Finance Minister Nirmala Sitharaman announced key tax reforms in Budget 2025, impacting non-resident Indians (NRIs) and foreign investors. To enhance tax clarity for non-residents, the government introduced a presumptive taxation regime for foreign entities providing services to Indian electronics manufacturers.
A safe harbour provision was also introduced for non-residents storing components for supply to designated electronics manufacturing units. Additionally, the budget proposed aligning long-term capital gains (LTCG) tax rates for NRIs and Foreign Institutional Investors (FIIs) with those of resident taxpayers when transferring capital assets.
Sitharaman highlighted in her Budget speech that the government aims to ensure tax parity between residents and non-residents, particularly FIIs, on income from long-term capital gains on securities transfers.
Further, tax exemptions under Section 10(4H) were expanded to include capital gains from the sale of equity shares in domestic ship-leasing companies and units in International Financial Services Centres (IFSCs). Additionally, income from the transfer of non-deliverable forward contracts by Foreign Portfolio Investors (FPIs) operating within an IFSC will now be tax-exempt under specified conditions.
Ahead of the budget announcement, experts had recommended tax relief and streamlined compliance for NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs). They also suggested revising capital gains taxation, simplifying property tax rules, and easing income tax filing requirements for NRIs.
In Budget 2024, Sitharaman had introduced measures to boost NRI investments, including relaxed FDI norms, taxation reforms, and policies promoting rupee-based overseas investments. The government had also shortened the holding period for long-term capital assets, such as gold, bonds, and debentures, from 36 months to 24 months to attract NRI investors.
While efforts were made to simplify the capital gains structure, tax rates were adjusted. The short-term capital gains tax on listed equity shares and equity-oriented mutual funds was increased from 15% to 20%. Similarly, the long-term capital gains tax on listed equity shares and equity-focused mutual funds rose from 10% to 12.5%, without indexation benefits. However, the exemption limit for long-term capital gains was raised significantly from $12,000 to $15,000.
With these measures, the government aims to create a more investor-friendly environment while ensuring tax compliance and economic growth.
