NRI Income Tax Returns in India 2026: The New Act & the 12-Lakh Trap

In April, an NRI we will call Raj forwarded us a screenshot with a single line: "So my Indian income up to twelve lakh is tax-free now, right?" He had read the same celebratory headlines everyone else had — a new Income-tax Act, a new regime, a generous tax-free threshold — and assumed it applied to him. He rents out a flat in Pune, holds an NRO account that throws off interest, and had quietly stopped worrying about an Indian return.

He was wrong on the headline, and almost right on the worry. The famous tax-free figure is for residents only — as a non-resident he does not get it. But the more interesting fact is the one the headlines buried: for an NRI filing this July, the new Act changes remarkably little. The residency tests are the same. The way your Indian income is taxed is the same. What has changed is mostly the vocabulary.

This guide is for British-Indians and other NRIs who earn anything in India — rent, capital gains, NRO interest, the odd consultancy payment — and want to know, honestly, what they must file in 2026 and what is just noise. It is a general explainer, not tax advice; residential-status and treaty questions belong with a chartered accountant. Where we earn our keep is the unglamorous spine underneath all of it: making sure your PAN status and paperwork are correct so the system does not over-deduct from you or stall your refund.

What the Income-tax Act 2025 actually does#

Let us defuse the biggest source of anxiety first, because a lot of NRIs are bracing for an overhaul that is not coming.

The Income-tax Act, 2025 was passed and assented in 2025 and takes effect from 1 April 2026, replacing the old Income-tax Act of 1961. That sounds seismic, and structurally it is tidy: the new Act runs to roughly 536 sections against the old Act's 819, with simpler drafting and consolidated provisions. But — and this is the part the headlines skip — it is a simplification and consolidation, not a policy overhaul. The slabs, the regimes, the way non-residents are taxed: largely carried over.

So the right mental model is: same tax, cleaner rulebook.

The "tax year" rename — and the trap in it#

The one change you will actually notice is terminology. The new Act introduces a single "tax year" that replaces both the old "previous year" (the year you earned the income) and "assessment year" (the year you assessed and filed it). One word instead of two. The first tax year is 2026-27, covering the income of financial year 2026-27.

Here is the nuance almost everyone gets wrong: the return you file in July 2026 is still old terminology. It covers the income of FY 2025-26 — what the old language calls assessment year 2026-27. Do not retro-apply the shiny new "tax year" label to this filing season. It only starts biting on income earned from 1 April 2026 onward.

	Old framework (this July's filing)	New Income-tax Act 2025
Income earned in	Previous year (FY 2025-26)	Tax year
Assessed/filed in	Assessment year (AY 2026-27)	Same single tax year
Two terms or one	Two separate terms	One unified term
First applies to	Returns up to July 2026	Income from 1 April 2026

Are you even an NRI? The residency tests (unchanged)#

Before any of this matters, you need your residential status for the financial year — because that, not your passport, decides what India can tax. And here is a point worth stating clearly so you do not panic: these tests are not new 2026 rules. They came in with the Finance Act 2020 and have simply been re-enacted in the new Act. Re-stated, not reinvented.

The framework, in plain terms:

• The primary test: you are generally a non-resident if you are in India for fewer than 182 days in the financial year (1 April to 31 March).
• The 120-day rule: if you are an Indian citizen or person of Indian origin and your Indian-source income exceeds ₹15 lakh in the year, the threshold tightens — spend 120 to 181 days in India and you become resident, though usually classified as RNOR (Resident but Not Ordinarily Resident).
• Deemed residency: an Indian citizen with Indian income above ₹15 lakh who is not taxed in any other country can be deemed resident even without setting foot in India for long.
• RNOR, helpfully, is taxed on Indian income only — foreign income stays outside India's net.

The takeaway for higher earners: if you draw meaningful Indian income, your "safe" day count can be well below 182. Count deliberately in any year you spend significant time in India. Our companion guide on returning to India and RNOR status walks through these tests in full, including the move-back year.

The ₹12 lakh trap: it is resident-only#

Now to Raj's screenshot, because this is the single most expensive misunderstanding doing the rounds.

Under the new tax regime, much has been made of income up to around ₹12 lakh attracting effectively no tax. That outcome comes from the Section 87A rebate (worth up to roughly ₹60,000), and it is the reason the "₹12 lakh tax-free" headline exists.

The problem: that rebate is for residents only. As a non-resident, you do not get it. Full stop.

What that means in practice is that your Indian-source income is taxable from the basic exemption limit upward — a far less generous starting point than the headline implies. An NRI and a resident with identical Indian incomes can face very different bills, precisely because one gets the 87A rebate and the other does not.

When an NRI must file — and when you should anyway#

There are two separate questions here, and conflating them costs people money.

You must file an Indian income tax return if your Indian-source income exceeds the basic exemption limit for the year. That is the legal obligation.

