New Income Tax Bill May Change Rules for NRIs Earning Over Rs 15 Lakh in India

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Key Takeaways

• NRIs earning over Rs 15 lakh in India may be reclassified as “residents” for tax purposes under the new bill.
• VDAs, including cryptocurrencies and NFTs, will face a 30% tax rate, 1% TDS, and stricter reporting requirements.
• Stakeholders must monitor legislative updates closely post-February 13, 2025, for potential amendments during parliamentary scrutiny.

The proposed new Income Tax Bill, set for introduction to the Indian Parliament on February 13, 2025, marks a significant shift in the tax landscape, with crucial implications for Non-Resident Indians (NRIs) earning significant income in India 🇮🇳 and provisions addressing the taxation of virtual digital assets (VDAs). This legislative move aligns with efforts to modernize tax policies, close existing loopholes, and ensure fair contributions to the country’s tax base. Below, we break down the expected contents of this bill and its projected impact.

Proposed Changes to NRI Taxation Rules

A key focus of the bill is revising tax residency criteria for NRIs. The proposal suggests that NRIs earning more than Rs 15 lakh in India could be reclassified as “residents” for tax purposes, provided they are not already subject to taxation in another country. This proposed measure addresses long-standing criticisms of NRI status being exploited to avoid tax liabilities while earning significant income within Indian borders.

New Income Tax Bill May Change Rules for NRIs Earning Over Rs 15 Lakh in India

Currently, NRIs are taxed only on income sourced from India 🇮🇳, while their global income is exempt from Indian taxation. Under the new legislation, this principle remains intact: only income earned within India will be subject to Indian taxes. This clarity provides relief for NRIs with diverse income streams from multiple international sources.

Revised Residency Framework

The bill introduces updated guidelines for classifying an individual as a resident for tax purposes. Under the new framework, one qualifies as a tax resident if they:
1. Stay in India for at least 182 days in a tax year; or
2. Spend 60 days or more in a tax year in India while having stayed in the country for at least 365 days in the preceding four years.

Certain key exceptions to these rules are also outlined:
– Crew members of Indian ships and citizens leaving India for employment abroad will not fall under the 60-day rule.
– Visiting NRIs will enjoy the same exemption. However, should such individuals earn more than Rs 15 lakh from sources in India (excluding global income), the exemption is partially relaxed, extending the 60-day threshold to a 120-day rule.

This modification adds flexibility for high-earning NRIs regarding residency classification while closing avenues to exploit tax arbitrage.

Resident but Not Ordinarily Resident (RNOR)

Importantly, high-earning NRIs meeting particular criteria may instead be classified under RNOR status. Unlike full residents, RNOR individuals are only required to pay tax on their Indian-sourced income. This classification ensures international income from foreign sources remains untaxed in India, helping protect NRIs with global income streams from excessive tax burdens.

Addressing Tax Avoidance Concerns

The government has emphasized that the proposed reclassifications aim to reduce the misuse of NRI status to avoid tax obligations. By tightening residency criteria, especially for those earning Rs 15 lakh or more domestically, the new bill seeks to balance fairness and compliance with international taxation standards. This shift is in line with global trends to curb tax base erosion.

Provisions for Virtual Digital Assets (VDAs)

In a separate focus, the bill also addresses the taxation of VDAs, a category broadly encompassing cryptocurrencies, non-fungible tokens (NFTs), and similar digital assets. This inclusion strengthens the regulatory framework for India’s emerging digital asset ecosystem by elaborating on their tax treatment under varying circumstances.

Taxation Framework for Cryptocurrencies and VDAs

Under the bill, VDAs will continue to be taxed based on the principles outlined in the Finance Act of 2022, pointing to consistency in the government’s approach. Here are the key provisions expected to remain intact:
1. A 30% flat tax (plus applicable surcharges and 4% cess) will apply to profits derived from selling or swapping VDAs. Notably, this tax rate applies universally, with no differentiation between short-term and long-term gains.
2. Losses incurred from VDA investments cannot be offset against profits from other VDAs or income streams. Additionally, such losses cannot be carried forward to future tax years.
3. A 1% Tax Deducted at Source (TDS) remains applicable to all transactions involving VDAs, ensuring comprehensive tracking of digital transactions. While exchanges generally deduct this amount on the user’s behalf, individuals conducting peer-to-peer (P2P) trades on overseas platforms bear the responsibility of deducting and depositing the TDS themselves.

