The Union Budget 2025 has introduced a more stringent tax regime for Non-Resident Indians (NRIs), significantly impacting students and professionals working overseas. The new regulations aim to align India’s tax system with international norms but create additional financial and compliance burdens for those maintaining ties with both India and their host country, reported the Hindu.
One of the major changes includes increased scrutiny of foreign-earned income through enhanced data-sharing agreements under India’s Double Tax Avoidance Agreements (DTAA). This means that Indian students securing jobs abroad may be required to declare their foreign earnings in India, even if they do not have any active income sources domestically. Additionally, the definition of NRI residency for taxation has been further tightened. Previously, NRIs were taxed on Indian-sourced income if they spent over 182 days in India within a financial year. A reduction to 120 days for high-income individuals was already introduced in Budget 2020, and the latest budget suggests further tightening, making it harder for professionals to retain their NRI status if they maintain substantial financial links to India.
The amendments may also impact tax treaty benefits. While India maintains DTAA treaties with countries like the US, UK, Canada, and Australia, the government is looking to revise these agreements to close loopholes often used for tax avoidance. This could lead to increased withholding tax rates on foreign remittances and stricter documentation requirements for those claiming tax relief.
For students and professionals abroad, these changes pose significant challenges. Those on post-study work visas or seeking permanent residency in countries like Canada, Australia, or the US could face heightened tax obligations and potential double taxation if they fail to structure their finances carefully. Indian authorities are likely to demand detailed disclosures on overseas earnings, investments, and bank accounts, with inaccurate reporting attracting penalties under anti-tax evasion laws. Additionally, money transfers to India under the Liberalized Remittance Scheme (LRS) will face greater scrutiny, and large transactions could be subjected to further compliance checks. Returning NRIs, particularly those with assets such as savings, stocks, or property investments, could also face taxation on repatriation if proper disclosures are not made under India’s Foreign Asset Disclosure Rule, which carries severe penalties for non-compliance.
The impact of these changes will be particularly severe on many Muslim families working in the Gulf, where the majority of Indian expatriates reside. Unlike students in Western countries, Gulf-based NRIs do not have the option of acquiring permanent residency or citizenship and must return to India after their employment contracts end. With the new tax rules, those sending remittances to India to support their families could face greater financial strain, as their transactions may be subject to increased scrutiny and taxation. Many blue-collar workers in the Gulf, who already struggle with fluctuating exchange rates and job insecurity, may find it even harder to manage their finances. Additionally, professionals in fields such as engineering, healthcare, and business, who have built careers in Gulf nations, could be forced to reconsider their financial strategies due to the tighter NRI residency definition and potential taxation on their foreign earnings.
The latest budget moves reflect India’s growing emphasis on tax compliance and revenue generation, but they also add new hurdles for NRIs, particularly students and professionals striving to build a future abroad while maintaining financial ties with their homeland.
