Union Budget 2025: What’s in store for NRIs? A look at major expectations of non-residents from FM Sitharaman

With the Union Budget 2025 is approaching, non-resident Indians (NRIs) are looking forward to much-needed tax reforms, including simplified compliance rules and lower tax rates.

The changes introduced in the Union Budget 2024 were a mix of good and bad news for NRIs. Higher tax rates on both short-term capital gains (from 15% to 20%) and long-term capital gains (from 10% to 12.5%), and the removal of indexation benefits turned out to be major negatives.

Meanwhile, the standardisation of tax rates for long-term capital assets and the increase in exemption limit for long-term capital gains offered some relief in terms of compliance.

What could be in store for NRIs this year? Let’s take a look. But, before that, it is important to understand who qualifies as an NRI as per the Income Tax Act, 1961.

Who are NRIs?

Indian citizens who spend less than 182 days in India in a financial year are considered resident Indians for tax purposes. This means they need to report and pay taxes on their worldwide income, including any foreign earnings deposited into an Indian bank account.

However, if they stay abroad for more than 182 days, they qualify as NRIs and are only taxed on income earned or accrued within India. This could include rental income, interest income, or capital gains, from the sale of assets.

Lower-income group NRIs seek relief in Budget 2025

As a large percentage of NRIs have limited income sources, experts are calling for expanding the eligibility of the ITR-1 form in the Union Budget 2025 to include such NRIs to ease their compliance burden.

The ITR-1, or Sahaj, form is currently supposed to be filed by a resident individual whose total income does not exceed ₹50 lakh in a financial year. The form does not apply to NRIs.

Additionally, tax experts have also recommended that the upcoming Budget should amend Section 139 of the Income Tax Act, 1961, to exclude NRIs from filing income-tax returns when their income is below the exemption limit, but expenses for travelling abroad are above ₹2 lakh during the year.

According to current rules, if an NRI has spent more than ₹2 lakh on foreign travel by self or for any other person from their Indian bank accounts, he/she needs to file ITR even if his/her income is below the exemption limit.

As per the existing income tax rules, all NRIs, Persons of Indian Origin (PIOs), or Overseas Citizens of India (OCIs), are mandated to file ITRs if they have taxable income in India.

Filing income-tax returns

One of the biggest challenges that NRIs face while filing tax returns is that they are required to pay taxes through Indian bank accounts. Experts suggest that the finance ministry should allow NRIs to directly pay taxes from their overseas accounts, which could make the process simpler and more efficient.

Similarly, e-verification of income tax returns can currently be done only through Indian mobile numbers or bank accounts, which poses a significant hurdle. This rule can be modified to allow either email-based authentication for NRIs or enabling verification through foreign mobile numbers, experts suggest.

Simpler TDS rules on real estate transactions involving NRIs

However, when the seller is an NRI, higher tax rates apply. Also, the buyers need to fulfil additional requirements like a Tax Deduction Account Number (TAN), submission of e-TDS returns and managing a complex TDS process.

Also, the buyers need to fulfil additional requirements like a Tax Deduction Account Number (TAN), submission of e-TDS returns and managing a complex TDS process.

With more and more NRIs owning properties in India now, tax experts are seeking simplified property transaction processes for the community in the upcoming Union Budget 2025 to eliminate such hurdles and improve ease of doing business.