Tax Proposals for NRIs & Foreign Investors in Budget 2026

Key Tax Proposals for NRIs & Foreign Investors in Budget 2026

Foreign investors and NRIs closely examine India’s Union Budget each year for directional cues on taxation, compliance, and the overall investment climate. Budget 2026 continues the government’s push toward streamlining tax administration, easing cross‑border investment, and strengthening India’s competitiveness in manufacturing, technology, and financial services. The following sections analyse the key measures relevant to NRIs and foreign investors, supported by Budget 2026 announcements. Key Tax Proposals for NRIs & Foreign Investors (Budget 2026) are as follows:

1. Exemption for Non-Residents on Foreign-Sourced Income (Five Years)

• A major highlight is a 5-year income tax holiday for NRIs supplying capital goods to Indian companies. This aims to strengthen India’s domestic manufacturing base. Budget 2026 introduces a significant incentive for global professionals engaging with India.
  Non-resident individuals rendering services in India under a notified Government scheme will be exempt from tax on their foreign-sourced income for five consecutive tax years. This aligns with the broader Budget framework encouraging global expertise and cross‑border talent engagement
• For returning professionals who were NRIs for at least five consecutive years, foreign income earned during the first five years of Indian residency will be exempt if working under approved government schemes.
• A similar theme appears in the announced tax relief for returning professionals, where individuals previously classified as NRIs for five years receive exemptions on foreign income earned during their initial years of return.

2. MAT Exemption for Certain Non-Resident Businesses

• To improve the ease of doing business for foreign enterprises, Budget 2026 proposes that: Non-residents opting for presumptive taxation for (a) cruise ship business and (b) electronics manufacturing facilities will be excluded from the applicability of Minimum Alternate Tax.
• This follows the broader reform where India is gradually re‑engineering its Minimum Alternate Tax regime under the upcoming Income Tax Act, 2025, which aims to simplify corporate taxation and reduce frictions. The Budget also proposes Minimum Alternate Tax to become a final tax at a reduced rate of 14% beginning 2026, indicating a system-wide transition to simpler tax frameworks.

3. Tax Exemption for Foreign Companies Supplying Capital Goods to Electronics Manufacturers

• In alignment with India’s ambition to strengthen domestic electronics and semiconductor production, the Budget states that: Income of a foreign company from supplying capital goods, equipment, or tooling to an electronic goods contract manufacturer in a customs‑bonded area will be exempt from tax until FY 2030‑31.
• This measure directly supports the government’s broader initiative to encourage global participation in India’s fast-growing electronics manufacturing ecosystem. A similar exemption was announced for foreign companies providing capital equipment to electronics manufacturers, signaling continuity of policy intent.

4. Tax Exemption on Income Arising from Data Centre Service Procurement (Up to 2047)

• Recognizing the strategic role of cloud and data infrastructure, the Budget introduces a powerful long‑term incentive: Income of a foreign company arising from procuring data‑centre services from a specified Indian data centre will be exempt from tax up to 31‑03‑2047. This aligns with additional safe‑harbour measures announced to strengthen India’s digital infrastructure, including a 15% safe harbour margin for data‑centre-related transfer pricing transactions, introduced to enhance certainty for foreign businesses operating globally integrated digital networks.

5. Alignment of “Specified Fund” Definition with Section 10(4D)

• Budget 2026 also modernizes tax classifications by amending the definition of a “specified fund” in Note 1(g) to Schedule VI of the upcoming ITA 2025. This amendment brings the definition in line with section 10(4D) of the ITA 1961, ensuring consistency with existing tax exemptions available to certain offshore funds, particularly those investing through IFSC (GIFT City) and other regulated routes.
• Although this specific amendment isn’t highlighted explicitly in media reports, the Budget clearly signals ongoing efforts to rationalize foreign investment rules and align tax frameworks across successive tax laws. Related reforms include expanded investment limits for foreign individuals (PROIs) under the Portfolio Investment Scheme (PIS), which now allows:

• Individual overseas investors to hold up to 10% in a listed company (previously 5%)
• Aggregate overseas individual holding raised to 24% (from 10%). These reforms deepen participation from global investors and Indian diaspora funds.

