India's 2025 Budget: Key Tax Reforms for NRIs and Measures to Attract Foreign Investment

On February 1, Indian Finance Minister Nirmala Sitharaman presented the 2025 Union Budget, which includes key revisions in taxation for Non-Resident Indians (NRIs) and measures to attract foreign investors.

A notable aspect of this year’s budget is the proposed tax cuts. The threshold for collecting Tax Collected at Source (TCS) on remittances under the RBI's Liberalized Remittance Scheme (LRS) will be raised from Rs.7 lakh ($8,400) to Rs.10 lakh ($12,000). Additionally, the proposal to decriminalize the delay in TCS payment until the filing deadline is a significant change.

These changes hold particular importance, as India is the largest recipient of remittances from its diaspora, especially from the Gulf region and the United States.

Furthermore, the budget suggests aligning the long-term capital gains (LTCG) tax rates for NRIs, including Foreign Institutional Investors (FIIs), with the rates applicable to resident taxpayers for capital asset transfers. Sitharaman stated, "It is proposed to bring parity between the taxation of capital gains on the transfer of capital assets between residents and non-residents, including FIIs, on long-term capital gains derived from securities."

To further boost investment, the government has proposed introducing a presumptive taxation scheme for foreign entities offering services to Indian companies engaged in electronics manufacturing. Additionally, a new safe harbor provision will be introduced to provide tax certainty for non-residents storing components for electronics manufacturing units.

The budget also includes an increase in the Foreign Direct Investment (FDI) cap for the insurance sector, raising it from 74% to 100%. This enhanced cap will apply to companies that invest the entire premium within India. Moreover, to promote foreign investment, the current Bilateral Investment Treaties (BIT) will be reformed to be more investor-friendly, and the associated regulations will be simplified, as announced by the Finance Minister.