Income Tax Act 2025 NRI Rules: What Changed From 1961

For NRIs, the Income-tax Act 2025 changes the wording, numbering and vocabulary of Indian tax law far more than it changes the substance. As reported, the residency tests, the idea of taxing global income only for ordinarily resident people, and the basic scope of taxation for non-residents carry over from the 1961 Act. The new Act is meant to apply from 1 April 2026, so it matters for the tax year 2026-27 onwards.

That does not mean you can ignore it. Section numbers, the term "tax year" and the way TDS provisions are laid out all look different, and your CA, bank and tenant will start using the new references. Below is a plain comparison, followed by worked examples the usual news summary skips.

Key takeaways

• The residency tests (182 days, or 60 days plus 365 days over four years, and the special rules for Indian citizens) are broadly carried over from the 1961 Act.
• "Previous year" and "assessment year" are replaced by a single "tax year", which is the April to March period.
• NRIs still get no Section 87A-style rebate, so the same income can be tax-free for a resident and taxed for an NRI.
• Income earned up to 31 March 2026 is still assessed under the 1961 Act, so you will deal with both laws for a while.

What is the Income-tax Act 2025 and when does it start?

It is a full replacement of the Income-tax Act, 1961. Parliament passed it in 2025, and the government has described it as a simplification exercise: shorter sentences, fewer provisos, tables in place of long paragraphs, and no new tax policy.

It is intended to come into force from 1 April 2026. Your income for FY 2025-26, which you will report in the return filed in 2026, still falls under the old law. The first return under the new Act will be for the 2026-27 tax year, filed in 2027.

Reports on the Act's Section 5 (the scope of total income, which is the NRI-relevant provision) say it mirrors old Section 5. Check the exact section numbers against the official text on incometax.gov.in, because the numbering differs from 1961 and we have not reproduced it clause by clause here. Section 5 scope of total income and Section 6 residence in the 2025 Act should be confirmed before you quote them to anyone.

Old vs new: a side-by-side table for NRIs

The pattern is clear. Where the table says "no", the rule survived. Where it says "yes", the change is mostly about where you find it and what it is called.

How do you check whether you are a resident, NRI or RNOR?

The residency status decides everything else, so work through it in order for each tax year.

1. Count your days in India between 1 April and 31 March.
2. If you were in India 182 days or more, you are a resident.
3. If not, check whether you were in India 60 days or more this year and 365 days or more across the four years before. If both are true, you are a resident, unless a special rule below raises the 60-day bar.
4. If you are an Indian citizen who left for work abroad, or a citizen or PIO visiting India, the 60-day bar becomes 182 days. For a citizen or PIO whose Indian income (excluding foreign-sourced income) exceeds ₹15 lakh, it becomes 120 days.
5. If you are a resident, test for RNOR: you are an RNOR if you were non-resident in 9 of the last 10 years, or stayed 729 days or fewer in the last seven years.

Residents who are not RNOR are taxed on worldwide income. RNORs and non-residents are taxed on income received, accruing or deemed to accrue in India. RNORs also pay tax on income from a business controlled in India or a profession set up here.

Worked example: the ₹15 lakh trap

Meera is an Indian citizen working in Dubai. Her Indian income is rent of ₹9 lakh plus interest and dividends of ₹7 lakh, so ₹16 lakh in all, all from India. In the tax year she spends 130 days in India. In the four preceding years she spent 400 days in India in total.

Normally a citizen visiting India would need 182 days to become a resident. But because her Indian income exceeds ₹15 lakh, the threshold falls to 120 days, and she also clears the 365-day test over four years (400 days). She is therefore a resident. Since she was a non-resident in 9 of the last 10 years, she is an RNOR, so her Dubai salary stays outside the Indian tax net.

If her Indian income had been ₹14 lakh, the 182-day rule would apply, and she would remain a non-resident at 130 days. One extra lakh of income changes the answer, which is why you should calculate before you book your India trips.

What does an NRI actually pay? A worked example with rupee numbers

Take Arjun, an NRI in Singapore. He owns a flat in Ahmedabad rented out at ₹6,00,000 a year and holds NRO fixed deposits that pay ₹1,00,000 interest. This is a simplified illustration that ignores municipal tax and home-loan interest.

1. Rent after the 30% standard deduction: ₹6,00,000 × 70% = ₹4,20,000.
2. Add NRO interest: ₹4,20,000 + ₹1,00,000 = ₹5,20,000.
3. Tax on the new-regime slabs used for FY 2025-26 (nil up to ₹4 lakh, 5% from ₹4 lakh to ₹8 lakh): ₹1,20,000 × 5% = ₹6,000.
4. Add 4% cess: ₹6,000 + ₹240 = ₹6,240.