6. Broader Context: Budget 2026’s Policy Direction for Global Investors

Beyond these five major proposals, several other Budget 2026 reforms shape the investment environment for NRIs and foreign investors:

• Simplified Property Transaction Rules for NRIs: The PAN-based TDS system replaces TAN, significantly reducing compliance burdens.
• One‑Time Foreign Asset Disclosure Window (FAST-DS 2026) : Six‑month window with reduced penalties and prosecution immunity for undeclared foreign assets.
• Lower TCS on Overseas Remittances: TCS reduced to 2% for education, medical remittances, and tour packages.
• Long-Term Investment Access Reforms: Higher foreign investment limits, safe‑harbor norms, and capital‑goods exemptions all indicate India’s push for a more attractive, globally competitive tax regime for foreign investors.

7. Simplified Property Transaction Rules

• No more TAN requirement for resident buyers purchasing property from NRIs.
  TDS can now be deposited using a simple PAN-based challan. This removes a major compliance burden and reduces delays.

8. One-Time Foreign Asset Disclosure Window

• A six-month amnesty window for NRIs and returning residents to disclose previously undeclared foreign assets, with immunity from prosecution and lower penalties.
  Part of the FAST‑DS 2026 initiative.

9. Lower TCS on Foreign Remittances (LRS)

• TCS reduced to 2% for overseas education remittances, medical expense remittances, and overseas tour packages. This significantly lowers upfront cash outflow for NRIs.

9. Expanded Equity Investment Limits for Foreign Individuals (PIS Reform)

• Under the revised Portfolio Investment Scheme (PIS), individual NRIs/PROIs can now invest up to 10% in an Indian listed company (earlier 5%). And Aggregate limit for all overseas individuals was raised to 24% (earlier 10%). This broadens foreign ownership and deepens liquidity in Indian markets.

10. Safe Harbour & Transfer Pricing Certainty for Foreign Businesses

• 15% safe harbor margin for data center service providers operating in India for related entities and 2% profit margin safe harbor for non-residents using bonded warehousing for component logistics (effective tax <1%). These measures boost India’s competitiveness for global supply chains.

11. Exemption for Non-Resident Foreign Companies Supplying Capital Equipment

• Income of eligible foreign companies supplying capital equipment or tooling to Indian electronics manufacturers will be fully exempt. This supports India’s semiconductor and electronics push.

12. New Income Tax Act, 2025 (Applicable from April 2026)

• Major overhaul replacing the 1961 Act with Simplified rules and redesigned forms, Reduced compliance friction and extended timelines for revised returns. MAT rate reduced from 15% to 14%, becoming a final tax for companies. Important for foreign companies and cross-border tax planning.

13. Decriminalisation & Compliance Relaxation

• Reforms beneficial for NRIs and foreign investors include Reduced penalties for technical defaults, Ability to update returns even during reassessment, and simplified disclosure norms under global tax transparency frameworks. These reduce litigation risk for foreign individuals and entities.

14. Liberalised Foreign Investment Rules

• Individual investment limit for overseas residents doubled to 10% as part of a broader modernization of foreign exchange controls. Enhances long-term foreign participation in Indian equity markets.

