Imagine sipping coffee in Dubai’s glittering skyline, managing a thriving business back in India, or visiting family in Mumbai for a few months—only to discover that your global income might now be taxable in India. For the 35.4 million Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) worldwide, the Income Tax Bill 2025, set to take effect from April 1, 2026, is rewriting the rules of the game. With a new 120-day residency threshold and a controversial “deemed residency” clause, these changes are sending ripples of concern through the Indian diaspora, particularly those in tax-free havens like the UAE and Singapore. Here’s the full story, unpacking how India’s revamped tax residency rules could reshape financial planning for NRIs and why proactive strategies are now more crucial than ever.

A New Era of Tax Residency: The 120-Day Rule

For years, NRIs and PIOs have relied on a simple benchmark: stay in India for less than 182 days in a financial year (April 1 to March 31), and you’re safely classified as a Non-Resident, taxed only on income earned or accrued in India. But the Income Tax Bill 2025, introduced on February 13, 2025, and set to replace the six-decade-old Income Tax Act of 1961, tightens the screws for high-income NRIs. Under the new “120-day rule,” an NRI or PIO earning ₹1.5 million (approximately US$17,213) or more from Indian sources—such as rental income, dividends, or capital gains—will be classified as a Resident but Not Ordinarily Resident (RNOR) if they meet two conditions:

• Stay in India for 120 days or more in a financial year.
• Have spent at least 365 days in India over the preceding four years.

This is a significant shift from the earlier 60-day rule, which was already tightened in 2020 by the Finance Act to 120 days for high earners. The new rule means NRIs who visit India for extended periods—say, to attend a wedding season or care for aging parents—could inadvertently tip into RNOR status. For example, consider Priya, a tech professional in Singapore earning ₹2 million from Indian investments. If she spends 130 days in India in 2026–27 and has visited for 400 days over the past four years, she’ll be classified as RNOR, even though she’s based abroad. While RNOR status shields her global income from Indian taxation, it brings her closer to full residency, where all income—foreign and domestic—could be taxed.

The Deemed Residency Bombshell

Perhaps the most contentious change is the “deemed residency” rule, introduced in the Finance Act 2020 and retained in the 2025 Bill. This provision targets Indian citizens living in tax-free jurisdictions like the UAE, Bahrain, or Qatar who earn ₹1.5 million or more from Indian sources and are not liable to pay tax in any other country due to domicile, residence, or similar criteria. Such individuals will be deemed residents of India, classified as RNOR, and potentially taxed on income from businesses controlled or set up in India, even if they never set foot in the country during the financial year.

Take Arjun, an Indian entrepreneur in Dubai, running a consultancy with ₹2.5 million in Indian-sourced income from clients in Bengaluru. Since the UAE has no personal income tax, Arjun could be deemed a resident under this rule. As an RNOR, his Indian income is taxable, and any business income controlled from India—like his consultancy fees—could also face taxation. While his foreign earnings (e.g., investments in Dubai) remain exempt, the rule closes a loophole for those leveraging tax-free jurisdictions to avoid Indian taxes. “This is a bold move to curb tax evasion, but it’s raising alarms for NRIs in zero-tax countries,” notes Ravikant Kamath, a tax expert at EY-India.

The RNOR Lifeline: A Shield for Global Income

The silver lining for NRIs caught by these rules is the RNOR status, which acts as a buffer against full taxation. Unlike a Resident and Ordinarily Resident (ROR), who is taxed on global income, an RNOR is taxed only on:

• Income earned or accrued in India (e.g., rental income, dividends, or salary for services in India).
• Income from a business or profession controlled or set up in India.

Foreign income—such as salaries, foreign investments, or rental income from properties abroad—remains exempt. RNOR status is granted to individuals who meet any of the following:

• Have been non-residents in 9 out of the 10 preceding financial years.
• Have stayed in India for 729 days or less over the past 7 years.
• Are Indian citizens or PIOs staying 120–181 days in India with Indian income exceeding ₹1.5 million.
• Are deemed residents under the stateless provision.

For returning NRIs, RNOR status can be retained for up to three financial years, offering a critical window to restructure finances. For instance, Nikhil, an NRI returning to India after a decade in the U.S., spent only 500 days in India over the past seven years. As an RNOR, his U.S.-based investments remain tax-free in India for three years, giving him time to plan.

