Tax Exemption for NRIs in Budget 2025

The Union Budget 2025 has introduced several changes that impact Non-Resident Indians (NRIs), especially in terms of tax exemptions and relief measures. These modifications aim to simplify tax compliance, provide clarity on residency rules, and offer benefits in investment and income taxation. Below is an in-depth look at the tax exemptions and relief measures proposed for NRIs in Budget 2025.

1. Increase in the Basic Exemption Limit

Budget 2025 has proposed an increase in the basic tax exemption for NRI in budget 2025 limit. Previously, NRIs were subject to taxation in India if their income exceeded ₹2.5 lakh. The new budget has raised this limit to ₹3 lakh, bringing relief to many NRIs with lower taxable income in India.

2. Exemption on Foreign Income

A significant relief comes in the form of clarity on foreign income taxation. Budget 2025 confirms that NRIs earning income abroad will not be taxed in India unless the income is accrued or sourced within the country. This step ensures that global earnings remain outside the purview of Indian taxation, aligning with international best practices.

3. Simplified Residency Rules

Previously, NRIs were considered tax residents if they stayed in India for 182 days or more in a financial year. The Budget 2025 has retained the revised threshold of 240 days, which was introduced in earlier budgets. This move helps NRIs maintain their non-resident status for a longer period, thus avoiding unnecessary tax liabilities.

4. Relief on Capital Gains from Property Sales

One of the most welcomed changes for NRIs is the introduction of a reduced TDS (Tax Deducted at Source) rate on the sale of property. The existing TDS rate of 20% on long-term capital gains has been proposed to be reduced to 15%, ensuring better liquidity for NRIs selling property in India. Additionally, the exemption under Section 54 and 54EC for reinvesting capital gains in another property or specified bonds continues, allowing NRIs to save on taxes.

5. Extension of DTAA Benefits

The government has strengthened the Double Taxation Avoidance Agreement (DTAA) framework by simplifying the process of claiming tax credits. NRIs earning in countries with DTAA agreements with India can now avail of easier and faster tax refunds, reducing the hassle of double taxation on the same income.

6. Tax-Free Interest on NRE and FCNR Accounts

NRIs holding Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts will continue to enjoy tax-free interest income. This measure encourages NRIs to keep their foreign earnings in Indian banks, benefiting both the individuals and the Indian economy.

7. New Exemptions for NRI Investments

The government has announced tax exemptions for NRIs investing in select government bonds and infrastructure projects. These exemptions aim to attract more foreign investments into Indian infrastructure and real estate sectors, providing NRIs with a tax-efficient investment avenue.

8. Relief for NRIs in Tax Filing Compliance

Budget 2025 has proposed simplified tax filing procedures for NRIs, including online verification of foreign income, automated DTAA compliance checks, and faster processing of tax refunds. These measures will significantly reduce bureaucratic hurdles and make tax compliance more seamless for NRIs.

Conclusion

The Budget 2025 brings a mix of relief and incentives for NRIs, particularly through higher exemption limits, relaxed TDS rates, and continued DTAA benefits. These changes not only ease tax compliance but also make India a more attractive investment destination for NRIs. As the government continues to refine policies for the global Indian diaspora, these tax exemptions will encourage greater economic participation from NRIs.

For professional assistance in NRI taxation matters, Dinesh Aarjav & Associates provides expert guidance on compliance, exemptions, and financial planning.