India’s central government has introduced the Income Tax Bill 2025 to replace the six-decade-old Income Tax Act of 1961, marking a major step toward a simpler and more efficient tax system. The Bill aims to simplify tax laws by removing outdated provisions, introducing a unified tax year, and enhancing transparency. As the Bill undergoes parliamentary review, it is expected to have significant implications for individuals and businesses, including Non-Resident Indians (NRIs). This article provides a detailed breakdown of NRI tax residency, key provisions affecting taxation, and expert insights from ECOVIS RKCA Advisors Ltd on what NRIs need to know.
Your residency status may change depending on factors such as travel or changes in your living arrangements. In order to calculate how much tax you are liable to pay in India, it is important to determine your residency status for each financial year. Your residency status must be reviewed annually.
Who is Considered a Resident in India for Tax Purposes?
A person is considered a Resident of India for income tax purposes if they meet either of the following conditions:
182-Day Rule: They are in India for 182 days or more during the financial year OR
60-Day and 365-Day Rule: They are in India for at least 60 days in the current year and have spent a total of 365 days or more in India during the 4 years preceding the current year.
Note: These days can be accumulated over multiple visits, rather than requiring a single continuous stay.
Resident Status for Indian Citizens Working Abroad
If you are an Indian citizen and leave India for employment outside the country, you will be considered a Non-Resident Indian (NRI) if you have spent less than 182 days in India in the previous year. Therefore, if you live outside India for 182 days or more, you will be considered an NRI for tax purposes.
Resident Status for Taxation of Indian Citizens and Persons of Indian Origin
A citizen of India or a person of Indian origin residing outside India but visiting India during the previous year is considered to be a resident for income tax purposes if his total income (excluding foreign sources) exceeds ₹15 lakh and he fulfils either of the following conditions
They are present in India for 182 days or more during the financial year OR
They are present in India for at least 365 days in the four years preceding the relevant year and at least 120 days in the preceding year.
Deemed Resident Status for Indian Citizens
Apart from the standard conditions for determining residency, the concept of deemed resident applies in certain cases.
An individual who is a citizen of India and whose total income (excluding foreign sources) exceeds ₹15 lakh in a financial year is deemed to be a resident of India if they are not a tax resident of any other country.
Who Qualifies as Resident but Not Ordinarily Resident (RNOR)?
An individual is classified as a Resident but Not Ordinarily Resident (RNOR) in a financial year if they meet either of the following conditions:
Past non-resident status: The individual has been a Non-Resident Indian (NRI) in 9 out of the 10 financial years preceding the relevant year.
Limited Stay in India: The individual has been in India for 729 days or less in the 7 financial years preceding the relevant year.
Indian citizen or person of Indian origin visiting India: The individual is an Indian citizen or a Person of Indian Origin (PIO) visiting India, has a total income of more than ₹15 lakh (excluding foreign income) and has stayed in India for 120 days or more but less than 182 days in the preceding year.
Deemed Resident Criteria: The individual is a citizen of India with a total income exceeding ₹15 lakh (excluding foreign income) in the previous year and is not liable to pay tax in any other country or territory for reasons such as domicile, residence or similar criteria.
Taxation for Non-Resident Indians (NRIs)
All income earned in India is taxable in India.
Income earned outside India is not taxable in India.
Taxation for Resident but Not Ordinarily Resident (RNOR)
If you have recently returned to India, you can maintain RNOR status for up to three financial years after your return.
As an RNOR, your tax treatment remains similar to an NRI:
Income earned in India is taxable.
Income earned outside India remains non-taxable.
This provides a significant tax benefit for returning NRIs.
Once you attain the status of a Resident, your global income (both Indian and foreign) becomes taxable in India, except for any relief available under Double Taxation Avoidance Agreement) DTAA provisions.
