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CHANGES BROUGHTS IN BUDGET 2026:
The Union Budget 2026-27 presented by the Finance Minister in February 2026 introduced several provisions of direct relevance to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). From changes in TDS rates on property sales to clarifications on the Residential Not Ordinarily Resident (RNOR) status, the budget has implications that every NRI with financial or legal ties to India should be aware of.
Key highlights from Budget 2026 affecting NRIs include amendments to the definition of RNOR status, rationalisation of TDS rates on income earned from Indian sources, changes to the Foreign Asset and Income Reporting requirements under the Black Money Act, and updates to the presumptive taxation scheme for NRI professionals. Each of these is addressed below.
- For a person to be classified as a Non-resident Indian, the earlier provision needed them to stay outside India for a minimum of 183 days in a financial year.
- Post the Amendment , a person needs to stay in India for a minimum of 245 days in order to be considered an NRI under the Income Tax Act .
- This is significant as the NRIs who were earlier having businesses in India, had to stay outside the country for a period of 183 days, now need to remain outside the country for a period of 245 days to avoid taxation in India.
- The Rationale behind this decision being to prevent the abuse of tax provisions by NRIs. It was discovered that many people were abusing the law by managing their period of stay outside India while conducting business within India to avoid taxation.
- The government clarified that only income earned in India or from a business the majority of which is based in India will be taxed.
- The earlier provision stated that in order to be “not ordinarily resident” in India, a person or an HUF needs to stay outside India for a combined period of 7 years out of the 10 preceding years or stay in India for 729 days or less during the 7 preceding years.
- The amended provision replaces the above conditions and provides that for an individual or HUF to be “not ordinarily resident” of India, the individual or the manager of HUF must stay outside India for a period of 7 years out of the preceding 10 years.
- This amendment does away with the provision where a person or an HUF could stay attain the status within 7 years. It now necessitates a combined period of minimum 7 years in order to attain the “not ordinarily resident” status and get tax exemption.
- The “Not Ordinarily Resident (RNOR)” is a special status accorded in order to provide some benefits to returning NRIs. For Indian income tax purposes, an RNOR is treated at par with NRIs. That means, an RNOR needs to pay tax in India only on his Indian income. Any income from abroad will not be taxed in India.
- The amendment adds a new provision that an Indian citizen not liable to tax in any other country or territory shall be deemed to be a resident in India and be liable to taxes. This provision seeks to tax NRIs or Indian citizens working abroad but evading tax in the respective countries.
- The government further clarified that this provision is only to prevent the blatant misuse of the provisions of tax exemptions. This would not affect the ‘bonafide Indian workers or businessmen’ abroad.
- Income earned by citizens belonging to the category of NRIs, RNOR or Indian residents in India is still taxable in India. The above provisions in no way provide for exemption of any tax to be paid on income earned in India.