Income Tax Department Explains NRI Residency and Tax Rules Under Income Tax Act, 2025
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The Income Tax Department has published a detailed set of Non-Resident FAQs explaining how residential-status rules and key NRI tax provisions operate after the Income Tax Act, 2025 came into force from 1 April 2026. The guidance is particularly useful for NRIs, returning Indians, Indian citizens working abroad, Persons of Indian Origin and advisers handling cross-border individual taxation because it maps several familiar provisions of the Income Tax Act, 1961 to their corresponding treatment under the new law.
Core residency tests remain substantially unchanged
The Department states that the basic individual residency test continues under section 6 of the Income Tax Act, 2025. An individual is generally treated as resident if the person stays in India for 182 days or more in the relevant tax year, or for 60 days or more in that year together with 365 days or more in the preceding four years. The special relaxation for an Indian citizen leaving India for employment abroad or as a crew member of an Indian ship also continues: in those cases, the 182-day threshold applies and the 60-day-plus-365-day test does not.
For Indian citizens or Persons of Indian Origin visiting India, the Department says the familiar special rule also continues. Where income, other than income from foreign sources, exceeds Rs 15 lakh, the alternate threshold uses 120 days in place of 60 days along with the 365-day look-back condition.
Deemed residency and NOR rules continue
The FAQs confirm that deemed residency has not been removed. An Indian citizen with income exceeding Rs 15 lakh, other than income from foreign sources, who is not liable to tax in another country by reason of domicile, residence or similar criteria can continue to fall within the deemed-resident rule. The corresponding provision is section 6(7) of the Income Tax Act, 2025.
The Not Ordinarily Resident framework also continues. The Department says an individual remains NOR if the person was non-resident in nine out of ten preceding years or stayed in India for 729 days or less in the preceding seven years. Importantly, those look-back periods can include years governed by the repealed 1961 Act.
Which Act applies around the 1 April 2026 transition
A major practical part of the FAQ deals with transition. Residential status for tax years beginning before 1 April 2026 continues to be determined under the Income Tax Act, 1961 even if assessment or reassessment takes place after the new law starts. For tax years beginning on or after 1 April 2026, the 2025 Act applies.
The Department gives a useful example for a stay spanning FY 2025-26 and FY 2026-27. Status for FY 2025-26 is determined under the old Act, while FY 2026-27 is determined under the new Act. However, the historical day-count used in the 60-day-plus-365-day test can still look back into earlier years that were governed by the 1961 Act.
NRI concessional provisions are largely carried forward
The FAQs also address the special NRI tax regime previously contained in sections 115C to 115I. The Department says the core features remain. Restrictions on deductions for certain investment income, concessional taxation, the reinvestment exemption for specified foreign-exchange assets, lock-in conditions and claw-back rules are substantially preserved through corresponding provisions in the 2025 Act.
The return-filing relief corresponding to old section 115G is also retained. Where an NRI's total income consists only of specified investment income or long-term capital gains and the applicable tax has been deducted at source, the exemption from filing continues subject to the statutory conditions.
The continuation benefit previously available under section 115H, which allowed certain concessional treatment to continue after an NRI became resident on filing the required declaration, is also preserved. The Department further clarifies that a valid declaration filed under the old Act remains recognised under the savings provision.
NRE interest and foreign-currency capital-gain mechanism
The guidance says the exemption for eligible interest on a Non-Resident External account has been retained in Schedule IV of the Income Tax Act, 2025, with substantive conditions continuing to depend on FEMA residential status and RBI permission. The Department specifically notes that FEMA residential status and income-tax residential status remain distinct concepts for this purpose.
For non-residents computing capital gains on shares or debentures of an Indian company, the mechanism that neutralises exchange-rate fluctuation by computing gains in the original foreign currency and reconverting the result into Indian currency has also been retained, now under section 72 of the 2025 Act.
What tax professionals should do now
- Identify the tax year first before deciding whether the 1961 Act or the 2025 Act governs residential status.
- Maintain accurate India day-count records across multiple years because historical periods remain relevant to the residency tests.
- Separate FEMA residential status from income-tax residency when reviewing NRE account exemptions and related cross-border issues.
- For older NRI exemptions, declarations or reassessments, check the savings provisions before assuming that the new Act automatically replaces the old-law treatment.
Useful official links
Key takeaway
The new Income Tax Act changes section numbering and drafting architecture, but the Department's NRI FAQs make clear that several core residency and NRI concession principles continue substantially unchanged. The most important compliance issue is the transition boundary: tax years before 1 April 2026 remain governed by the old Act, while tax years beginning on or after that date move to the new Act, with historical look-back periods still relevant where the residency tests require them.