Conclusion

Budget 2026 provides strong incentives for non-residents, especially through tax exemptions, MAT relief, and long-term clarity for digital and manufacturing sectors. NRIs and foreign investors benefit from Clearer cross‑border income rules, Reduced compliance friction, Expanded investment opportunities and Predictable long‑term tax treatment. The Union Budget 2026 proposes substantial tax reliefs, simplified compliance, and expanded investment freedoms for NRIs and foreign investors. The reforms strongly signal India’s intent to:

• Attract global capital
• Support advanced manufacturing
• Improve compliance transparency
• Make India an easier and more competitive investment destination

For non‑residents and foreign groups, Budget 2026 delivers Clarity in MAT and presumptive taxation, Targeted incentives in data‑centre and electronics‑manufacturing ecosystems, Reduced friction in property purchases and LRS remittances and A calibrated, less punitive approach to past offshore‑asset disclosures

NRI Taxation – Old vs New Income Tax Law (Simple Summary)

Structure of the Law

Particular	1961 Act	2025 Act
Chapters	47	23
Sections	819	536
Words	5.12 lakh	2.6 lakh
Drafting	Complex	Simplified & reorganized

Important: Law is rewritten for clarity. No major conceptual change in NRI taxation. Only section numbers and structure changed. Besides about 1200 Provisos and 900 Explanations have been removed

Who is an NRI?

Under Both Laws (Same Rules) If you are not a Resident, you are a Non-Resident (NRI). Basic Residency Rule: You are Resident if Stay in India ≥ 182 days OR Stay ≥ 60 days in current year + 365 days in last 4 years and Special Rule for Indian Citizens visiting India is 120-day rule applies if Indian income > ₹15 lakh..

Deemed Residency: Indian citizen Income in India ≥ ₹15 lakh and Stay ≥ 120 days then Treated as Resident but classified as RNOR.  No change in residency rules in 2025 Act.

Scope of Income – What is Taxable for NRIs?

Status	Taxable Income :
NRI	Only Indian income
RNOR	Indian income + business controlled from India

Foreign income is NOT taxable for NRI (unless business controlled from India for RNOR). And Section 5 (same concept retained in 2025 Act) All provisions retained with basic redesigning of sub-sections
No interpretational/ classification change

Special NRI Tax Regime (Chapter XII-A)

1961 Act	2025 Act
Section 115C	Section 212
115D	213
115E	214
115F	215
115G	216

Key Benefits: Special tax rates on investment income, LTCG exemptions on reinvestment, No return filing required if Only investment income/LTCG and TDS already deducted, it to be noted that Provisions same, section numbers changed.

Capital Gains for NRIs : Charging Section: Old: Section 45 and New: Section 67. But Concept remains same.

Forex Benefit on Shares :

Listed Shares: No indexation and No forex benefit under Section 198 (2025) Section 72 (6) In the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company (other than equity shares referred to in section 198) shall be computed—

(a) by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures; and

(b) the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the said manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every re-investment thereafter in, and sale of, shares in, or debentures of, an Indian company.

Unlisted Shares: Earlier forex benefit allowed, Now Section 197(4) removes forex benefit and No indexation benefit. Which create Important Impact: Forex benefit and indexation benefits reduced in 2025 drafting clarity. Section 197 (4) – In the case of an assessee being a non-resident (not being a company) or a foreign company, the long-term capital gains arising from the transfer of a capital asset, being unlisted securities or shares of a company
not being a company in which the public are substantially interested, shall be computed without giving effect to the provisions under section 72(6).

Special Computation (Section 72(6) – 2025 Act) : For non-residents Convert cost & sale value into same foreign currency, Compute gain and Reconvert into INR. Concept retained.

TDS on NRI Payments

Particular	1961 Act	2025 Act
TDS Section	195	393(2)
Lower/NIL Certificate	197	395

Major Change is Both payer & payee can apply., No exclusions for special rate sections. and More consolidated table format.

Returning NRI – Retirement Fund Relief

Old Law	New Law
Section 89A	Section 158
Rule 21AAA	Rule 74
Form 10EE	Form 40

No conceptual change. And Income taxed in India when taxed in foreign country (to avoid mismatch).

Return of income not to be furnished in certain cases. Section 216 of Income Tax Act 2025 – Section 115G of Income Tax Act  1961 It shall not be necessary for a non-resident Indian to furnish a return of his income under section 263(1), if:

(a) his total income during the tax year consisted only of investment income or income by way of long-term capital gains or both; and

(b) the tax deductible at source under the provisions of Chapter XIX-B) has been deducted from such income.

