Union Budget 2026: What’s Changing for NRIs

The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman on February 1, 2026, continues the government’s focus on growth, simplification of tax compliance, and facilitation of investment. While the budget did not introduce sweeping new tax rate cuts, it incorporated important changes that could affect Non-Resident Indians (NRIs)—particularly in investment flexibility and compliance norms.

What are the changes for NRIs in Budget 2026?

Below are the key direct tax changes relevant to NRIs:

No Change in Basic Income Tax Slabs

Budget 2026 did not revise income tax slab rates for individual taxpayers. Tax rates and slabs applicable for FY 2026-27 under both old and new regimes remain unchanged. This means the basic structure for tax computation continues as before, and NRIs are taxed on their India-sourced income at the prevailing rates.

Staggered Income Tax Return Timelines

While the standard due date for most individual taxpayers (such as ITR-1 and ITR-2 filers) will remain 31 July, the Budget proposes to stagger return filing timelines for taxpayers with business income. The proposed timelines applicable to Non-Residents are as follows:

Revised Income Tax Return Deadline Extended to March 31

Budget 2026 proposes to extend the deadline for filing revised income-tax returns from the earlier date of December 31 to March 31 of the assessment year, subject to the payment of a nominal fee. This additional three-month window allows taxpayers more time to correct mistakes or include omitted income before the assessment year closes.

Expanding the Scope of Updated Returns

The scope of Updated Returns is also proposed to be extended to such cases where the taxpayer is reducing the amount of loss in comparison to the amount of loss claimed in the Income Tax Return within the original due date.

Budget 2026 has also proposed that an Updated Return may be allowed to be filed in such cases where reassessment proceedings have been initiated. This measure is aimed at reducing litigation by giving an opportunity for taxpayers to voluntarily disclose income and comply with tax obligations.

Simplified Compliance in Property Transactions

To ease real estate transactions involving NRI sellers, the government proposed that residents purchasing property from non-resident sellers may now remit TDS using the buyer’s PAN-based challan, removing the prior requirement for the buyer to obtain a separate TAN. This is expected to simplify TDS compliance and reduce procedural delays in property deals for residents. However, it may be noted that non-residents purchasing property from non-residents will continue to attract the requirement to obtain a TAN to deposit the TDS.

Foreign Asset Declaration & Compliance Window

Many taxpayers have unknowingly failed to report foreign income or assets. This includes ESOPs or RSUs received by residents from overseas employment, old or low-balance foreign bank accounts of former students, foreign savings or insurance policies held by returning NRIs, and assets held during overseas deputation. To address such unintentional non-disclosures, a one-time Foreign Assets of Small Taxpayers Disclosure Scheme, 2026, of six months is proposed.

Under this scheme, undisclosed foreign income or assets (up to specified limits) can be disclosed by paying tax, along with relief from heavy penalties and prosecution. For instance, foreign assets having fair market value not exceeding ₹5 crores, acquired while being a non-resident but not reported in the Income Tax Return after becoming a resident, can be declared on payment of a fee of ₹1 lakh.

The scheme is meant for small taxpayers such as students, technology professionals, and NRIs who have relocated back to India.

This scheme will be especially useful for returning NRIs who still have dormant foreign bank accounts that were not reported earlier.

Changes in TCS Provisions

Budget 2026 proposes amendments to the Tax Collected at Source (TCS) provisions in respect of two transactions that are particularly relevant from a non-resident perspective:

Harsher Penalties on Undisclosed Investments / Expenditures / Money

Budget 2026 has proposed changes to the taxation of undisclosed investments, expenditures, or money, a provision often triggered in the case of non-residents investing in India. Non-residents investing in fixed deposits, real estate, etc., in India and not filing their tax returns in India often find themselves faced with Income Tax notices seeking the source of such investments. Where the non-resident fails to prove the source / fails to respond to such notices, such investments are fully added to their income and taxed as “Undisclosed Investment.”

Budget 2026 has proposed that the tax rate on such additions be reduced from 60% to 30%; however, the penalty has been increased to 200% of the tax payable (as against 10% earlier). Accordingly, non-residents must ensure proper disclosure of their investments and timely responses to tax notices to avoid severe penal consequences.

