The Union Budget 2025 introduces stricter tax regulations for Non-Resident Indians (NRIs).
This will include students and professionals abroad. The new norms would increase scrutiny of foreign income, residency status, and financial transfers.
Let us take a detailed look into what Budget 2025 has in store for NRIs.
Foreign Income Details And Scrutiny
India already has a data-sharing agreement with the US called The Foreign Account Tax Compliance Act (FATCA) and Organizations for Economic Co-operation and Development (OECDs) called Common Reporting Standard (CRS) CRS. Now, India will enhance these agreements, requiring NRIs—especially students working abroad—to report foreign earnings, even if they have no active income in India.
Potential Changes In Residency Definition
The threshold for maintaining NRI status may become stricter. No exact declaration has been made, but the current limit of 180 days for NRIs and 120 days for high networth individual (HNI) NRIs may be revised soon. This will make it harder for individuals with financial transactions in India to avoid taxation.
Revision Of Tax Treaties
The government may revise DTAA to prevent tax loopholes, potentially leading to higher withholding taxes and stricter documentation for tax relief claims. “India has 90 plus such treaties and a revision means increased compliance. Budget 2025 hints that DTAA agreements with countries like the US, UK, Canada, and Australia may undergo revisions to close loopholes used for tax avoidance,” says Madhupam Krishna, registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors.
Revision Of Tax Rates On Long-Term Capital Gains For Non-Residents
Under the current provisions of Section 115AD, a 10 percent tax rate applies to long-term capital gains earned by specified funds and foreign institutional investors (FIIs) from the transfer of securities (excluding units under Section 115AB).
The Finance (No.2) Act, 2024, revised the tax rate for long-term capital gains on the transfer of capital assets to 12.5 per cent for both residents and non-residents. “However, long-term gains under Section 115AD (not covered under Section 112A) continued to be taxed at 10 per cent. To bring uniformity, it is now proposed to amend Section 115AD to increase the tax rate on such long-term capital gains to 12.5 per cent. This change will be effective from April 1, 2026, applicable to the Assessment Year 2026-27 and beyond,” says Suresh Surana, a Mumbai-based chartered accountant.
Increased Reporting Requirements
NRIs are already reporting their investments, property, and bank accounts in income tax returns (ITRs). NRIs must now disclose overseas earnings, investment gains, and foreign bank accounts to avoid penalties under anti-tax evasion laws. Non-disclosure will lead to a violation of The Black Money Act.
Stricter Rules On Financial Transfers (Both Inbound And Outbound)
Money sent to India under the Liberalized Remittance Scheme (LRS) may face more scrutiny, particularly for large transactions. However, the TCS limit has been raised to Rs 10 lakh from 7 Lakh earlier. Also, if the proceeds are from a loan from a notified entity to pursue education in a foreign country, they shall not be subject to any tax deduction at source.
Impact On Students And Professionals
It is a common norm to earn while you study in foreign countries. Indians also join various jobs/part-time gigs to shore up their earnings. Many prefer to take a post-study visa, join the workforce, and again join academia to pursue a master's or specialization.
No issues with what you have been doing. The only thing is you need to report the earnings in India as well. NRIs to disclose their foreign earnings in India, even if they have no active income sources in India.
Those pursuing permanent residency or work visas abroad must now carefully manage their tax status to avoid double taxation. Students and NRIs planning to return after spending a small time abroad should plan their tax filings meticulously to avoid unexpected liabilities.
While these changes may not immediately affect students, those planning long-term residency or citizenship abroad should be more cautious.
The budget aligns the new norms as global tax transparency efforts but this adds compliance burdens, making financial management more complex for NRIs.
Few Strategies To Mitigate Double Taxation
“Ensure you understand the specific clauses of the DTAA between India and your country of residence. Submit the necessary documents, such as a Tax Residency Certificate (TRC) from your country of residence, to claim benefits under the DTAA,” says Krishna.
If there is no DTAA between India and your country of residence, you can claim unilateral relief under Section 91 of the Indian Income Tax Act. This allows you to deduct the taxes paid in the foreign country from your Indian tax liability.
Maintaining thorough records of your income, taxes paid in both countries, TRCs, and any relevant financial transactions is most important. This will help you substantiate your claims for tax relief.
Complex matters and transactions should be done with consultation with an expert. Seek out tax professionals who have expertise in the tax regulations of both countries to assist you. Tax advisors can guide you through dual taxation complexities with personalized assistance.
Alter your financial setup to decrease the chance of being subject to double taxation. To reduce the risk of double taxation you should manage financial actions like scheduling income receipts and selecting bank accounts such as NRE or NRO while meticulously planning mutual funds and stock market transactions.
