As Finance Minister Nirmala Sitharaman is about to present the Union Budget 2025 on February 1st, the NRI community will be closely monitoring announcements that impact their taxation, remittances, and investment opportunities in India. With global mobility increasing and NRIs contributing significantly through foreign remittances and investments, several key expectations are emerging.
- Clarity on Residency Rules – The 2024 Budget introduced changes in determining NRI residency status, and further refinements are expected. Many NRIs seek a more precise definition of “resident but not ordinarily resident” (RNOR) and relaxation in the number of days required for determining tax residency. NRIs who resides more than 120 days in the particular financial year and more then 365 days in the last 4 financial years will be treated as residents (ROR) and their foreign income shall be taxed in India. However, if you don’t comply with the second condition then you will be considered as resident but not ordinarily resident (RNOR) and therefore your foreign income will be exempted in India. Thus, the NRIs should in advance plan their visits in India so that they don’t increase their tax burden in India.
- TDS on NRI Investments – High Tax Deducted at Source (TDS) rates on NRI incomes, such as capital gains from property sales and fixed deposit interest, often lead to refund situations and cash flow challenges. The major challenge they face is while selling a property in India. A flat rate of 12.5% is deducted when they sell a property. NRIs expect a more balanced approach, possibly introducing a lower TDS rate or a mechanism to avoid excessive deduction easing the TDS structure for both buyers and sellers.
- Simplification of Foreign Income Taxation – Many NRIs earn income from multiple countries, leading to double taxation complexities. Following this the budget 2024 brought the simpler and newer rules for the DTAA. The Double Taxation Avoidance Agreement (DTAA) helps NRIs from preventing taxed twice. The Upcoming Budget is expected with making this provision easier. Further easing of Foreign Tax Credit (FTC) provisions, as well as clearer guidelines on taxation of foreign pensions and passive incomes, would be beneficial.
- Repatriation and Investment Incentives – The government may consider measures to attract more foreign capital from NRIs, including tax-free repatriation limits which helps NRIs to transfer their funds to the country they reside without any implications under the Indian tax law, enhanced benefits under NRE/NRO accounts which can be by giving tax exemptions on interest earned or by providing higher interest rate, or special tax exemptions on reinvestment of funds into India. This would encourage NRIs to invest more in India.
- Real Estate Investment Support – Many NRIs invest in Indian real estate but face cumbersome compliance, especially under FEMA and RERA. Several changes should be considered for more investment from NRIs in this sector. Reducing the capital gain tax would be one of the significant changes. Expectations include relaxed norms for repatriation of property sale proceeds, lower capital gains tax rates, and improved transparency in real estate taxation.
- Banking and FEMA Relaxations – Simplification of FEMA rules, especially concerning the Liberalized Remittance Scheme (LRS), taxation of remittances, and NRI access to Indian financial instruments, remains a key demand. Facilitating easier movements and a more user-friendly structure for global banking would be beneficial for the NRIs.
- Digital Banking and Fintech Initiatives – Given the growing importance of digital banking, NRIs expect more seamless and accessible international transactions for quick and efficient fund transfer, Expansion of Unified Payments Interface (UPI) would more simplify the process of fund transfer, and better integration of fintech solutions to ease cross-border payments and investments. These expansion and improvement would not only be beneficial of NRIs but also will increase the financial betrothal in India.
- Special Investment Schemes for NRIs – The introduction of exclusive tax-saving schemes or infrastructure investment bonds tailored for NRIs could encourage long-term capital inflows. Some NRIs also anticipate special tax breaks on investments in start-ups or MSMEs in India.
Overall, NRIs are hoping for a budget that reduces tax complexities, enhances financial inclusion, and fosters investment-friendly policies, making it easier to remain connected with India’s economic growth. It is expected that the complications the NRIs currently face will be reduced it will be for them to cross the Indian Financial system.
