Tax Legislation 2025: Updating Income Tax Rules and Revisions for UAE Residents Earning Income in India
The Indian government has introduced the Income Tax (No. 2) Bill, 2025, which is set to replace the 63-year-old Income Tax Act, 1961, effective April 1, 2026. This new law brings significant changes for Non-Resident Indians (NRIs) based in the UAE, particularly in the areas of tax slabs, offshore investments, and property income deductions.
Under the new tax regime, income up to ₹4,00,000 will be tax-free for individuals, Hindu Undivided Families (HUFs), and others. Income between ₹4,00,001 and ₹8,00,000 will be taxed at 5%, and income from ₹8,00,001 to ₹12,00,000 will be taxed at 10%. Income between ₹12,00,001 and ₹16,00,000 will be taxed at 15%, while income from ₹16,00,001 to ₹20,00,000 will be taxed at 20%. Any income above ₹24,00,000 will be taxed at 30%.
One of the key changes for UAE NRIs is the clarification of the treatment of offshore investments. This offers more transparency and eases compliance burdens on foreign assets held by NRIs based in the UAE. There are also relaxations aimed at reducing compliance complexities, including improvements in deductions related to property income, a significant income source for many NRIs.
Another important amendment impacting NRIs is the expansion of the "Deemed Resident" provision. Indian citizens with Indian-sourced income above ₹15 lakh (excluding foreign income) who are not liable to tax in another country can be classified as 'Deemed Residents', subjecting their Indian income fully to tax. This change particularly targets high-income NRIs.
Regarding tax filings and refunds, updated Income Tax Return (ITR) forms for AY 2025-26 require more detailed reporting, especially for capital gains from listed equities, and the Central Board of Direct Taxes (CBDT) has extended the filing deadline by 45 days to help taxpayers comply with the new documentation. These procedural updates support accurate assessment and smoother refund processes.
For UAE NRIs with unoccupied flats or rental properties in India, the exemption of notional rent on unsold property post-construction for two years can reduce taxable income significantly. NRIs with no tax liability can also obtain a NIL-TDS certificate to avoid unnecessary withholding on NRO accounts or other Indian income sources.
The bill continues return-filing exemptions for NRIs with only investment income and long-term capital gains, provided tax has been deducted at source. Full tax exemption on commuted pension from approved funds (like LIC) is now available, regardless of whether the taxpayer was an employee in India. This gives NRIs more certainty when investing through global structures.
Overall, the Income Tax Bill, 2025 doesn't radically alter NRI taxation, but it offers more clarity, retains key concessions, and eases compliance in specific cases. For UAE-based investors, the protection for offshore funds, continued capital gains concessions, and property-related deductions stand out as beneficial. These reforms aim to make tax compliance more transparent and less burdensome for UAE-based NRIs while ensuring better alignment with India’s broader tax policy goals.
- The new tax regime has announced tax-free income up to ₹4,00,000 for individuals, HUFs, and others, making it beneficial for all personal-finance planning under the current financial landscape.
- The bill introduces significant changes for NRIs based in the UAE, particularly in business, such as the clarification of offshore investments, easing compliance burdens, and providing more transparency in the business sector.
- Under the updated Income Tax Return (ITR) forms for AY 2025-26, there are detailed reporting requirements for capital gains from listed equities, which is critical news for investors in the finance industry.
