Changes in Tax Residency Rules for NRIs under the Income Tax Bill 2025

The Income Tax Bill 2025 has introduced simpler rules to decide who is a tax resident in India. This change is meant to make tax laws clearer and help Non-Resident Indians or NRIs plan their taxes easily. The new rules are also expected to stop people from avoiding taxes by staying abroad for long periods.

Income Tax Bill 2025: New Residency Rules for NRIs

In the past, NRIs only needed to stay less than 182 days in India during a financial year to keep their status. But now, if an NRI earns more than ₹15 lakh in India, they will be considered a resident if they stay for at least 120 days in India during the tax year.

Ram Medury, the founder and CEO of Maxiom Wealth, said, “Earlier, NRIs could maintain their status if they stayed in India for less than 182 days in a financial year. Now, if an NRI earns over ₹15 lakh in India, they will be considered a resident if they stay for 120 days or more.”

According to Upstox, Medury also mentioned that this change is in line with global practices, which are meant to stop tax avoidance through long stays abroad. NRIs who want to keep their status as non-residents must be careful about how many days they spend in India and plan their travel accordingly.

Who Will Be a Resident or Non-Resident?

The new Income Tax Bill explains residency rules in Section 6. According to these rules, a person will be considered a resident in India if they meet either of the following conditions:

• lived in India for a total period of 182 days or more in a tax year.

or

• They stay in India for 60 days or more in the current year and a total of 365 days or more in the previous four years.

Exceptions:

• The rule does not apply to Indian citizens working on an Indian ship or working abroad in the tax year.
• It also does not apply to an Indian citizen or a person of Indian origin who visits India while living outside India. But, if such a person earns more than ₹15 lakh in India during the year (other than from foreign income), they will be considered a resident if they stay in India for 120 days or more.

Tax on Foreign Income for RNORs

Under the new rules, Non-Resident Indians (NRIs) who are classified as Resident but Not Ordinarily Resident (RNOR) will now be taxed on foreign passive income, such as rental income, dividends, or interest from abroad. This is like how the United States taxes its citizens under the FATCA (Foreign Account Tax Compliance Act). Ram Medury explained, “For NRIs with rental income, dividends, or interest earnings abroad, this would mean a higher tax liability in India.”

Also both NRIs and residents must now report their foreign assets and bank accounts to the Indian tax authorities. This rule is in place because of global agreements that help countries share tax information.

“This aligns with global information-sharing agreements, ensuring tax compliance across jurisdictions. Those with investments in foreign stocks, bank accounts, or properties must maintain detailed records and ensure compliance to avoid penalties,” added Medury.