New Income Tax Bill 2025 Leaves Tax Residency Rules Unchanged
The new tax bill introduced in Parliament on 13 February 2025 has left the tax residency criteria unchanged, bringing relief to (NRIs. Concerns had been raised that NRIs who earn ₹15 lakh or more in India and do not pay tax elsewhere could be classified as Residents instead of RNORs. However, under the new bill, such individuals will continue to be classified as RNOR, ensuring that only their Indian-sourced income is taxed in India.
Under the existing rules, an individual is considered to be a tax resident of India if they:
– Spend at least 182 days in India in a financial year OR
– Spend at least 60 days in India in a financial year and have stayed in India for 365 days or more in the preceding four years.
However, NRIs visiting India, and Indian citizens going abroad for employment or as crew members of Indian ships, are exempted from the 60-day rule. If NRIs visiting India earn more than ₹15 lakh (excluding foreign income), the 60-day requirement is extended to 120 days.
With the Income Tax Bill 2025 set to roll out on April 1, 2026, this decision maintains consistency with India’s current tax system, ensuring that NRIs are taxed fairly while addressing concerns about individuals exploiting NRI status for tax avoidance.
No Changes in NRI Tax Residency Rules: What It Means for You
Despite widespread speculation, the Bill does not change the definition of tax residency for NRIs. If you earn ₹ 15 lakh or more in India and do not pay tax elsewhere, you will continue to be classified as Resident but Not Ordinarily Resident (RNOR). This ensures that only your income earned in India is taxed and your global income remains tax-free in India.
Who Qualifies as a Resident in India?
A person is considered a resident for tax purposes if they:
Stay in India for 182 days or more in a financial year.
Stay in India for 60 days or more in a financial year AND 365 days or more in the preceding four years.
Exceptions for NRIs & Indian Citizens Abroad:
NRIs visiting India: If your Indian income exceeds ₹ 15 lakh, your 60-day stay limit increases to 120 days.
Indian citizens leaving for employment or ship crew members: Different residency criteria apply.
Key Provisions Impacting NRIs in the Income Tax Bill 2025
The Bill simplifies the tax structure by consolidating 47 chapters into 23 and reducing 819 sections to 536 clauses, making tax compliance easier for NRIs. Here are the critical clauses affecting NRIs:
Clause 5: Defines the scope of income for residents and non-residents.
Clause 60 & 61: Establishes deductions for head office expenses and presumptive taxation for NRIs.
Clause 174: Prevents income transfers to non-residents to avoid tax.
Clause 207 & 209: Sets tax rates on dividends, interest, distributed income, royalties, and fees for technical services.
Clause 211: Defines tax rates for non-resident sportspersons.
Clause 213-215: Specifies taxable income, investment income exemptions, and capital gains tax.
Clause 216: Exempts NRIs from filing tax returns if tax deducted at source (TDS) is deducted on eligible income.
Clause 217: Grandfathering rules for investment income taxation upon NRI return to India.
Clause 306: Assigns tax agents for NRI tax compliance.
Clause 422: Strengthens tax authorities’ ability to recover outstanding tax dues from NRIs’ Indian assets.
Clause 505: Mandates liaison offices in India to submit annual tax statements.
NRI Taxation Rates Under the New Bill
The Bill retains specific tax rates for NRIs on income earned in India:
Dividends: 20%
Dividends from IFSC units: 10%
Interest on government or Indian company debt (foreign currency loans): 20%
Interest from infrastructure debt funds: 5%
Mutual fund income (purchased in foreign currency): 20%
TDS, Capital Gains, and Tax Recovery: What NRIs Must Know
TDS on NRI income: Any taxable income received by NRIs in India, including TDS on sale of NRI property, is subject to TDS at the applicable rates.
No need to file a return: If your only income is investment income or long-term capital gains and TDS is already deducted, you may not need to file a return.
Capital gains tax exemption: NRIs who reinvest long-term capital gains in specified assets within six months can claim exemption from capital gains tax. Partial exemption applies if the reinvestment is less than the proceeds.