The slabs for 2026-27 should be checked against the latest Finance Act. New-regime slabs for tax year 2026-27 may differ from the figures above.

Now look at what was deducted at source. A tenant paying rent to a non-resident typically deducts TDS at 30% plus cess, so 31.2%. On ₹6,00,000 that is ₹1,87,200. The bank deducts the same 31.2% on NRO interest: ₹31,200 on ₹1,00,000. Total TDS is ₹2,18,400.

Arjun's actual tax is ₹6,240, so ₹2,18,400 − ₹6,240 = ₹2,12,160 is refundable once he files a return. The new Act does not change this. Without a return, the money stays with the government.

Why the same income can mean different bills

Suppose a resident and an NRI each have ₹12 lakh of taxable income under the new regime. Tax on the slabs is ₹20,000 on the ₹4 lakh–₹8 lakh band plus ₹40,000 on the ₹8 lakh–₹12 lakh band, so ₹60,000. The resident gets a Section 87A rebate and pays nil. The NRI pays ₹60,000 plus 4% cess of ₹2,400, so ₹62,400. That gap is the most common surprise when someone returns to India and later compares their old and new bills.

How are TDS and capital gains handled for NRIs?

TDS on payments to non-residents works as before, but the 2025 Act reportedly gathers the rates into tables instead of scattering them across many sections. Your bank, tenant or buyer will cite new section numbers on certificates. Ask for the TDS certificate and match it to your Form 26AS or Annual Information Statement.

Capital gains rates are a matter of policy, not the rewrite. Under current rules, long-term gains on listed equity are taxed at 12.5% above a ₹1.25 lakh annual exemption, and short-term gains at 20%. For land and buildings sold by NRIs, the buyer deducts TDS on the gain, and the rate can be high relative to your real liability. You can apply for a lower-deduction certificate, or claim it back through a return. Whether NRIs can still choose 20% with indexation on property bought before 23 July 2024 should be checked with a CA, as reports suggest that option is for residents only.

If you sell property, you may be able to reduce tax on long-term gains by investing in specified bonds. Our guide to Section 54EC bonds and the capital gains exemption explains how the mechanism works. For investment choices, see how direct mutual fund plans work. If rates affect your NRE deposits and home-loan decisions, our piece on the Fed rate hold and its impact on NRIs is a useful companion.

Common mistakes NRIs make when the law changes

• Assuming the new Act resets your status. Residency is counted year by year using the same day-count logic, and your earlier years still count toward the 365-day and 729-day tests.
• Ignoring the ₹15 lakh threshold. Rent, interest and dividends from India add up quickly.
• Skipping the return because TDS was deducted. TDS at 31.2% often exceeds the true liability, as Arjun's example shows.
• Quoting old section numbers to the bank. From 2026-27, forms and certificates will reflect the new numbering, so keep both references handy.
• Forgetting treaty relief. If you live in a country with a tax treaty with India, you may need a tax residency certificate and Form 10F to claim lower rates.

Myth vs fact

Myth: The new Act cuts tax for NRIs. Fact: It was presented as a rewrite without new rates or exemptions, and any rate change would come from the annual Finance Act, not from the new Act itself.

Myth: The 1961 Act is gone, so I can ignore it. Fact: Returns, notices and assessments for earlier years will still be handled under the old law.

FAQ

Does the Income-tax Act 2025 change the 182-day rule?

As reported, no. The 182-day test and the 60-plus-365-day test are carried over, as are the special rules for Indian citizens and PIOs. Confirm the wording in the official text, since the section numbers differ.

From when will NRIs follow the new Act?

It is meant to apply from 1 April 2026, so the tax year 2026-27 is the first one. Income earned up to 31 March 2026 is reported under the 1961 Act.

Can an NRI claim the Section 87A rebate under the new law?

No. The rebate has been available only to resident individuals, and nothing reported so far suggests the new Act extends it to non-residents.

Do NRIs need to file a return if TDS has been deducted?

Not always, but often it makes sense. If your total tax is lower than the TDS, only a return gets you the refund. Capital gains, losses to carry forward and treaty claims also need a return.

Is the new tax regime the default for NRIs?

Yes, the new regime is the default for individuals, including NRIs, although you can opt for the old regime in most cases if you have eligible deductions. A CA can compare both for your income mix.

Bottom line

For most NRIs, the Income-tax Act 2025 is a change of language, not a change of liability. Count your days for the 2026-27 tax year now, test the ₹15 lakh Indian-income threshold, and keep your TDS certificates. Before you file, read the official text on incometax.gov.in and talk to a chartered accountant about your residency status.