NRI Taxation Guide: What Changes Under the Income Tax Act, 2025

Residential status, TDS on property, and what genuinely stays the same for NRIs

If you're an NRI, or planning to become one, there's a natural worry every time a new tax law rolls out: does this change how much of my foreign income India can now touch? With the Income Tax Act, 2025 now in force, that question is worth answering properly  because the honest answer is "mostly no, but a few specific things genuinely matter."

Let's separate what's actually changed from what's just been renumbered, and what stays exactly as it was.

The Big Reassurance First

The Income Tax Department has been direct on this point: the core features of the special NRI taxation regime remain unchanged under the new Act. Your residential status categories, the scope of what's taxable, and the fundamental logic of how NRI income is treated haven't been rewritten. What's changed is mostly structural section numbers, some definitional cleanup, and two specific rules tightened for a narrow group of high-income individuals.

How Residential Status Still Works

Section 6 continues to govern residential status under the new Act too same section number, broadly similar framework. There are still three categories, and they still determine everything:

RNOR remains what it's always been  a transitional status, most often seen among NRIs returning to India, giving some breathing room before their foreign income comes fully into the Indian tax net.

The Two Changes That Actually Matter

1. The Deemed Residency Rule Has Moved  and It's Been Sharpened

Previously, Section 6(1A) of the 1961 Act deemed certain high-income Indian citizens as residents even if they hadn't spent meaningful time in India  specifically targeting people structuring their affairs through zero-tax jurisdictions to avoid residency anywhere. Under the new Act, this now lives in Section 6(7), applicable for tax years from 1 April 2026 onward.

That's a meaningfully shorter window. A four-month visit home  attending a wedding, helping a parent recover from surgery, or simply spending an extended stretch with family  can now shift your tax status if your Indian income crosses that ₹15 lakh mark. It doesn't make you a full resident taxed on worldwide income, but it does pull you into RNOR, which is a real category shift worth planning your travel around if you're close to that threshold.

2. TDS on Property Sales: Same Rate, New Section Number

When someone buys property from an NRI seller, the buyer is still required to deduct TDS on the transaction  that obligation hasn't gone anywhere. What's changed is the section it lives under: Section 195 of the 1961 Act becomes Section 393(2) under the Income-tax Act, 2025, effective from 1 April 2026. The rates themselves are unchanged:

• Property held over 24 months: TDS at 12.5% on the capital gains, or on the entire sale amount if no Lower Deduction Certificate has been obtained.
• Property held 24 months or less: TDS at the applicable slab rate, which can go as high as 30%.

If you're an NRI selling Indian property, the practical takeaway is the same as before: apply for a Lower Deduction Certificate from the Assessing Officer well in advance if your actual tax liability is lower than the flat TDS rate, so the buyer doesn't over-deduct at source and lock up your funds until refund time.

What Hasn't Changed at All

• Once determined, your residential status for a year can't be reopened — this principle continues under the new Act exactly as it did before.
• Historical years stay governed by the old rules. A repeal clause specifically ensures that deemed residency for tax years before 1 April 2026 continues to be tested under the old Section 6(1A)  not the new Section 6(7)  so there's no retrospective reclassification of your past filings.
• Capital gains exemptions available to NRIs  such as Section 54 on selling a residential house, subject to the ₹10 crore cap  continue to apply in the same way as they do for resident taxpayers.
• DTAA relief for avoiding double taxation on income taxed both in India and your country of residence remains fully intact.
• NRO and NRE account requirements  using NRO for Indian-sourced income and NRE for foreign earnings remitted to India  continue as before.

A Quick Note on Crew Members and Seafarers

One clarification that's been reinforced: Indian citizens working outside India, including crew members on Indian ships, are governed by the same non-resident treatment principles as any other NRI  day-count and income-based tests apply in the same way, without any special carve-out that changes their fundamental status determination.

What NRIs Should Actually Do Now

1. If your Indian-sourced income is close to or above ₹15 lakh, track your total days in India carefully  the 120-day threshold under Section 6(7) is now a real trigger point, not just a theoretical one.
2. If you're planning a property sale in India, apply for a Lower Deduction Certificate ahead of the transaction rather than dealing with a large upfront TDS deduction under Section 393(2).
3. Keep your NRO/NRE account documentation and residency proof updated, since incorrect classification remains one of the most common triggers for tax notices and scrutiny.
4. If you returned to India recently or are planning to, understand your RNOR eligibility carefully  it's still your best transitional cushion before full resident taxation kicks in.

The headline for most NRIs is genuinely reassuring: the fundamental regime hasn't been overhauled. But if you're a high earner from Indian sources who travels back frequently, the tightened 120-day rule under Section 6(7) is the one change worth actually building your travel calendar around.

Frequently Asked Questions