Stricter Place of Effective Management (POEM) rules: The Bill strengthens the POEM rules to ensure that foreign companies with significant operations in India are taxed accordingly.
Final Takeaway: What This Means for NRIs
The Income Tax Bill 2025 simplifies India’s tax system while strengthening measures against tax evasion. Key takeaways for NRIs are:
RNOR status remains: If you earn more than ₹ 15 lakh in India, your global income will remain untaxed in India.
Investment income & capital gains taxation: Favourable provisions for reinvestment.
Enhanced Tax Recovery Measures:
Authorities have increased powers to recover NRI tax from Indian assets.
Conclusion
India has emerged as the world’s third largest economy and over the last decade has taken effective steps in all directions to achieve his goal. This time, the Income Tax Bill 2025, which is expected to come into force on 1 April 2026, aims to simplify the existing legal framework while ensuring greater efficiency and transparency. By reducing the number of sections and pages and removing explanatory notes or provisions, the Bill will be easier to read for taxpayers and administrators. The implementing rules will come into force after the promulgation of the draft law.
Let us hope that we can achieve our goals and make India a world leader and a highly attractive business destination.
(The author is a fellow Chartered Accountant and founder chairman of R.Kabra & Co LLP)
Reducing carbon emissions is a growing priority worldwide. Carbon credits help by allowing companies to offset their emissions through projects that remove greenhouse gases. The experts from ECOVIS VSDK & Partners explore how Cambodia can benefit from carbon credits, especially through biochar production.
We read constantly about net zero and carbon emissions and how to save the planet.
Net zero emissions is when the amount of greenhouse gases (GHGs) released into the atmosphere is equal to the amount removed. Achieving net zero emissions involves both reducing the amount of greenhouse gases released and removing existing emissions from the atmosphere.
Achieving Net Zero Emissions
Reduce emissions: Reduce human-caused emissions from factories and fossil-fueled vehicles.
Remove emissions: Use technologies like direct air capture and storage (DACS) to remove carbon from the atmosphere. Natural approaches include forest restoration.
So how does this affect Cambodia?
An important method of removing emissions from the atmosphere is through the production of a substance called biochar. Biochar is produced by heating biomass, such as wood chips, plant residues, or manure, in a contained system with limited oxygen. This process is called pyrolysis.
According to most estimates, one ton of biochar can sequester approximately 2-3 tons of carbon dioxide (CO2) from the atmosphere, meaning that it effectively removes roughly 2-3 times its weight in CO2 when properly applied to soil.
Carbon credit registries, such as Puro Earth in Finland, have been set up to issue CORCS (C02 Removal Certificates) to approved projects. These CORCS can then be traded to companies wishing to offset their carbon emissions.
For most projects, the process is to apply to the registry with details of the biochar process, and if the company’s process complies with the registry’s guidelines, the project will be accepted. If the company is recognised as an existing or future producer of CORCS, then it is in business as it can usually trade CORCS forward against current investment requirements.
A key element in making biochar is deciding what fuel to burn. Obviously, cutting down trees doesn’t work because it increases greenhouse gas emissions by destroying the tree. However, an important source of biochar fuel is rice husks. When rice is cleaned, about 30% of the biomass is in the husks. This is usually not worth much. But when used as biochar fuel that qualifies for CORCS, it is a game changer. The CORCS become a source of cash and the biochar can also be added to other elements to make excellent soil amendments for farmers.
Equipment required for the biochar process can be sourced from a number of countries, including China. Some equipment manufacturers have already had their equipment certified by registries such as Puro Earth, making the process easier for new projects.
While the biochar process is still relatively new and evolving, it holds significant potential for both environmental and economic benefits in Cambodia.
Projects will need strong support on how to make real financial projections and forecasts. Companies planning to produce biochar need to be able to demonstrate that they will be long-term producers. Business plans must be realistic.
