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With the July 31 deadline for filing income tax returns approaching and many Non-Resident Indians (NRIs) seeking clarity on the impact of the new Income Tax Act, 2025, the Income Tax Department has issued a detailed set of Frequently Asked Questions (FAQs), assuring taxpayers that the transition to the new law will not alter the existing rules governing tax residency or key NRI tax benefits.
The clarification comes amid growing queries from overseas Indians who feared that the new legislation, which comes into effect from April 1, 2026, could affect their tax status, return filing obligations and eligibility for concessional tax treatment.
The department said the new law is largely a restructuring of the existing Income Tax Act, 1961, and does not introduce substantive changes to the principles determining whether an individual qualifies as a resident, non-resident or not ordinarily resident (NOR).
One of the biggest concerns during the current tax return filing season has been whether the new Act changes the residency tests that determine an NRI’s tax liability in India. The FAQs make it clear that the existing thresholds remain intact.
Under the Income Tax Act, 2025, an individual will continue to qualify as a resident if they stay in India for 182 days or more during the relevant tax year, or for 60 days or more along with an aggregate stay of 365 days or more during the preceding four years.
The department also confirmed that the long-standing relaxation available to Indian citizens leaving India for overseas employment or working as crew members on Indian ships continues unchanged. Likewise, the special provisions applicable to Indian citizens and Persons of Indian Origin visiting India remain intact, including the modified 120-day threshold applicable to those earning more than Rs 15 lakh, excluding foreign-source income.
The FAQs also seek to remove uncertainty over the implementation timeline of the new law.
The department clarified that all tax years beginning before April 1, 2026—including the current assessment cycle—will continue to be governed entirely by the Income Tax Act, 1961, even if reassessment proceedings are initiated after the new legislation comes into force.
In other words, taxpayers filing returns this year need not apply any provisions of the new Act while determining their residential status or tax liability.
The clarification is significant because residential status determines the scope of taxable income in India. Residents are generally taxed on their global income, while NRIs are taxed only on income received, accrued or deemed to accrue in India.
The department further said that the deemed resident provisions introduced under the 1961 Act have been carried forward without change. Indian citizens earning more than Rs 15 lakh, excluding foreign-source income, who are not liable to tax in any other country because of residence or domicile, will continue to be treated as deemed residents.
Similarly, the conditions governing Not Ordinarily Resident (NOR) status have also been retained, ensuring continuity for individuals whose tax residency changes over time.
The FAQs also reassure overseas taxpayers that the special tax regime available to NRIs remains largely untouched.
Concessional tax rates on specified investment income and long-term capital gains, exemptions available on reinvestment of foreign exchange assets, continuation of tax benefits after an NRI becomes resident, and the option to choose normal taxation instead of the concessional regime have all been retained under the new Act.
Importantly, the Income Tax Department confirmed that the exemption from filing an income tax return for certain NRIs—where total income consists only of specified investment income or long-term capital gains and tax has been deducted at source—continues under the Income Tax Act, 2025 without any material changes.
The FAQs also clarify that the exemption on interest earned from Non-Resident External (NRE) accounts remains linked to residential status under the Foreign Exchange Management Act (FEMA), not income-tax residency, preserving the existing framework.
Officials said the objective of the FAQ is to ensure a smooth transition to the new law by dispelling misconceptions that had surfaced since Parliament enacted the Income Tax Act, 2025.
For millions of NRIs filing returns during the current season, the message is clear: the new tax code may have a new structure, but the rules determining tax residency and the principal tax benefits available to overseas Indians remain substantially the same.
