India’s Union Budget 2025: Tax Reforms for NRIs and Foreign Investment Incentives

Feature and Cover India’s Union Budget 2025 Tax Reforms for NRIs and Foreign Investment Incentives

On February 1, Indian Finance Minister Nirmala Sitharaman presented the Union Budget for 2025, introducing key tax revisions for non-resident Indians (NRIs) and incentives aimed at attracting foreign investors.

A significant aspect of this year’s budget was the tax reductions. For NRIs, one of the notable proposals included raising the threshold for tax collection at source (TCS) on remittances under the Reserve Bank of India’s (RBI) Liberalized Remittance Scheme (LRS) from Rs.7 lakh ($8,400) to Rs.10 lakh ($12,000). Furthermore, the delay in TCS payment up to the deadline for filing statements is now proposed to be decriminalized.

These exemptions hold particular importance since India receives the highest volume of remittances globally, with a substantial share coming from its diaspora in the Gulf countries and the United States.

Another key proposal in the budget aimed at NRIs involves changes in the taxation of long-term capital gains (LTCG). The government has suggested aligning LTCG tax rates for Foreign Institutional Investors (FIIs) with those applicable to resident taxpayers on the transfer of capital assets. “It is proposed to bring parity between the taxation of capital gains on transfer of capital assets between residents and non-residents being Foreign Institutional investors, on their income by way of long-term capital gains on transfer of securities,” Sitharaman stated in her Budget speech.

To boost investments, the government has also proposed the introduction of a presumptive taxation framework for foreign entities that provide services to Indian firms involved in establishing or running electronics manufacturing plants. Additionally, a safe harbour provision is being introduced to ensure tax certainty for non-resident entities that store components for supplying specific electronics manufacturing units.

Another major reform in the budget pertains to foreign direct investment (FDI) in the insurance sector. The permissible FDI limit is set to be increased from 74% to 100%. However, this will only apply to companies that invest the entire premium amount within India.

In an effort to make India more attractive for global investors under the ‘first develop India’ initiative, the government has also decided to revise and enhance the existing model for Bilateral Investment Treaties (BIT). Sitharaman emphasized that the new framework would be more investor-friendly while ensuring that the conditions and regulatory safeguards associated with foreign investments are reviewed and simplified.

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