The New Income-tax Act 2025: What Changes for UK NRIs in 2026

Every few years a client emails us in a mild panic about something they have half-read on a WhatsApp group. This spring it was a forwarded message in a London family chat: "India is scrapping the whole Income Tax Act and bringing in a new one in April. Does this mean my NRI status is gone? Do I have to refile everything? Will my UK pension suddenly be taxed in India?"

The forward was, as forwards usually are, about 20% true and 80% alarm. Yes, India really is replacing its tax law. The Income-tax Act, 2025 is reported to have received Presidential assent on 21 August 2025 and is set to come into force on 1 April 2026, repealing the venerable Income-tax Act, 1961 that has governed Indian tax for over six decades. That is a genuinely historic change. But for the typical UK-resident NRI, the practical impact is far smaller — and far less frightening — than the group chat suggested.

This guide is the calm version. It explains what actually changes in 2026, what stays exactly the same, and the one residency tweak that a small slice of higher-earning NRIs genuinely need to know about. It is general information, not tax advice — residential-status questions are squarely chartered-accountant territory. What we do at NriDirect is the unglamorous foundation underneath all of it: making sure your PAN status and paperwork are correct so that whichever Act applies, the system treats you as the non-resident you actually are.

What the new Act is — and is not#

First, the honest framing. The Income-tax Act, 2025 is overwhelmingly a rewrite, not a reinvention. The stated aim was to simplify and modernise the language of the 1961 Act — shorter sections, plainer drafting, fewer cross-references that sent you chasing definitions across forty pages — rather than to overhaul who pays what.

So the things that genuinely worry NRIs are, for the most part, untouched:

• The basic idea that a non-resident is taxed only on Indian-source income survives.
• The exemption on properly maintained NRE-account interest survives.
• The UK-India treaty and the relief it gives you survives.
• RNOR relief for returnees survives (more on that below).

What changes is mostly terminology and structure, plus one tightening of the residency day-count for higher earners. If you take nothing else from this guide, take this: a new Act does not, by itself, make you Indian-tax-resident, and it does not retroactively tax money you have already brought home.

The headline change: "tax year" replaces "assessment year"#

If you have ever filed an Indian return, you will have wrestled with the old, genuinely confusing pairing of two years:

• The previous year — the 12 months in which you actually earned the income.
• The assessment year — the following 12 months, in which that income was assessed and the return filed.

So income earned in 2025-26 was assessed in 2026-27, and forms, notices and deadlines all referred to the assessment year. Almost nobody found this intuitive, and NRIs filing from abroad found it especially maddening.

The new Act sweeps this away. From the financial year 2026-27, there is a single "tax year" — one 12-month period that is both the year you earn the income and the year it is assessed. The concept of the assessment year is abolished, and "previous year" goes with it.

In practice this is a simplification, not a new charge. You are not taxed for two years instead of one; you are simply describing the same year with one sensible label instead of two confusing ones. For a UK NRI, the main effect is that future forms, portal screens and any notice you receive will talk about a tax year — so do not be thrown when the familiar "AY 2027-28" language disappears.

Here is the old-versus-new framing in plain terms.

The residency tweak that matters for higher earners#

Now the one change that a minority of NRIs genuinely need to act on. The Act does not touch the primary 182-day rule — that is the load-bearing point for most readers. Spend fewer than 182 days in India in a financial year and you generally remain a non-resident, full stop.

What tightens is a secondary trigger aimed squarely at higher earners with substantial Indian income. Carried forward into the new Act is the rule that an NRI or person of Indian origin whose Indian-source income exceeds fifteen lakh rupees in the year becomes resident — specifically RNOR — if they are present in India for 120 days or more in that year and 365 days or more across the preceding four years. For that income bracket, this replaces the old 60-day trigger with a 120-day one.

Read carefully, because the nuance cuts both ways:

• If your Indian income is below fifteen lakh rupees, the headline 182-day rule applies as before. Most UK NRIs sit comfortably here.
• If your Indian income exceeds fifteen lakh rupees, your "safe" day count can be as low as 120 days, not 182 — so a couple of long visits in a year could tip you into RNOR.

The saving grace is the classification: even if you cross the line, you become RNOR rather than an ordinary resident, which (as we cover below) keeps your foreign income out of the Indian net. But the day-count discipline matters. If you draw meaningful Indian rent, run an Indian consultancy, or have started an Indian salary mid-year, count your days deliberately.

We unpack the RNOR mechanics, account redesignation and the move-back planning window in our companion guide on returning to India as an NRI and RNOR status, which is the natural next read if any of this applies to you.

Deemed residency: why it almost never catches UK NRIs#

The other residency rule people worry about is deemed residency, carried forward in the new Act. In plain terms: an Indian citizen with Indian-source income above fifteen lakh rupees who is not liable to tax in any country is treated as a resident of India.