Reporting Requirements

To simplify reporting for taxpayers, crypto-related income must be disclosed under the Schedule Virtual Digital Assets (VDA) section of updated Income Tax Return (ITR) forms. As per the Finance Act of 2022, which launched April 1 of the preceding year, taxpayers must explicitly disclose gains from VDA transactions. Similar mechanisms are expected to continue under the new bill.

The government further signals an effort to facilitate amendments in reporting if inconsistencies or errors arise. However, failure to rectify inaccuracies promptly (within 30 days) allows authorities to classify submitted information as inaccurate, potentially leading to penalties.

Broader Tax System Reforms

Beyond these key changes addressing NRIs and VDAs, the Income Tax Bill signals a holistic effort to update India’s taxation framework:

Support for Start-Ups: There are indications of provisions offering a 100% tax exemption for start-ups during the first three consecutive years within a company’s initial decade of operations. This measure aims to foster India 🇮🇳 as a hub for entrepreneurial innovation by lowering the initial financial barriers for new businesses.
Legislative Efficiency: New timelines and codified procedures for reassessing escaped income are anticipated. By streamlining how notices for reconsideration of income are issued, the tax department aims to enhance operational efficiency.
Enhanced Dispute Resolution Mechanisms: To curb litigation, the dispute committee for small taxpayers is likely to see expanded capabilities. This change should help reduce repetitive lawsuits while fostering more amicable dispute resolutions.
Charitable Trusts Compliance: A revised framework will likely clarify taxable income definitions for non-profits, reducing ambiguity and requiring stricter adherence to compliance guidelines.
Anti-Tax Avoidance Measures: Comprehensive safeguards targeting transactions lacking commercial substance and arrangements deemed impermissible are expected, further strengthening anti-avoidance provisions.

Implications for Stakeholders

The proposed Income Tax Bill underscores the Indian government’s commitment to updating outdated tax policies, particularly as they apply to modern financial markets and international residency trends. For NRIs, the most immediate impact will concern those earning Rs 15 lakh or more domestically—this group should assess the potential reclassification’s effect on their future tax liabilities.

For VDA investors, the bill adds clarity and continuity to the dynamic regulatory space of cryptocurrencies and related assets. By incentivizing stricter compliance, the government reinforces its effort to create an accountable and transparent environment in financial technology.

Next Steps

Since the bill will undergo parliamentary scrutiny before enactment, stakeholders should watch legislative developments closely. After February 13, 2025, additional debates or amendments could refine the proposed measures.

For NRIs and VDA investors, this transformative legislation underscores the importance of proactive tax compliance planning. Early consultation with tax advisors or legal experts is highly recommended to understand specific obligations better.

For further official details on India’s tax laws and insights into the updated bill upon its release, readers may refer to the Indian Income Tax Department’s official portal at incometax.gov.in.

In summary, the proposed Income Tax Bill heralds significant changes targeting NRIs, VDAs, and other taxpayer segments. By modernizing tax structures in step with international norms, the bill promises to create a fairer ecosystem while fostering compliance and reducing ambiguity. Users should remain engaged with ongoing updates about the potential implications for their own financial planning ahead of February 2025.

Learn Today

Non-Resident Indian (NRI) → An individual of Indian origin residing outside India but earning income in India or maintaining certain ties to it.
Resident but Not Ordinarily Resident (RNOR) → Tax classification for certain NRIs, where only Indian-sourced income is taxed, not global income.
Virtual Digital Assets (VDAs) → Digital assets such as cryptocurrencies, NFTs, and similar items subjected to specific tax regulations in India.
Tax Deducted at Source (TDS) → A system where a portion of an amount is withheld and paid directly to the government as an advance tax.
Tax Arbitrage → Taking advantage of differing tax rates or rules across jurisdictions to reduce overall tax liability.

This Article in a Nutshell

India’s 2025 Income Tax Bill reshapes NRI taxation and digital asset rules. NRIs earning over ₹15 lakh in India may face stricter residency criteria, closing tax loopholes. For crypto investors, existing 30% tax and 1% TDS remain unchanged. Stakeholders should prepare early, as modernized policies target fairness, compliance, and clarity.
— By VisaVerge.com