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In the 2025 Budget, Finance Minister Nirmala Sitharaman unveiled significant tax reforms affecting non-resident Indians (NRIs) and foreign investors. Aiming to create a stable tax environment for non-residents, the government introduced a presumptive taxation framework tailored for foreign firms providing services to Indian businesses involved in electronics manufacturing. Additionally, a safe harbour provision was established for non-residents who stock components intended for delivery to certain electronics manufacturing facilities. The budget also aimed to synchronize long-term capital gains (LTCG) tax rates for non-residents—like Foreign Institutional Investors (FIIs)—with those applicable to resident taxpayers concerning the sale of capital assets.
Sitharaman mentioned, "It is proposed to bring parity between the taxation of capital gains on the transfer of capital assets between residents and non-residents, particularly Foreign Institutional Investors, regarding their income derived from long-term capital gains on securities transactions." The government extended tax exemptions under Section 10(4H) to cover capital gains linked to the sale of equity shares from domestic ship leasing companies as well as entities located in International Financial Services Centres (IFSCs). Moreover, profits from the transfer of non-deliverable forward contracts by Foreign Portfolio Investors (FPIs) functioning within an IFSC will now be exempt from taxation, provided certain conditions are met.
Prior to the Union Budget 2025, analysts proposed measures for tax relief, alongside simplified compliance regulations for NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs). Recommendations included the rationalization of long-term capital gains tax, adjustments on property transaction taxes, and more straightforward income tax filing procedures for NRIs in the upcoming budget. In the previous budget of 2024, Nirmala Sitharaman had already announced various initiatives aimed at improving connections with NRIs and encouraging investments. To facilitate NRI investments, reforms were introduced in Foreign Direct Investment (FDI) regulations, taxation, and currency investment.
As part of the effort to relax FDI and foreign investment policies, the minister emphasized promoting the rupee for international investments, thus simplifying the investment process for NRIs. To further stimulate NRI investments, the government reduced the holding period for long-term capital assets, including gold, bonds, and debentures, from 36 months to 24 months. The tax structure for capital gains was also revised to ease taxation for NRIs. However, these updates resulted in an increased tax rate of 20% from the previous 15% on short-term capital gains from listed equity shares and equity-oriented mutual funds. Furthermore, the tax rate for long-term capital gains on listed equity shares and equity-focused mutual funds was raised from 10% to 12.5% without indexation benefits, while the exemption limit for long-term capital gains saw an increase from ₹10 lakh to ₹1.25 lakh.
