Union Budget 2026 – What NRIs Want Most (and Why It Matters)
As the Union Budget 2026-27 approaches (expected in early February), Non-Resident Indians (NRIs) are voicing strong expectations for tax reforms that could simplify their financial ties to India. Since the Finance Act 2020 introduced graded residency norms, many NRIs have experienced “return shock”—unexpected tax residency status during short visits or returns, leading to taxation on global income, higher compliance burdens, and discouragement from family visits or investments. These changes have complicated what was once a straightforward 182-day rule, prompting industry bodies and experts to push for relief in this budget.
Why NRIs Demand a Return to the 182-Day Rule
The core demand is to restore the pre-2020 residency framework, where individuals were treated as non-residents if their stay in India was under 182 days in a financial year, exempting foreign-earned income from Indian taxes regardless of prior years’ stays or income levels.
The 2020 changes introduced a graded system: for visiting NRIs/PIOs, the threshold dropped to under 120 days in some cases, with additional tests based on India-sourced income exceeding ₹15 lakh and four-year stay history. If income exceeds ₹15 lakh and stay is between 120-182 days, individuals may be classified as “not ordinarily resident,” triggering partial taxation on global income. This complexity has led to confusion, multi-year tracking requirements, and accidental residency for many.
The Bombay Chambers of Commerce and Industry (BCCI), in its pre-budget memorandum, has urged reverting to the simple 182-day rule without income linkages. They argue it would reduce compliance, encourage more family visits (boosting tourism and consumption), and have minimal revenue impact since affected incomes would still face special tax rates.
Experts support this: Nikita Seth from Jotwani Associates notes, “The restoration of the 182-day rule would represent a strategic trade-off with a net positive economic impact despite short-term revenue losses. The benefits extend beyond immediate fiscal metrics to include improved diaspora relations, forex stability, and domestic consumption.”
Calls to Simplify TDS on NRI Property Sales (12.5–31.2% Rates)
NRIs selling property in India face high TDS under Section 195, often 12.5% to 31.2% of the sale consideration (including surcharge and cess), depending on capital gains type and holding period. This contrasts with residents’ 1% TDS under Section 194-IA for properties over ₹50 lakh.
The high withholding blocks significant funds, even when final tax liability is low or nil, leading to delays in refunds and liquidity issues. Buyers also struggle with compliance, such as obtaining TAN, filing Form 27Q, and handling inactive TAN risks. Obtaining a lower/nil deduction certificate under Section 197 is lengthy and often impractical.
Experts call for simplification in Budget 2026, such as aligning processes with resident rules (e.g., challan-cum-statements), easing TAN requirements, and reducing upfront burdens. Divya Baweja, Partner at Deloitte India, highlights: “This long compliance creates challenges for the buyer to buy properties from non-residents, and at the same time creates a tax burden on the seller as well, who may have no tax liability in India.”
Other Wishlist Items – Higher Deductions, Home Loan Relief
Beyond residency and TDS, NRIs seek broader relief: rationalized tax frameworks for capital gains on equity, mutual funds, and property; smoother refunds and DTAA credits; liberalized investments in real estate, startups, and debt instruments; faster digital KYC and repatriation; and incentives in infrastructure and renewable energy. Some push for higher deductions under sections like 80C or home loan interest relief for NRI-owned properties, easing return plans.
Potential Impacts on NRI Investments and Return Plans
Restoring the 182-day rule could encourage longer family stays without tax fears, boost remittances, and stabilize forex inflows. Simplified TDS would facilitate smoother property transactions, unlocking capital for reinvestment. Overall, these changes could make India more attractive for NRI investments and reduce barriers for eventual returns, fostering stronger diaspora ties and economic contributions.
Conclusion
If addressed in Union Budget 2026, these reforms—led by the push for the 182-day rule and TDS simplification—could significantly ease tax filings and compliance for millions of NRIs. As BCCI and experts emphasize, such steps would signal India’s confidence in its growth and recognize NRIs as key economic partners, ultimately benefiting both the diaspora and the domestic economy.
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