Why the Changes Matter for NRIs and PIOs

India’s 35.4 million-strong diaspora, the largest in the world, contributes significantly to its economy through remittances and investments. But the new rules, effective April 1, 2026, add complexity to tax planning. Previously, NRIs could visit India for up to 181 days without worrying about residency, provided their Indian income was below ₹1.5 million. Now, high earners must meticulously track both their income and days spent in India. A single misstep—staying a few days too long—could shift their status to RNOR, increasing compliance burdens.

The deemed residency rule is particularly jarring for NRIs in tax-free countries. “The idea that you could be taxed in India without even visiting is a shock for many,” says a tax consultant at IndiaFilings. For example, an NRI in Qatar with ₹2 million in Indian rental income could face scrutiny, even if they haven’t been to India in years. This has sparked fears of double taxation, though Double Taxation Avoidance Agreements (DTAAs) with countries like the U.S. or UK can offer relief. NRIs must submit a Tax Residency Certificate (TRC) and Form 10FA/10FB to claim DTAA benefits, ensuring foreign income isn’t taxed twice.

The rules also impact investment strategies. Income from Indian sources—such as NRO account interest, property rentals, or capital gains on Indian stocks—is taxable for NRIs and RNORs. However, NRE and FCNR account interest remains tax-free, and capital gains exemptions (e.g., reinvesting property sale proceeds into a new house) are still available. The Bill’s Clause 422 strengthens tax authorities’ powers to recover dues from NRIs’ Indian assets, adding pressure to comply.

Navigating the New Landscape: Challenges and Criticism

The Income Tax Bill 2025 consolidates 819 sections into 536 clauses, aiming for simplicity, but critics argue it complicates life for NRIs. The 120-day rule requires high earners to monitor their Indian income and travel meticulously, as even a day over the threshold could trigger RNOR status. “NRIs now need a travel log with entry and exit stamps,” advises a tax expert at ClearTax. The deemed residency rule has drawn flak for targeting NRIs in tax-free jurisdictions without clear revenue benefits. The Bombay Chamber of Commerce and Industry (BCCI) argues it discourages NRIs from spending time in India, hurting sectors like hospitality and reducing26⁊

For Indian families, the stakes are high. Many NRIs visit India for extended periods to manage businesses, attend family events, or explore opportunities. The new rules could deter such visits, potentially reducing remittances and investments. “The 120-day rule doesn’t even generate significant revenue—it just creates confusion,” says Kamath. With India’s economy relying on diaspora contributions, some fear the rules could dampen economic activity.

How NRIs Can Prepare for April 2026

With the new rules looming, NRIs and PIOs must act proactively:

• Track Your Stay: Maintain a detailed travel log to ensure you stay below 120 days if your Indian income exceeds ₹1.5 million. Include arrival and departure dates, as these count toward the total.
• Monitor Indian Income: Calculate income from Indian sources (e.g., rentals, dividends, capital gains) to stay below ₹1.5 million if possible. NRE/FCNR account interest is exempt and doesn’t count toward this threshold.
• Secure a TRC: Obtain a Tax Residency Certificate from your country of residence to claim DTAA benefits and avoid double taxation.
• Leverage RNOR Benefits: If transitioning to RNOR, use the three-year exemption on foreign income to restructure investments or accounts.
• File ITRs Correctly: If your Indian income exceeds ₹4 million, file ITR-2 or ITR-3 by September 15, 2026, for FY 2025–26. Even if TDS covers your tax liability, filing may secure refunds.
• Consult Experts: Engage tax professionals to navigate complex cases, especially for deemed residents or those with cross-border businesses.

A New Reality for the Indian Diaspora

The Income Tax Bill 2025 marks a pivotal shift for NRIs and PIOs, balancing India’s push to curb tax evasion with the need to remain attractive for its global diaspora. For high earners, the 120-day rule demands careful planning, while the deemed residency clause challenges those in tax-free jurisdictions to reassess their financial structures. Yet, the RNOR status offers a crucial buffer, ensuring global income remains untaxed for many. As one NRI in Dubai put it, “It’s like India’s saying, ‘We want your investment, but we’re watching you closely.’”

With the April 1, 2026, deadline approaching, NRIs must adapt to this new reality. By tracking stays, leveraging exemptions, and seeking expert advice, they can navigate the complexities and continue to thrive in India’s economic story. The Indian diaspora’s bond with their homeland remains strong, but it now comes with a tax rulebook that’s tougher to master.

Sources: Income Tax Department, India Briefing, ClearTax, IndiaFilings, PwC, Ecotaxfin, The Economic Times, Times of India

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