Budget 2025 for NRIs: Tax and policy changes
The Union Budget for the financial year 2025-26 was announced on February 1st, with some key updates relevant to Non-Resident Indians (NRIs). While taxation remains a primary area of interest, the budget also introduced significant policy reforms and enhancements for GIFT City, India’s offshore financial center.
This blog breaks down the key takeaways for NRIs under three broad categories: taxation, policy updates, and developments in GIFT City.
Taxation Updates for NRIs
One of the major highlights of Budget 2025-26 was the revision of income tax slabs under the new tax regime, which applies to both residents and NRIs. The revised tax slabs are as follows:
| Income Slab (FY 2024-25) | Tax Rate | Income Slab (FY 2025-26) | Change |
| Up to Rs. 3 lakhs | 0% | Up to Rs. 4 lakhs | Slab threshold increased by Rs. 1 lakh |
| Rs. 3 – 7 lakhs | 5% | Rs. 4 – 8 lakhs | Slab threshold increased by Rs. 1 lakh |
| Rs. 7 – 10 lakhs | 10% | Rs. 8 – 12 lakhs | Slab threshold increased by Rs. 1 lakh on the lower limit and Rs. 2 lakh on the upper limit |
| Rs. 10 – 12 lakhs | 15% | Rs. 12 – 16 lakhs | Slab threshold increased by Rs. 2 lakh on the lower limit and Rs. 4 lakh on the upper limit |
| Rs. 12 – 15 lakhs | 20% | Rs. 16 – 20 lakhs | Slab threshold increased by Rs. 4 lakh on the lower limit and Rs. 5 lakh on the upper limit |
| Nil | 25% | Rs. 20 – 24 lakhs | New tax slab introduced |
| Above Rs. 15 lakhs | 30% | Above Rs. 24 lakhs | Slab threshold increased by Rs. 9 lakhs |
While the tax slabs have been made more progressive, one key point to note is that the rebate under Section 87A for income below Rs. 12 lakhs is not available for NRIs. This means that despite the changes in slabs, NRIs will not benefit from the tax exemption that resident individuals earning up to Rs. 12 lakh will receive.
Additionally, there were no changes in tax rates or holding periods for assets, meaning that the existing long-term and short-term capital gains tax rules remain in effect.
Another significant change is regarding investments in Category I and II Alternative Investment Funds (AIFs), which include venture capital, private equity, and debt funds. The budget clarified that income from these AIFs will now be treated as capital gains and taxed at 12.5% instead of slab rates. This change significantly reduces the tax burden on NRIs investing in these asset classes.
Lastly, the timeline for filing revised income tax returns has been increased from two years to four years. This is beneficial for individuals who may have inadvertently omitted some income in previous filings, giving them more time to make corrections—albeit with penalties.
Policy Updates: Centralized KYC Norms
One of the most challenging aspects of financial transactions for NRIs is the Know Your Customer (KYC) process. Currently, individuals must undergo multiple KYC verifications when investing in different financial products, creating a cumbersome experience.
To simplify this, the government has announced the rollout of a centralized KYC platform, which aims to streamline the process and reduce redundant verifications. This initiative has the potential to greatly ease access to financial products for NRIs, making it simpler for them to invest and transact in India.
GIFT City: Strengthening India’s Offshore Financial Hub
GIFT City is India’s answer to global offshore financial centers like Singapore and Dubai. Functioning as an International Financial Services Centre (IFSC), it allows transactions in foreign currencies and provides tax incentives for international investors.
This year’s budget introduced new measures to enhance GIFT City’s appeal for both businesses and investors, particularly NRIs. Here are some key announcements:
1. Tax Exemption for Gains on Insurance Policies
The budget proposed a tax exemption on maturity proceeds from dollar-denominated insurance policies sold via GIFT City, provided the premium does not exceed 10% of the sum assured. There is no upper limit on the premium amount.
Previously, GIFT City-linked ULIPs and endowment plans were taxable if the annual premium exceeded Rs. 2.5 lakh (for ULIPs) or Rs. 5 lakh (for other life insurance plans). This change makes offshore insurance products more attractive for NRIs looking to invest in dollar-denominated policies.
2. Relocation of Offshore Funds and ETFs
Many offshore funds tracking Indian indices, such as Sensex and Nifty, were traditionally set up in low-tax jurisdictions like Singapore and Mauritius. The budget has now introduced a relocation regime, allowing fund managers to shift these funds to GIFT City without incurring capital gains tax.
This move is significant because it enables NRIs to invest in low-cost retail funds and ETFs via GIFT City while enjoying tax-free capital gains—a major incentive for international investors.
Conclusion
The Union Budget 2025-26 introduces several positive changes for NRIs, particularly in taxation, financial accessibility, and investment options via GIFT City.
- The revised tax slabs offer more flexibility but exclude NRIs from key rebates.
- The centralized KYC system aims to simplify financial onboarding for NRIs.
- The GIFT City reforms make offshore investments and insurance more attractive, with tax-free capital gains and exemptions on insurance payouts.
As India strengthens its position as a global financial hub, these changes are likely to enhance NRIs’ ability to invest and participate in the country’s economic growth. For those looking to optimize their tax liabilities and investment portfolios, staying updated with these policy shifts is crucial.
Disclaimer: This blog is for informational purposes only and should not be considered financial or tax advice. Please consult with a qualified professional for personalized guidance.