Biochar may become part of a larger ecosystem that helps farmers. Many farms in Cambodia are small, so there is a need for collective organisations to bring together different processing facilities. From biochar production to fertiliser to rice harvesting and processing to international rice sales. There is a lot of money in international organic rice sales, but little of it is seen in Cambodia.
I’m currently working on a project with a company undergoing this transformation, and Cambodia provides the ideal setting. By repurposing a major waste product, we’re not only reducing environmental impact but also creating a valuable revenue stream.
Peru digital services tax and income taxation: Legal controversies and implications
21.03.2025
The Peruvian National Superintendence of Customs and Tax Administration (SUNAT) is interpreting the criteria for determining when services are considered digital very narrowly. This contradicts a Supreme Court ruling. The Ecovis consultants explain the controversy surrounding digital services and the impact of the ruling on taxpayers and tax authorities.
The taxation of digital services has become a critical issue in Peru’s regulatory landscape. The Supreme Court’s ruling in Cassation No. 2705-2024-LIMA clarifies the interpretation of digital services under the Income Tax Law (LIR), contradicting the SUNAT position.
Background: The case of the foreign parent company and its Peruvian subsidiary
A foreign parent company entered into a contract with its Peruvian subsidiary to provide business services. These services did not qualify as digital, as they were not conducted via the internet. Instead, specialised professionals remotely performed intellectual tasks, delivering specific responses to the subsidiary’s various departments without relying on the internet. SUNAT, however, asserted that these services should be considered digital as defined by the regulations of the income tax law. According to SUNAT, it is unnecessary for the service to meet the general requirements set forth in the law to be classified as digital.
The controversy: Do the regulatory provisions supersede the legal requirements?
The core issue is whether the specific list of operations outlined in the regulations of the income tax law is sufficient to classify a service as digital or if such services must also meet the general legal criteria of digital services. The law stipulates that for a service to be considered digital, it must depend on information technology and be essentially automatic by nature. The taxpayer argued that the business services provided by the foreign parent company did not meet these criteria and, therefore, should not be subject to the 30% withholding tax applicable to digital services. SUNAT, on the other hand, maintained that the classification outlined in the regulations was sufficient to consider the service as digital, even if it lacked the essential automation and technological dependency required by law.
We support taxpayers in defending their positions against aggressive tax assessments that lack a solid legal basis. Octavio Salazar Mesias, Partner, ECOVIS Peru, Lima, Peru
The Supreme Court ruling: Cassation No. 2705-2024-LIMA
The Supreme Court sided with the taxpayer, ruling that the list of digital services in the regulations must always be subject to the legal requirements established in the income tax law. Specifically:
A service must depend on information technology: The service must require technology as an intrinsic part of its execution.
The service must be essentially automatic: The process must be executed automatically, with minimal human intervention.
Since the services provided by the foreign parent company were intellectual in nature and performed by professionals without reliance on technology, they did not meet the legal criteria for digital services. Consequently, they were not subject to the 30% withholding tax.
Implications of the ruling
For taxpayers: This ruling provides greater legal certainty for multinational companies operating in Peru. Businesses that receive services from foreign entities should assess whether those services meet the legal definition of digital services before applying withholding tax.
For tax authorities: While this decision clarifies the interpretation of digital services, it does not necessarily change SUNAT’s approach. The tax authority has emphasised in Report No. 000039-2024-SUNAT that digital services are subject to income tax withholding if they are included in the regulations, even if they do not meet the legal criteria of essential automation and technological dependence.
Potential increase in tax litigation: SUNAT’s strict approach to digital service taxation aligns with its ambitious revenue collection targets. However, enforcing tax obligations on services that do not meet the legal definition of digital services may lead to unnecessary litigation, increasing compliance costs for businesses and burdening the judicial system.
Conclusion
The Supreme Court’s ruling in Cassation No. 2705-2024-LIMA reinforces the principle that regulations cannot override the legal requirements set forth in income tax law. While SUNAT continues to assert its broad interpretation of digital services, businesses must carefully analyse their service agreements to determine whether they meet the criteria established by law.
