Can NRIs Opt for New Tax Regime?
- PRITI SIRDESHMUKH
- Oct 27
- 9 min read
Non-Resident Indians (NRIs) often face confusion about whether they can access India’s new tax regime. For the financial year 2025-26, the revised framework provides an option for all individual taxpayers, including NRIs. The new regime offers lower tax rates with expanded slab limits but removes most exemptions and deductions. Understanding how this impacts taxable income, the availability of rebates, and the treatment of NRI-specific income like interest on NRO accounts is essential before making a choice.
Table of Contents
Can NRIs Opt for the New Tax Regime?
Yes, Non-Resident Indians (NRIs) are eligible to opt for the new tax regime for the financial year 2025-26. The Income Tax Act, 1961, does not impose any restriction preventing NRIs from choosing the revised regime. This option is available to all individual taxpayers, whether resident or non-resident. However, the choice applies only to income that is taxable in India, such as salary for services rendered in India, capital gains from Indian assets, rental income from property located in India, or interest earned on NRO accounts. Foreign income, unless deemed taxable due to residency rules, is not subject to this regime.
Key Features of the New Tax Regime for NRIs
The new tax regime was introduced to simplify the income tax framework by offering a straightforward set of slab rates while removing the majority of exemptions and deductions that were earlier available under the old system. For the financial year 2025-26, the revised slabs under the regime have been structured to provide gradual tax liability based on income brackets.
Income up to ₹4 lakh is completely exempt from tax. This expanded exemption limit gives relief to individuals with modest taxable income.
Income between ₹4 lakh and ₹8 lakh is taxed at 5 percent. This low entry-level rate benefits taxpayers who fall into the middle-income category.
Income between ₹8 lakh and ₹12 lakh is taxed at 10 percent, effectively halving the rate compared to what would typically apply under the old regime at similar income levels.
Income between ₹12 lakh and ₹16 lakh is subject to 15 percent tax, continuing the gradual rise in rates.
Income between ₹16 lakh and ₹20 lakh attracts a 20 percent tax rate.
Income between ₹20 lakh and ₹24 lakh is taxed at 25 percent, marking a transition towards the highest slab.
Any income above ₹24 lakh is taxed at 30 percent, which is the peak rate under the new system.
For Non-Resident Indians, these rates are identical to those applicable to residents, ensuring equal treatment of income earned or received in India. This parity is significant because it avoids creating a separate category of taxation for NRIs, thereby simplifying compliance.
Another important feature of the regime is its default applicability. Unless the taxpayer specifically chooses to remain in the old tax regime, the new regime is automatically applied when filing the income tax return. For NRIs, this means a conscious decision must be made if they wish to take advantage of deductions and exemptions available only under the old system, such as those under Section 80C or 80D.
The overall design of the new regime aims to promote transparency and ease of compliance. By eliminating the complexity of multiple deductions, NRIs can evaluate their liability quickly and make informed decisions on whether to continue with the default option or switch to the old regime depending on their individual circumstances.
Is Section 87A Rebate Allowed for NRIs in the New Tax Regime?
The rebate under Section 87A is one of the key benefits offered in the new tax regime. It allows a rebate of up to ₹25,000 if the total taxable income does not exceed ₹7 lakh. However, this rebate is only available to resident individuals, not NRIs. Therefore, even though NRIs can opt for the new regime, they cannot claim the Section 87A rebate. This distinction makes a material difference when comparing tax liability between residents and non-residents.
How NRO and NRE Account Income is Taxed in the New Regime
Income earned through NRO accounts, such as interest income, rental receipts, or other Indian-sourced earnings, is taxable in India. This income will be taxed as per the slab rates of the regime chosen. If the new tax regime is selected, the income will be subject to the lower slab rates but without exemptions. In contrast, NRE account interest remains exempt under Indian tax laws, irrespective of the regime. This distinction is particularly relevant for NRIs managing different types of accounts in India.
Switching Between Old and New Tax Regimes for NRIs
Switching between the old and new tax regimes is an important decision for Non-Resident Indians (NRIs), and the law provides flexibility to make this choice each financial year. The Income Tax Act allows NRIs, like resident individuals, to evaluate their income profile annually and decide which regime results in a lower tax outflow. This flexibility is particularly valuable because NRIs often have varying sources of income, such as rental earnings, capital gains, or interest on NRO accounts, which may fluctuate year by year.
The option to switch is exercised at the time of filing the Income Tax Return. If an NRI does not specifically choose the old regime, the new regime becomes the default. However, those who wish to continue with the old regime, particularly if they want to claim deductions and exemptions such as investments under Section 80C or medical insurance under Section 80D, must indicate this preference clearly in their return.
It is important to note that the ability to switch each year is available only to NRIs who do not have business or professional income. For such taxpayers, the law requires a consistent choice unless specific conditions are met. For salaried NRIs or those earning passive income like rent and interest, this yearly flexibility makes tax planning more effective.
For example, if an NRI invests significantly in eligible instruments in a given year and qualifies for deductions, the old regime may yield better tax savings despite higher slab rates. Conversely, in years where deductions are minimal and income is straightforward, the new regime with its lower tax slabs could result in a lighter tax burden. This annual evaluation ensures that NRIs can align their tax planning with their financial activities without being locked into one regime permanently.
