No, NRIs Are Not Exempt from Income Tax in India
A widely circulated misconception on social media claims that from April 1, 2025, all Non-Resident Indians (NRIs) will be exempt from paying income tax in India if their Indian income is below ₹12 lakhs. This is completely inaccurate.
The zero-tax benefit for income up to ₹12 lakhs introduced in the Union Budget 2025 is exclusively for Resident Individuals who opt for the New Tax Regime. It is not applicable to NRIs, Hindu Undivided Families (HUFs), or non-resident taxpayers.
Under the New Tax Regime, effective from April 1, 2025, resident individuals earning up to ₹12 lakhs annually can avail a rebate of ₹60,000 under Section 87A, effectively reducing their tax liability to zero. However, this rebate is not available to NRIs.
On the contrary, NRIs will now be required to file their Income Tax Return (ITR) in India if their total Indian income exceeds ₹4 lakhs in a financial year starting April 1, 2025. Until FY 2024–25, this threshold was ₹3 lakhs under the new regime.
As per Indian tax laws:
NRIs must file a return if their total taxable income in India exceeds ₹4 lakhs from FY 2025–26 onward (₹3 lakhs for FY 2024–25).
They are taxed only on income earned or accrued in India, not on their global income.
Despite being liable, many NRIs fail to file returns due to:
Misunderstanding the legal requirement.
Perception of income being too small.
Dependence on Tax Deducted at Source (TDS) as full and final tax.
Lack of time or documentation.
Belief that TDS eliminates the need for return filing.
Even if not mandatorily required, filing a return offers several benefits:
Most of an NRI’s income in India — including interest on NRO accounts, dividends, rental income, and capital gains — is subject to TDS at flat rates. Often, the actual tax liability is lower than the TDS deducted. Filing a return is the only way to claim a refund for such excess deduction.
Non-filing may lead to scrutiny assessments, reopening of cases, or notices for source of funds (especially in property transactions). Filing a return prevents avoidable litigation and establishes a clear record with the Income Tax Department.
Indian tax returns act as a supporting document while reporting Indian income in the home country. This ensures compliance with global tax laws and transparency.
Filing a return enables NRIs to claim credit in their home country for taxes paid in India, thus avoiding double taxation.
Having a regular tax filing history in India is helpful when applying for loans, buying property, or conducting high-value transactions in India.
It is important to stay informed and compliant, especially with evolving tax laws. The new rebate of ₹60,000 under Section 87A is a welcome move—but it benefits only Resident Individuals, not NRIs.
Regardless of income thresholds, NRIs are strongly advised to file their Income Tax Return in India to claim refunds, stay compliant, and avoid potential legal complications in the future.
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