Budget 2026: How New Policies May Affect NRI Taxation

Budget 2026 may recalibrate the taxation architecture applicable to Non-Resident Indians (NRIs) in respect of Indian-source income by focusing on rationalisation rather than expansion of the tax base. In relation to interest, capital gains, and rental income, the emphasis is likely to be on moderating excessive withholding and aligning collection mechanisms with actual tax incidence.

“This could manifest through refinements to withholding rates on interest and rent, smoother access to lower or nil deduction certificates in capital transactions, and greater coherence between computation provisions and tax deducted at source. While the substantive charge to tax may remain broadly intact, the manner and timing of collection, particularly in high-value property and investment exits, may be softened to reduce cash-flow distortions and prolonged refund cycles that presently afflict non-resident taxpayers,” says Tushar Kumar, advocate, Supreme Court of India.

On residency, Budget 2026 may not overhaul the statutory framework but could meaningfully alter its practical application. With the impending operationalisation of the revamped Income-tax legislation and prior tightening around high-income visitors and deemed residency, the scope for clarification, threshold calibration, and procedural streamlining remains significant.

Residency Rules And Clarifications

The government may refine day-count rules, Resident But Not Ordinarily Resident (RNOR) contours, and income-based triggers to reduce ambiguity while strengthening data-driven residency determinations through immigration and financial reporting linkages. “Such changes, though technical, have the potential to materially affect borderline cases and re-characterise individuals who traditionally considered themselves non-resident for Indian tax purposes,” says Kumar.

TDS, Surcharge, And Capital Gains

Finally, Budget 2026 could revisit the mechanics of tax deducted at source (TDS), surcharge, and treaty implementation as they apply to NRIs, recognising that compliance friction often outweighs revenue benefit. “Rationalisation of surcharge for specified non-resident income streams, predictability in marginal relief, and clearer guidance on treaty-rate withholding are plausible reform levers,” says Kumar.

The overall trajectory is likely to balance revenue protection with administrative equity, reinforcing India’s stated objective of being a stable and credible tax jurisdiction for global Indians.

“Budget 2026 may further rationalize rates, potentially locking Long-Term Capital Gains (LTCG) at 12.5 per cent (without indexation) for all asset classes to reduce litigation. There is a huge pendency of disputes over the classification of income (capital gains vs. business income) and holding periods,” says Rohit Jain, Managing Partner, Singhania & Co.

However, while it's necessary to stay curious about what the Budget 2026 shall bring for all of us, it is essential to also note that on the introduction of the Income-tax Act, 2025 (to be in force from April 1, 2026), it was specifically highlighted that there have been no policy changes made. “Further, it is also observed that the government has seamlessly introduced amendments through previous budgets to streamline the tax and procedural aspects. For instance, the long-term capital gains remain 12.5 per cent plus applicable surcharge and cess for both residents and non-residents,” says Kunal Savani, partner, Cyril Amarchand Mangaldas.