Money
No tax on income up to ₹12 lakh. Are NRIs eligible?
Summary
- NRIs who opt for the new tax regime may get some benefits, but they are not eligible for the Section 87A rebate
Budget 2025 has been well received by middle-class Indians, particularly due to the zero tax on income up to ₹12 lakh under the new tax regime. However, not all non-resident Indians (NRIs) are thrilled.
According to the rules, individuals can receive a rebate of up to ₹60,000 or any income tax paid for income up to ₹12 lakh in a year under Section 87A. However, this rebate is exclusively available to residents and does not extend to those who qualify as non-residents under the Income Tax Act.
“The rebate is designed as a tax relief for small-income earners residing in India, ensuring that lower-income residents are not burdened with tax liability. Since NRIs earn their income outside India and may have tax liabilities in their country of residence, they are not given this concession," said Ajay R. Vaswani, a chartered accountant who mostly deals with NRIs.
Residency status condition of Section 87A clearly states that the rebate is only for resident individuals, he added.
NRIs earning income in India through rent, capital gains, or interest are tax-exempt if their total taxable income falls below the basic exemption limit. However, if their taxable income exceeds this limit, they must pay tax without the benefit of Section 87A.
Also Read: Andy Mukherjee: India has slashed income tax but still needs to snip red tape
Budget 2025 has increased the basic exemption limit under the new tax regime from ₹3 lakh to ₹4 lakh. NRIs who opt for the new tax regime may get some benefits, but they are not eligible for the Section 87A rebate.
“The rebate under section 87A is available solely to resident individuals. Therefore, regardless of whether a non-resident chooses the old tax scheme or the new scheme under section 115BAC, they are ineligible for this rebate. As a result, they won’t benefit from the budget proposal of zero tax for persons earning less than INR 12 lakhs," said Laxmi Ahirwar, director, P. R. Bhuta & Co. CAs.
“Under the Income Tax Act, 1961, the definition of residence includes individuals who are ‘resident but not ordinarily resident’ (RNOR) in India. Therefore, even returning Indians who qualify as RNOR for up to two years, can avail the 87A rebate," she added.
Also Read: Goodbye old tax regime; new regime now more attractive
What NRIs should do
Vaswani said NRIs must carefully assess their residency status before filing returns. They should explore double taxation avoidance agreements (DTAA) and other deductions (such as those under Section 80C) to optimize their tax liability. Unlike residents, NRIs cannot avail of tax rebates but can structure their investments efficiently to minimize tax outgo.
“For NRIs earning in India, understanding these tax nuances is crucial to avoid surprises during tax filing. Proper planning and professional advice can help optimize taxation under Indian laws."
Also Read: Budget 2025: Understanding the rebate benefits—and the fine print on capital gains tax
