Finance Act 2025: What it means for NRIs?

The Finance Act 2025, which was implemented earlier this year, has brought a mix of changes, both encouraging and unfavorable, to NRI taxation rules.

The government’s strategic plan to retain the 30% TDS on NRI income sources appears to be a blow to NRIs, as they focus on tightening tax remittances and collection. On the other hand, the government has modified the tax slab rates as well as reduced compliance on remittances and relief on the TCS threshold.

The revised policy signals a strategic balance, offering broader tax benefits while maintaining a solid and strong revenue income. While the government’s strategic plans appear to be focusing on boosting disposable income, it has also improved the NRI tax framework by encouraging legitimate investments and reducing the tax burden.

Overall, it has provided great relief for the NRI residents. Keep reading to find out what benefits NRIs can enjoy under the new budget.

What is in the Finance Act 2025 for NRIs?

Each year, the finance bill is updated to reflect the nation's current financial situation. Notable changes have been made in the Finance Act 2025. In this section, you will find significant improvements made in the NRI taxation framework.

1. Enhanced Tax Slabs under New Tax Regime

Under the new tax regime, the income tax slab rates are revised, offering great relief to the middle-class taxpayers. Meanwhile, tax slabs under the old tax regime remain unchanged in the Finance Act, 2025.

In the new tax regime, tax slab rates start from ₹4 lakhs, and individuals earning up to ₹4 lakhs are exempt from paying tax. Additionally, it also eliminates most deductions while providing lower tax rates to encourage more individuals to adopt the simplified tax structure.

Here is an overview of the new tax slab rates:

• Income Tax and Rebate Restrictions

The next notable change that has been revised in the New Tax Regime is the enhancement of the limit of income tax rebate from ₹7 lakh to ₹12 lakh. Special rate incomes, such as capital gains, are excluded from rebate benefits. This will help boost disposable income and increase consumption, which can contribute to the country’s economy.

However, Non-Residents cannot benefit from the rebate and hence must start paying tax on income exceeding the proposed slab limit of 4 lakh.

• Extension of Timeline for Updated Returns

Timeline extensions for updated returns were first introduced in the Budget 2022 to help taxpayers update their ITR filing error-free from their previously filed returns even after the deadline. Updated returns promote transparency and reduce legal consequences due to incorrect filings.

Currently, taxpayers can file updated returns within three years from the end of the relevant financial year by paying an extra tax of 25% (for up to two years) or 50% (for two to three years).

In order to promote a feasible experience, the government has proposed extending this period further to five years, with an additional tax of 40% (for three to four years) and 70% (for four to five years).

• Changes in TCS Threshold

For Non-Residents’ family members staying in India, it would be a relief to know that the Tax Collected at Source (TCS) on remittance under the Liberalized Remittance Scheme (LRS) has also been revised.

For education and medical remittances, TCS applies only to amounts that exceed ₹10 lakh. In addition, TCS has been eliminated for the purpose of education, where funds were obtained through loans from financial institutions.

Although, for investments, the 20% TCS remains with a higher threshold of ₹10 lakh.

• Revised Tax Rules for Life Insurance Policies

Unit Linked Insurance Policies (ULIPs), on which exemption under Section 10(10D) of the Income-tax Act, 1961 cannot be availed under the New Tax Regime, will now be taxed as “equity-oriented units” under the head Capital Gains. This revised move could potentially lower tax liabilities for ULIP holders.

Earlier, it was taxed under the “Other Sources” category, which results in a tax rate of up to 30%. As it comes under the capital gains in the revised tax, taxing them as an “equity-oriented unit” may limit the tax liability to a reduced rate of 12.5%.

• Tax Benefits Granted to NPS Vatsalya Scheme for Minors

The Budget 2025 has also introduced a new proposal of tax benefits for the NPS Vatsalya Scheme, a savings-cum-pension plan for minors launched in September 2024. The new proposal includes that contributions of up to ₹50,000 will qualify for a deduction under Section 80CCD(1B) of the Income Tax Act, 1961.

However, it is important to keep in mind that this tax deduction benefit is only available in the old tax regime, reducing its appeal for those opting for the new tax regime.

Other tax benefits proposed for the NPS Vatsalya Scheme are exemption for partial withdrawals up to 25% for education or medical needs of the minor. Withdrawals upon maturity from the scheme are fully taxable, except in the case of a minor’s death.

• New Compliance Rules for Cryptocurrency Transactions

With the emerging popularity of cryptocurrency, the Budget 2025 has brought in a taxation framework aimed at monitoring and tightening cryptocurrency transactions.

The framework includes mandatory reporting of cryptocurrency transactions, with penalties for inaccurate disclosure of the transaction information. NRIs who are investing in cryptocurrency must ensure complete transparency in their tax filings to avoid hefty fines and legal consequences.

Despite minor changes in the cryptocurrency regulation, the overall tax framework for NRIs in cryptocurrency remains largely uncertain.

Conclusion

The Finance Act 2025 has not made sweeping changes specifically targeting NRIs, but it introduced several key updates that NRIs should be aware of for effective tax planning.

The revised tax slabs, rebate restrictions, extended timelines for updated returns, and changes in TCS and ULIP taxation collectively reshape the compliance and investment landscape.

Additionally, new provisions like the NPS Vatsalya Scheme and cryptocurrency reporting rules highlight the government’s intent to enhance transparency and encourage financial discipline. NRIs must assess their tax strategies carefully in light of these developments to remain compliant and optimize their financial outcomes.