Tax on Buybacks

Budget 2026 also proposes to change the tax treatment of share buybacks by taxing the consideration received by shareholders as capital gains, instead of treating it as dividend income. For ordinary shareholders, the applicable capital gain tax rate shall apply. In the case of promoter shareholders, gains arising from buy-backs will be subject to an effective tax rate of 30%, and in the case of promoter companies, at the rate of 22%.

Tax Exemption on Motor Accident Compensation and Interest

Budget 2026 also proposed to provide tax relief in respect of compensation awarded by the Motor Accident Claims Tribunal (MACT). The interest component received on such compensation by an individual or their legal heirs has been exempted from income tax, and no TDS will be applicable on such interest. This ensures that accident victims and their families receive the full benefit of the compensation without tax deductions.

Increased Investment Flexibility for NRIs (Portfolio Investment Scheme)

Budget 2026 has also proposed higher equity investment limits for Individual Persons Resident Outside India (PROI) (which include NRIs and OCIs) investing through the Portfolio Investment Scheme (PIS).

The individual investment limit has been increased from 5% to 10%, while the aggregate cap for all overseas investors in the listed Indian company has been raised from 10% to 24%. This change provides greater investment flexibility and significantly more headroom for individual overseas investors to participate in Indian equity markets, with investments continuing to remain freely repatriable.

Changes in Securities Transaction Tax (STT)

Budget 2026 proposes higher STT rates on derivatives trading, effective 1 April 2026. The increases are aimed at moderating speculative activity in the futures and options (F&O) segment of the stock market.

Revised STT rates under the new budget:

STT on the sale of futures in securities is increased from 0.02% to 0.05% of the traded price.

STT on the sale of options is raised to 0.15%.

These changes mean that derivatives trading, especially frequent or high-volume F&O activity, will become costlier from the new financial year.

Conclusion

Overall, the Union Budget 2026 brings meaningful and measured changes for NRIs, focusing more on compliance ease, flexibility, and transparency. From extended timelines, simplified TDS on property transactions, a wider updated return window, revised TCS provisions for foreign remittances, Tax relief on Motor Accident compensations, a higher investment limit under PIS to create more investment opportunities, and a one-time foreign asset disclosure scheme - all of these provisions are aimed at easing the tax burden and encouraging voluntary compliance for NRIs. At the same time, strict penalties for non-disclosure investments and a higher security transaction tax have been implemented. In short, the budget has made changes for future investments and ease of compliance with severe regulations that are costlier to overlook tax obligations.

FAQs

Has the Income Tax Return (ITR) filing deadline changed for NRIs?

Yes. NRIs without business income must file by 31 July. Those with business income (non-audit cases) get an extended deadline of 31 August, while audit cases continue to have a 31 October deadline. Also, the timeline for revising ITRs already filed has been extended to 31 March, subject to payment of a fee.

Is TAN mandatory for buying property from an NRI?

Yes, under the existing law, it is mandatory for all buyers purchasing property from an NRI seller to obtain a TAN to deposit the TDS. It is proposed that the resident individual will not be required to obtain a TAN where TDS is required to be deducted by him on any consideration for the transfer of any immovable property and the seller of the property is a non-resident. However, the requirement for TAN in case of non-residents purchasing property from a non-resident continues to apply.

Is the declaration of foreign assets and foreign incomes under the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026, applicable to Non-Residents?

Yes, disclosures can be made by persons who are now non-residents if they acquired the foreign asset or earned the foreign income while they were residents in India.

What is the “undisclosed foreign income” that can be declared under the Foreign Assets of Small Taxpayers Disclosure Scheme, 2026?

It refers to the total income earned by an assessee from a source outside India that was liable to be taxed in India but was not reported or offered for taxation.

What is the revised rate of Securities Transaction Tax on the sale of an option in securities?

The Securities Transaction Tax (STT) on the sale of options in securities has been raised from 0.1% to 0.15%, and the tax will now be calculated based on the option premium.