But there is a second, quieter reason that catches far more NRIs out: you should file to reclaim excess TDS, even when you are not legally required to. NRI income is routinely over-deducted at source — rent, capital gains and NRO interest are all common culprits, often taxed at flat or higher non-resident rates that exceed your actual liability once slabs and the basic exemption are applied. The only way to get that money back is to file a return and claim the refund. Skip filing and you are simply gifting the difference to the exchequer.

Most NRIs file using ITR-2, which accommodates income from house property, capital gains and other sources without business income.

Filing your NRI return: the order that works

1. Fix your PAN first — confirm your PAN is valid, operative and correctly tagged as non-resident before anything else; a bad PAN stalls everything downstream.
2. Confirm your residential status — count your days for the financial year and pin down NRI / RNOR / resident, because it dictates what is even taxable.
3. Pull your TDS and AIS records — reconcile what was deducted (Form 26AS / AIS) against your rent, gains and NRO interest.
4. Pick the right form and compute — usually ITR-2; apply the basic exemption and slabs to find your real liability versus tax already deducted.
5. File, claim the refund, and keep the trail — submit before the deadline, claim any over-deducted TDS, and retain everything for DTAA and future reference.

If part of your income is rent or a property sale, the mechanics get fiddlier; our note on selling property in India: TDS and PAN covers the deduction and refund traps that bite NRIs hardest there.

The deadline, and the cost of missing it#

For the income of the financial year ending 31 March 2026, the headline filing deadline for individuals is 31 July 2026. Treat that as the safe date to plan around, while accepting that the authorities sometimes extend it.

Miss it and the late-filing fee under Section 234F applies — up to ₹5,000, reduced to ₹1,000 if your total income is below ₹5 lakh. These figures are indicative and can be revised, so confirm the current deadline and fee schedule on the official portal before you rely on them.

PAN: the thing that quietly breaks everything#

Here is where we live, and where NRI filings most often go wrong before they even begin.

A PAN is effectively mandatory to file a return at all. Worse, without a valid PAN you are exposed to higher TDS under Section 206AA — deductions get applied at a penal rate, inflating exactly the over-deduction problem you are trying to escape. So a missing PAN does not just block filing; it actively makes your tax position worse upstream.

And it is not only missing PANs. We constantly clean up PANs that are inoperative (often caught in the Aadhaar-linking net) or wrongly tagged resident while the holder lives abroad. Either fault can mean higher deductions, blocked refunds and stalled bank KYC. We walk through the cure in PAN inoperative: the NRI fix, and the full lifecycle — applications, corrections, status — in our NRI PAN card 2026 guide.

If you are even slightly unsure whether your PAN is valid, operative and correctly classified, sorting your PAN before filing season is the single highest-leverage thing you can do. Everything else — your return, your refund, your treaty claim — hangs off it.

Avoiding double taxation: a quick word on the treaty#

If your income touches both the UK and India in the same year, the UK-India Double Taxation Avoidance Agreement (DTAA) exists so the same income is not taxed twice over. Claiming relief generally needs a Tax Residency Certificate plus Form 10F, and the mechanics depend heavily on income type and timing.

That is squarely chartered-accountant territory — treat it as orientation, not a method. Our companion explainer on UK-India double taxation sets out how the treaty interacts with Indian filing.

DIY or get help — the honest call#

Plenty of NRIs file their own returns, and if your affairs are simple you should.

• DIY is reasonable for: a single income stream, a clean operative PAN, and the patience to reconcile your TDS records and file ITR-2 before 31 July.
• Pay a chartered accountant for: confirming your residential status in a borderline year, structuring capital gains or a property sale, and any DTAA / TRC / Form 10F treaty relief. That is regulated tax advice and worth the fee.
• Where we fit: we are not tax advisers and will not pretend to be. What we do is get your PAN status and paperwork right — valid, operative, correctly tagged non-resident — so you are not hit with penal Section 206AA deductions, an inoperative-PAN freeze, or a stalled refund. We are the foundation the filing sits on, not the filing itself.

The bottom line for 2026#

The new Income-tax Act is real, but for this July's filing it is mostly a change of vocabulary, not of substance. Your residency tests are unchanged. The famous tax-free headline is not yours. And the most valuable thing you can do as an NRI is file to reclaim the TDS that is quietly over-deducted from your Indian income year after year — which you cannot do cleanly without a PAN that is in good standing.

Raj, for the record, filed an ITR-2, reclaimed a meaningful slice of over-deducted TDS on his Pune rent and NRO interest, and stopped budgeting around a tax-free figure that was never his. The headline was wrong. The refund was real.

If your one loose end before filing season is whether your PAN reflects the right status, that is exactly what we sort quickly and correctly — so the rest of your return has a clean foundation to stand on.

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This article is general information for 2026 and not tax, legal or financial advice. The Income-tax Act 2025, residency thresholds, rebates, deadlines and fees change and depend on your individual circumstances — always confirm the current position with the official source (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 are not affiliated with VFS Global or the Indian High Commission.