The crucial words are "not liable to tax in any country". This rule was designed to catch Indian citizens parking themselves in zero-tax jurisdictions — most famously the UAE and the wider Gulf — where they paid tax nowhere and so escaped the net entirely.

For a UK-resident NRI, this rule simply does not bite. You already pay UK tax; you are unambiguously liable to tax in a country. That single fact takes you outside the deemed-residency rule no matter how high your Indian income climbs. So if a Dubai-based cousin is anxious about deemed residency, they have reason to read closely — but a British-Indian in Birmingham or Bristol does not.

RNOR relief is preserved — the returnee's window survives#

For the many UK NRIs quietly planning an eventual move back to India, this is the reassuring part. The new Act preserves RNOR relief.

To recap why that matters: when you return after years abroad, you typically become Resident but Not Ordinarily Resident for a transitional period — broadly two to three years, depending on your past residency. While RNOR:

• Your foreign income (a tail of UK salary, UK rental income, interest, gains on foreign assets) generally stays exempt from Indian tax.
• Only your Indian-source income is taxable in India.

The 2025 Act keeps this carve-out, so the planning window returnees rely on is broadly intact. The difference between selling a UK asset while RNOR versus a year later as an ordinary resident can be material, which is exactly the timing question to put to a chartered accountant early. Here is the status ladder under the new Act.

What you actually need to do in 2026#

For most UK NRIs, the honest answer is: very little, and certainly nothing to panic about. But here is the sensible housekeeping.

This is where we are deliberately honest about our lane. We are not tax advisers and will not pretend to be. Confirming your exact residential status, your RNOR duration and the timing of asset sales is regulated chartered-accountant work, and worth every rupee. What we do is the layer underneath: getting your PAN status and paperwork right so banks and employers apply the correct non-resident treatment and you are not caught by an inoperative-PAN surprise.

The filing mechanics are a separate question#

One clarification, because the two get conflated. This post is about the new Act — the new "tax year" language, the residency tweaks, the structural rewrite. It is not a how-to-file guide. If your question is the practical one — who actually has to file an Indian return, by when, and how do I claim a refund of over-deducted TDS? — that is covered in our companion guide on the NRI income-tax return for 2026, which walks through the filing mechanics end to end.

Likewise, if your concern is being taxed twice on the same income — UK and India both taking a bite — the lever is the treaty, not the new Act. Our guide on the India-UK double taxation agreement explains how a TRC and an online Form 10F cut your NRO interest TDS from the default rate down to the treaty rate. The new Act changes none of that machinery.

DIY versus getting help — the honest call#

Plenty of UK NRIs navigate all of this themselves, and you can too. The honest breakdown:

• DIY is reasonable for: counting your India days, getting comfortable with the "tax year" wording, and reading up on RNOR so you do not panic-sell an asset at the wrong moment.
• Pay a chartered accountant for: confirming your exact status in a borderline year (especially near the 120-day line), your RNOR duration, deemed-residency edge cases, and the timing of any asset sale. This is regulated tax work.
• Where we fit: we get your PAN right — a fresh application, a correction, or fixing an inoperative one — so the system treats you as the non-resident you are, whichever Act is in force. If you are even slightly unsure whether your PAN reflects the right status, that is the highest-leverage thing to sort first.

Other

NRI PAN Card

For Indian property, tax & banking

Apply for or update your PAN card as an NRI. Essential for property, tax, and banking in India. No VFS visit needed.

Turnaround: ePAN 7-12 days, physical card 20-25 days

From£100.00

View service

The client who forwarded us that panicked WhatsApp message, for the record, had nothing to worry about. He visits India for two weeks a year, his only Indian income is interest on a small NRO deposit, and he pays UK tax on everything else. The new Act changes his vocabulary, not his bill. We checked his PAN was correctly tagged non-resident and operative — it was — and that was genuinely the end of it. The Act is historic; his exposure to it was a single corrected assumption.

If your only loose end ahead of the new Act is whether your PAN reflects the right status, that is exactly the kind of thing we sort quickly and properly — so a sweeping change to Indian tax law lands on you as a vocabulary update rather than a problem.

This article is general information for 2026 and not tax, legal or financial advice. The commencement date, the "tax year" concept, the residency thresholds and the fifteen-lakh figure are drawn from secondary sources at the time of writing and may change without notice; your position depends on your individual circumstances — always confirm the current rules with the official source (the Income Tax Department of India at incometax.gov.in↗) and consult a qualified chartered accountant before acting. NriDirect is an independent UK agent assisting with Indian paperwork and PAN services; we are not a tax or financial adviser and do not provide regulated advice.