Can NRIs Benefit from the ₹12 Lakh Tax Exemption in Budget 2025? Key Updates and Tax Tips

The Union Budget 2025 has brought significant changes impacting NRIs tax benefits Budget 2025. While the new tax exemption for annual incomes up to ₹12 lakh offers substantial relief to resident taxpayers, NRIs need to be aware of the specific benefits and limitations that apply to their unique status. Understanding these NRIs tax benefits Budget 2025 is essential for effective tax planning, enabling NRIs to optimize their financial obligations and make informed decisions under the updated tax framework.

In this blog, we will explore the new tax rebate, eligibility criteria, and key tax-saving strategies for NRIs under Budget 2025.

Who Qualifies for the ₹12 Lakh Tax Exemption?

Under Section 87A of the Income Tax Act, individuals classified as residents with an annual income of up to ₹12 lakh can enjoy a tax rebate of up to ₹60,000, effectively making their income tax-free under the new regime.

However, this rebate is not available for NRIs. Let’s explore why.

Why NRIs Cannot Avail the ₹12 Lakh Tax Rebate

NRIs are not eligible for the ₹12 lakh tax rebate due to the following reasons:

Residency Requirement

• The tax rebate applies exclusively to resident taxpayers under the Indian Income Tax Act, meaning that NRIs cannot claim it due to their non-resident status.

Global Income Consideration

• Most NRIs earn income abroad and pay taxes in their country of residence. Since the rebate is intended for Indian residents, NRIs are excluded from claiming this benefit.

Section 87A Restriction

• Section 87A, which governs the tax rebate, only applies to residents, excluding NRIs, even if they earn below ₹12 lakh in India.

What About NRIs Earning Income in India?

Although NRIs cannot claim the ₹12 lakh exemption, they can benefit from the increased basic exemption limit, which has risen from ₹3 lakh to ₹4 lakh under the new tax regime.

Tax Slabs for NRIs Under Budget 2025

Under the new tax regime introduced in Budget 2025, the following tax slabs apply to NRIs earning income in India:

Returning NRIs – Can They Claim the ₹12 Lakh Exemption?

Returning NRIs may be eligible for the ₹12 lakh exemption, but only if they qualify as Resident but Not Ordinarily Resident (RNOR) under Indian tax laws. This status is available for up to two years after returning to India, which allows them to enjoy certain tax benefits, including potential eligibility for the rebate.

Capital Gains Tax Updates for NRIs

Budget 2025 introduces key updates in capital gains tax and TDS rates for NRIs selling property in India:

Long-Term Capital Gains (LTCG) Tax

• For properties sold on or after July 23, 2024, LTCG is taxed at a flat rate of 12.5% with no indexation benefit.
  

New TDS Rates for NRIs Selling Property

• Effective July 23, 2024, the TDS on property sales by NRIs will be as follows:

NRIs can reduce TDS by applying for a Lower TDS Certificate (Form 13) to ensure tax is deducted only on capital gains and not on the entire sale amount.

Tax-Saving Strategies for NRIs in Budget 2025

Even though NRIs cannot avail the ₹12 lakh exemption, there are several strategies they can use to optimize their tax liabilities:

1. Utilize Double Taxation Avoidance Agreements (DTAA)

NRIs can avoid paying tax twice on the same income by leveraging the DTAA treaties between India and their country of residence.

2. Claim Investment Deductions

NRIs can lower their taxable income by investing in tax-saving instruments under Section 80C, such as:

• • Life insurance premiums
  • Public Provident Fund (PPF)
  • ELSS mutual funds
  • National Pension System (NPS)
    

3. Strategic Repatriation of Funds

With stricter DTAA compliance and increased scrutiny on foreign remittances, NRIs must ensure they follow the correct process for repatriating funds from property sales or rental income. Proper documentation and tax compliance are crucial.

4. Tax Planning for Rental Income in India

NRIs earning rental income from Indian properties are subject to TDS at 30%. However, they can claim tax deductions on municipal taxes, home loan interest, and maintenance costs to reduce their taxable income.

5. Capital Gains Tax Planning

NRIs must account for capital gains tax when selling property, which depends on the holding period:

• • Short-Term Capital Gains (STCG) (Property sold within 24 months): Taxed as per the income tax slab.
    
  • Long-Term Capital Gains (LTCG) (Property held for over 24 months): Taxed at 12.5% without indexation.

Why Residency Status Matters for NRIs

Understanding your tax residency status is crucial for determining your tax liabilities in India. The Union Budget 2025 has introduced stricter tax regulations for NRIs, increasing scrutiny on foreign earnings, repatriation, and DTAA compliance.

Key Updates

• Stricter DTAA documentation – NRIs earning abroad must report foreign income in India.
  
• Expanded residency rules – High-income NRIs may face reduced NRI status tenure for tax purposes.
• Enhanced reporting requirements – Failure to disclose foreign assets and bank accounts may result in penalties.

Conclusion

Though the ₹12 lakh tax exemption is not extended to NRIs, there are still several NRIs tax benefits Budget 2025 provides through opportunities such as strategic investments, leveraging Double Taxation Avoidance Agreements (DTAA), and careful repatriation planning. Staying informed about these benefits and complying with the evolving tax regulations is crucial for NRIs to minimize liabilities and maximize savings under the new budget provisions.

At NRI Edge, we specialize in NRI property ownership in India, taxation, property transactions, and financial compliance. Whether you need help navigating DTAA complexities, repatriation rules, or tax-saving investments, our expert team is here to guide you.

Need Expert NRI Tax Advice?
Contact NRI Edge today to ensure your financial planning aligns with the latest tax regulations and maximizes your savings!

Frequently Asked Questions (FAQs)

Q1. Can NRIs claim the ₹12 lakh tax exemption under Budget 2025?
No, NRIs are not eligible for the ₹12 lakh tax exemption under Section 87A, as it applies only to resident taxpayers.

Q2. What is the basic exemption limit for NRIs under Budget 2025?
The basic tax exemption limit for NRIs has been increased from ₹3 lakh to ₹4 lakh under the new tax regime.

Q3. Can returning NRIs qualify for tax benefits under Budget 2025?
Yes, returning NRIs may be eligible for certain tax benefits if they qualify as Resident but Not Ordinarily Resident (RNOR) under Indian tax laws.

Q4. What happens if an NRI does not file tax returns in India?
If TDS has already been deducted, NRIs may not need to file a return. However, if excess TDS is deducted, NRIs must file an ITR to claim a refund.

Q5. How can NRIs avoid double taxation?
NRIs can avoid double taxation by leveraging DTAA treaties. They need to obtain a Tax Residency Certificate (TRC) and submit Form 15CA & 15CB when remitting funds from India.

Q6. How can NRIs legally repatriate funds from India?
NRIs can remit up to $1 million per financial year. The process requires compliance with RBI & FEMA regulations, including submitting Form 15CA & 15CB, sale deed, and tax payment proof.