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