As Finance Minister Nirmala Sitharaman gears up to present the Union Budget 2025, the global Indian diaspora of 35.42 million is hopeful for much-needed tax reforms. Non-Resident Indians (NRIs) are particularly looking for changes in residency rules, simplified property transaction tax processes, and relief in trading income taxation to navigate India’s tax system more efficiently.
Residency Rule Update: Simplifying Compliance
The 2020 Finance Act introduced stricter tax residency norms, categorizing individuals based on the duration of their stay in India and their Indian income. Currently:
- Those staying less than 120 days are non-residents.
- Those staying 120-182 days with Indian income below Rs 15 lakhs are also non-residents.
- Individuals staying 120-182 days with Indian income above Rs 15 lakhs are classified as “not ordinarily resident” (NOR), making their India-sourced income taxable at resident rates.
With NRIs facing challenges in determining residency status, there is a growing demand for reinstating the 182-day limit to reduce ambiguity and ensure compliance. The proposed Direct Tax Code (DTC) is expected to streamline these rules and encourage adherence.
Simplifying TDS on Real Estate Transactions
For NRIs selling property in India, compliance with Section 194-IA of the Income Tax Act is cumbersome. While property buyers deduct 1% TDS for transactions exceeding Rs 50 lakh, when the seller is an NRI, higher tax rates apply, requiring:
- A Tax Deduction Account Number (TAN).
- Submission of e-TDS returns.
- Management of a complex TDS process.
NRIs are urging for simplified property transaction processes in the upcoming budget to eliminate administrative hurdles and improve ease of doing business.
Relief in Trading Income Taxation
NRIs have expressed concerns over high taxes on trading income, calling for reductions to encourage their participation in India’s financial markets. A lower tax rate on trading income could attract more long-term investments from the overseas community and strengthen market growth.
Addressing Tax Filing Challenges
The tax filing process for NRIs often involves hurdles such as:
- Aadhaar linkage requirements.
- Inability to e-verify tax returns due to lack of Indian bank accounts or access from foreign IP addresses.
Streamlining e-verification and allowing global access to tax forms could ease compliance and enhance filing efficiency.
Improving Treaty Benefits Accessibility
To claim treaty benefits, NRIs must submit Form 10F electronically, along with a Tax Residency Certificate (TRC) from their home country. However, foreign authorities often cannot certify residency for future periods. Experts recommend permitting TRCs from past years with an option to submit the current year’s TRC during tax filing, reducing delays and improving accessibility.
Conclusion
With rising contributions to the Indian economy, NRIs are hopeful for reforms that address their long-standing tax challenges in Budget 2025. From streamlining residency rules to simplifying property transactions and trading income taxes, the proposed changes could encourage greater NRI participation and strengthen India’s global economic ties.
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