Double Taxation Relief (DTAA) : Tax Residency Certificate (TRC)

Old Law	New Law
Section 90(4)	Section 159(8)

To claim DTAA benefit like TRC mandatory, Additional documents required.

Section 159(8) of Income Tax Act 2025 An assessee, not being a resident, shall be entitled to claim any relief under an agreement mentioned in sub-section (1) or (2), only when (a) a certificate of his being a resident in any country or specified territory, is obtained by him from the Government of that country or Government of that specified territory, as the case may be; and  (b) he provides such other documents and information, as may be prescribed.

Section 90(4) of Income Tax Act 1961 An assessee, not being a resident, to whom an agreement referred to in Section 90(1) applies, shall not be entitled to claim any relief under such agreement unless a certificate of his being a resident in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory.

Major Change in 2026 Draft Rules : Earlier Form 10F required only if TRC missing details. and Now: Form 41 mandatory, NRI must attach TRC, PAN required for person verifying form and Indian address & contact details required. DTAA compliance is becoming stricter.

Rule 75 of Draft Income Tax Rules 2026 – For availing tax treaty benefit, it is proposed that non-residents need to provide additional information in Form 41 along with tax residency certificate. Existing rule allows non-filing of Form 10F if the information is already available in tax residency certificate.

Foreign Tax Credit (FTC)

Old	New
Section 90/91	Section 159/160
Rule 128	Rule 76
Form 67	Form 44

Big Change: If FTC ≥ ₹1 lakh Mandatory CA verification required and Books & foreign tax evidence to be verified also  Increased compliance burden. Draft Rule 76 [Foreign Tax Credit] – provides that the Form No. 44 [form for claiming foreign tax credit] shall be verified by an accountant:

(a) where the assessee is a company; or

(b) in all other cases where the amount of foreign tax paid outside India for a tax year equals or exceeds Rs. 1 Lakh.

The accountant needs to verify the a) Books of accounts and other documents regarding the income; b) Evidence of Foreign tax paid; and c) Claim of FTC in accordance with DTAA and IT Act

Section 159 (Corresponds with Section 90 and 90A of Income Tax Act 1961) – Governs relief under Double Taxation Avoidance Agreement, i.e. how foreign tax credit are allowed when India has a tax treaty with other country. Tax treaty being notified by Central Government is mandated in the section itself. Section 159(8) mandates Non-Resident taxpayer to provide TRC (certificate of his being a resident in any country or specified territory, obtained by him from the Government of that country/ specified territory)

Section 160 (Corresponds to section 91 of Income Tax Act 1961) – providing unilateral relief when there is no DTAA with the foreign country. This section allows resident taxpayer to claim relief for foreign tax paid on income taxed abroad as well as taxable in India.

Foreign Remittance Reporting

Old Forms	New Forms
15CA	145
15CB	146

Key New Requirements like TIN of recipient mandatory, AD (Authorised Dealer) details, ITDREIN reporting number and More detailed disclosures. More structured reporting in 2025 law.

AO Power if Income Cannot be Determined: If actual income of NRI cannot be determined. AO may compute based on % of turnover, Proportionate profit and Any reasonable method. Morover that Rule 10 (Old) → Rule 9 (Draft 2026), and No conceptual change.

Conclusion

 What Has Changed? : Section numbers, Language simplified, Forms renumbered, Stricter compliance for DTAA claims, Foreign tax credit and Remittance reporting.

 What Has NOT Changed?: Residency rules, Scope of NRI income, Basic capital gains principles, Special NRI regime and Retirement fund relief

Final Impact for NRIs : income tax Taxability rules remain same., NRI Compliance and documentation requirements increased. DTAA & FTC claims require more paperwork. And NRI face Better structured but stricter procedural framework.