NRI Taxation After the 2026 Budget: Key Changes You Need to Act On

What changed in the 2026 Budget

The Union Budget 2026 introduced several changes that directly affect NRI investors in India. While the headline focus was on new income tax slabs for residents, the NRI-specific changes are significant and require action.

Capital gains: the new structure

The 2024 budget had already simplified capital gains into short-term (12 months for equity, 24 months for other assets) and long-term buckets. The 2026 budget retained this structure but made two NRI-specific changes:

• TDS on NRI equity capital gains reduced to 12.5%. Previously, buyers were required to deduct TDS at 20% on property transactions and varying rates on securities. The new uniform rate of 12.5% on long-term gains simplifies compliance and reduces the refund cycle for NRIs who often pay lower effective rates.
• Rationalised surcharge for NRI capital gains. The maximum surcharge on capital gains for NRIs is now capped at 15%, down from 25% for income above ₹2 crore. This meaningfully reduces the effective tax rate for large transactions.

TDS on NRO interest income

Interest earned on NRO fixed deposits and savings accounts continues to be subject to TDS at 30% plus applicable surcharge and cess. However, the 2026 budget introduced a simplified refund process for NRIs who can demonstrate lower tax liability through DTAA benefits.

If your country of residence has a DTAA with India that provides for a lower rate (e.g., 15% under the India-US DTAA for interest income), you can now file Form 13 electronically for a lower TDS certificate — without visiting the Assessing Officer's office.

The DTAA claim process: what you must do

To claim DTAA benefits, NRIs must:

• Obtain a Tax Residency Certificate (TRC) from their country of residence
• File Form 10F electronically on the Indian income tax portal
• Submit Form 67 before the due date of the return (not at the time of filing — this catches many NRIs)
• Maintain documentation of foreign tax paid, including tax returns filed abroad

Missing any of these steps can result in the denial of DTAA credit — and we have seen NRIs pay effective tax rates of 35–40% on Indian income simply because they missed a filing deadline.

Mutual fund taxation for NRIs

NRI investments in Indian mutual funds are subject to TDS at source. Equity fund gains (LTCG above ₹1.25 lakh) are taxed at 12.5%. Debt fund gains (held over 24 months) are taxed at 12.5% with indexation benefit available for units purchased before April 2023 and the new regime for later purchases.

The key action item: ensure your mutual fund houses have your correct residential status and PAN-linked TDS records. Incorrect TDS deduction is the single most common compliance issue we see with NRI mutual fund investments.

What you should do now

Review your TDS certificates (Form 16A) from Indian banks and mutual funds. File Form 67 before the ITR due date if claiming foreign tax credit. Consider consolidating NRO accounts to simplify TDS tracking. And speak with a cross-border tax professional if your Indian income exceeds ₹15–20 lakh — the savings from proper DTAA structuring will far exceed the advisory fee.