As Finance Minister Nirmala Sitharaman prepares for the Budget 2025 announcements, many taxpayers, including Non-Resident Indians (NRIs), are anticipating long-awaited relief. NRIs are hoping for some changes to the 182-day residency criteria and simplification of Tax Deducted at Source (TDS) requirements for selling properties in India. These initiatives could help address ongoing challenges faced by NRIs in navigating India’s complex tax system and boost their economic participation.
Residency Rule update
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The Finance Act, 2020 brought about changes in the tax residency rules for India’s overseas community of 35.42 million individuals. With the introduction of stricter anti-avoidance measures, determining tax residency status has become more challenging. The revised framework now categorizes individuals based on the duration of stay and Indian income:
Individuals staying for less than 120 days are considered non-residents. Those staying between 120 and 182 days with Indian income below Rs 15 lakhs are also classified as non-residents.
Individuals staying between 120 and 182 days with Indian income exceeding Rs 15 lakhs are designated as “not ordinarily resident”, subjecting their India-sourced income to resident tax rates.
The main objective of the proposed Direct Tax Code (DTC) is to simplify these regulations, making it easier to monitor how long individuals stay in the country and meet income requirements over a span of several years. Reinstating the 182-day limit would probably enhance tax adherence for non-resident Indians (NRIs) and help uphold a strong tax foundation.
TDS on real estate
An important aspect to consider in the forthcoming budget is the complicated TDS compliance procedure for NRIs participating in property transactions. Present regulations within Section 194-IA of the Income Tax Act mandate buyers of properties exceeding Rs 50 lakh to deduct 1% of the transaction value as TDS. Nevertheless, in cases where the seller is an NRI, taxes are withheld at elevated rates, necessitating buyers to acquire a Tax Deduction Account Number (TAN), submit e-TDS returns, and manage a more intricate process.
Tax Relief for NRI Investors
Among the various tax reforms being considered for NRIs, there is a strong desire for a reduction in the taxation on trading income. Many NRIs believe that the current tax burden on trading income is unreasonable. Implementing a lower tax rate on NRI income from trading could potentially boost their involvement in Indian financial markets and draw in more long-term investments.
Tax Filing
NRIs typically encounter difficulties with e-verifying tax returns because of the requirements for Aadhar or Indian bank accounts. Simplifying the e-verification process and enabling seamless access to tax forms from international IP addresses could help address these issues and enhance the efficiency of tax filing for NRIs.
Treaty benefits
In order to avail treaty benefits, non-resident Indians (NRIs) are required to electronically submit Form 10F and provide a Tax Residency Certificate (TRC) from their home country. It is important to note that foreign tax authorities typically cannot confirm residency for future periods. To address this issue, Rohinton Sidhwa, Tax Partner at Deloitte India, has suggested a solution. He proposed allowing NRIs to initially submit TRCs from the past one or two years, with the current year’s TRC to be provided later when filing their Indian tax return. This adjustment has the potential to minimize delays and enhance accessibility for NRIs seeking treaty benefits.