Avoidance Agreement (DTAA) → Treaties preventing the same income from being taxed twice in different countries.

This Article in a Nutshell

NRIs face critical tax deadlines for AY 2025-26, needing compliance with current rules. Capital gains tax rates stay unchanged, but TDS deductions by buyers and tenants rise. The Income Tax Bill 2025 promises future reforms starting April 2026, demanding NRIs’ careful filing and adherence to exemptions.
— By VisaVerge.com

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