Filing Process for NRIs Under the New Regime
The process of opting for the new regime is straightforward. NRIs must indicate their choice when filing the Income Tax Return (ITR). If no choice is made, the system defaults to the new regime. The ITR requires NRIs to disclose Indian-sourced income and compute tax liability based on the chosen regime. Reliable platforms like TaxBuddy help streamline this process by offering both self-filing and expert-assisted plans, ensuring accurate computation and filing.
Benefits and Drawbacks of the New Tax Regime for NRIs
The new tax regime offers several advantages:
Lower tax rates with simplified slabs
No need to manage multiple deductions or exemptions
Streamlined compliance and easier filing
However, there are drawbacks:
Most deductions under Sections 80C, 80D, and other provisions are not available
No Section 87A rebate for NRIs
Tax efficiency may be reduced for those with significant investments in eligible instruments
The choice between regimes ultimately depends on the individual’s income profile and investments.
Practical Example: NRI Tax Calculation in New vs Old Regime
Consider an NRI with the following Indian income in FY 2025-26:
Rental income: ₹10,00,000
Interest on NRO account: ₹2,00,000
Total income: ₹12,00,000
Old Regime:
Gross income: ₹12,00,000
Deduction under Section 80C (e.g., ELSS, life insurance): ₹1,50,000
Deduction under Section 80D (medical insurance): ₹25,000
Taxable income: ₹10,25,000
Tax liability as per old regime slabs (approx.): ₹1,17,500 + cess
New Regime:
Gross income: ₹12,00,000
No deductions allowed
Tax liability as per new regime slabs (approx.): ₹80,000 + cess
In this case, the new regime results in a lower tax liability, despite the removal of deductions. However, the calculation could vary significantly based on the scale of eligible deductions.
Conclusion
For NRIs, the decision to opt for the new tax regime must be based on income patterns and potential deductions. The new regime offers lower rates and simplicity but excludes most tax-saving opportunities. Using digital tax platforms like TaxBuddy helps in comparing scenarios and making informed decisions. For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options?
TaxBuddy provides flexibility by offering both self-filing and expert-assisted plans. Self-filing allows users to independently file their returns with the help of an intuitive interface, while the expert-assisted option ensures professional review and filing by certified tax experts. This dual approach makes it suitable for both simple and complex returns.
Q2. Which is the best site to file ITR?
The Income Tax Department’s official portal remains the primary platform for e-filing returns. However, for taxpayers seeking ease of use, error-free calculations, and guidance, platforms like TaxBuddy have become popular choices. They combine automation with expert support, making the filing process quicker and more reliable.
Q3. Where to file an income tax return?
Income tax returns can be filed online on the Income Tax Department’s e-filing website. Alternatively, authorized e-filing intermediaries and platforms such as TaxBuddy provide user-friendly solutions that help taxpayers choose between regimes, claim eligible benefits, and ensure accurate filing.
Q4. Can NRIs file their returns under the new tax regime?
Yes, NRIs can file returns under the new tax regime for income earned or received in India. They must select the regime at the time of filing. The new regime offers simplified slab rates but does not permit most exemptions and deductions, which NRIs should consider when making their choice.
Q5. Are deductions like 80C and 80D allowed for NRIs under the new regime?
No, the new tax regime removes the benefit of deductions under provisions such as Section 80C (investments in ELSS, LIC, etc.) and Section 80D (medical insurance). NRIs who opt for the new regime cannot claim these deductions. These remain available only if they choose the old regime.
Q6. Is the Section 87A rebate available to NRIs in the new tax regime?
No, the Section 87A rebate is available only to resident individuals. While residents with income up to ₹7 lakh can claim this rebate under the new regime, NRIs are not eligible, regardless of their income level. This is a crucial difference to note before choosing a regime.
Q7. Is income from NRO accounts taxable under the new regime?
Yes, income from NRO accounts, such as interest earnings, is fully taxable in India. Under the new tax regime, this income will be taxed at slab rates without exemptions. Tax Deducted at Source (TDS) may also apply at higher rates for NRO accounts, making proper reporting in the return essential.
Q8. Can NRIs switch between old and new regimes every year?
Yes, NRIs without business income can switch between regimes every financial year. This flexibility allows them to evaluate which regime results in lower tax liability. For example, if deductions are substantial in one year, the old regime may be better, while in another year with fewer deductions, the new regime may prove advantageous.
Q9. Are NRE account interests taxable under the new regime?
No, interest earned on NRE accounts remains exempt from Indian income tax, regardless of whether the old or new regime is selected. This exemption continues to provide significant relief for NRIs holding NRE accounts.
Q10. Is the new regime beneficial for NRIs with no major deductions?
Yes, the new regime can be more beneficial for NRIs who do not have large deductions to claim. Since it offers reduced tax rates and simplified slabs, those with straightforward income streams may save more by opting for the new regime. However, NRIs with substantial deductible investments may find the old regime better suited.
Q11. How do NRIs report capital gains under the new tax regime?
Capital gains from the sale of property, shares, or other Indian assets must be reported separately in the Income Tax Return. The treatment of capital gains remains the same under both regimes, as the concessional tax rates on long-term and short-term gains are not replaced by slab rates. NRIs need to calculate these gains accurately and declare them under the applicable sections.
Q12. What is the process for NRIs to select the new regime while filing ITR?
NRIs can select the new regime directly when filing their Income Tax Return by choosing the appropriate option in the ITR form. If no option is specified, the new regime is applied by default. Filing through platforms like TaxBuddy simplifies this process, as the system automatically compares both regimes and highlights the better choice before submission.
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