The Income Tax Bill, 2025, makes significant changes that affect Non-Resident Indians (NRIs) and foreign companies. These updates clarify tax liabilities, add exemptions, and outline stricter compliance requirements. The Income Tax Bill of 2025 clarifies taxation for NRIs and foreign businesses operating in India. While dividend and interest income tax rates remain largely unchanged, new measures for recovery, withholding tax, and stricter departure rules require NRIs to be more diligent in meeting their tax obligations. Those planning investments or business activities in India should consult a tax advisor to ensure complete compliance with the updated provisions.
Tax on Non-residents and Foreign Companies
Non-residents' dividend income will be taxed at 20%. Dividends from units in an International Financial Services Centre (IFSC) are taxed at 10%. Interest income earned by the Indian government or Indian companies will be taxed at a 20% rate, with the exception of infrastructure debt fund investments, which will be taxed at 5%. Income from mutual funds purchased in foreign currency is taxed at 20%.
Foreign Institutional Investors (FIIs) who earn income from Indian securities continue to be subject to capital gains tax provisions. These investors must comply with the updated tax regulations governing their earnings from investments in India.
NRIs who reinvest long-term capital gains from foreign exchange assets in specified assets within six months may be exempt from paying capital gains tax. If the cost of the new asset is less than the original asset's net consideration, only a portion of the gain is exempt.
Recovery of Tax from Non-residents
The tax department now has greater authority to recover tax liabilities from non-residents' assets in India. This measure ensures that any outstanding tax liabilities are collected, even if the individual lives abroad. This is expected to improve compliance and reduce tax evasion by NRIs and foreign businesses with assets in India.
Advance rulings for NRIs
NRIs can now apply for an advance ruling to determine their tax liabilities before conducting transactions with Indian residents. This measure reduces future disputes with tax authorities and provides clarity to those planning financial activities in India. The ability to obtain advance rulings ensures that tax obligations are clearly understood prior to making any investments or entering into major transactions.
Stricter Departure Rules for Non-residents
Any non-resident leaving India must provide their Permanent Account Number (PAN), purpose of travel, and expected duration of stay overseas. In the absence of a PAN, a prescribed certificate must be submitted to the authorities. Tax officials now have the authority to prevent an individual's departure if they owe taxes. These rules ensure that NRIs pay any outstanding taxes before leaving the country.
Withholding Tax on Non-resident Income
Any taxable income received by a non-resident in India will now be subject to tax deducted at source (TDS), ensuring tax compliance at the point of receipt. This step aims to improve tax collection and reduce tax evasion by capturing tax at the point of income generation. NRIs may be exempt from filing income tax returns if their total income consists solely of investment income or long-term capital gains, and the tax was deducted at the source.
