Income Tax Bill, 2025: 9 ITR, tax changes for UAE expats earning income in India

Dubai: Indian expatriates in the UAE with income or investments in India now have a new set of tax rules to navigate.

The Income Tax (No. 2) Bill, 2025, passed in the Lok Sabha on August 11, replaces the 63-year-old Income Tax Act, 1961, and brings in new slabs, clarified definitions, compliance relief, and targeted provisions affecting non-resident Indians (NRIs).

What changed for UAE NRIs?

The new law, effective April 1, 2026, incorporates most recommendations from Parliament’s Select Committee and adds refinements based on public and industry feedback. For UAE-based NRIs, there are several notable changes — from deductions on property income to clarity on offshore investments.

“There are a bunch of relaxations and clarity in the new Income Tax Bill which will really make life easier when calculating tax and complying with rules,” says Dixit Jain, Managing Director at The Tax Experts DMCC in Dubai.

9 key takeaways for UAE NRIs

1. New tax slabs

Under the new tax regime, applicable to individuals, Hindu Undivided Families (HUFs), and others, income up to ₹4,00,000 will be tax-free.

Income between ₹4,00,001 and ₹8,00,000 will be taxed at 5%, while income from ₹8,00,001 to ₹12,00,000 will attract a 10% rate.

Earnings between ₹12,00,001 and ₹16,00,000 will be taxed at 15%, and those from ₹16,00,001 to ₹20,00,000 at 20%. For income in the range of ₹20,00,001 to ₹24,00,000, the rate rises to 25%, and any income above ₹24,00,000 will be taxed at 30%.

NRI relevance: These slabs apply to income taxable in India. For most UAE NRIs, this means rental income, business profits from India, or capital gains.

2. Offshore investment relief

According to Dixit Jain, the bill addresses a key concern for NRIs investing internationally: No business connection due to Indian fund managers

“Certain investment funds set up outside India but managed by eligible fund managers in India will not be considered as having a business connection in India just because the fund manager is in India. This protects NRIs investing in such funds from being taxed in India merely due to fund management being done locally,” Jain explains.

3. Capital gains, specified assets

The bill retains concessional tax rates for NRIs on capital gains from “foreign exchange assets” such as:

• Shares and debentures of Indian companies

• Deposits with Indian banks

• Government securities

Jain notes: “NRIs continue to enjoy these benefits, and the bill ensures they remain intact.”

4. Offshore derivative instruments (ODIs)

The revised law clarifies that income from transfer of ODIs or certain offshore instruments remains outside India’s tax scope if the underlying assets are located overseas and certain conditions are met.

NRI relevance: This gives NRIs more certainty when investing through global structures.

5. Property income, deductions

• Municipal taxes can now be deducted before applying the 30% standard deduction on rental income.

• Notional rent on unsold property post-construction is exempt for two years.

NRI relevance: For UAE NRIs with unoccupied flats or rental properties in India, this can reduce taxable income significantly.

6. Pension income

Full tax exemption on commuted pension from approved funds (like LIC) is now available, regardless of whether the taxpayer was an employee in India. This applies equally to those who invested independently in pension plans.

7. Simplified compliance for certain income

Jain points out that the bill continues return-filing exemptions for NRIs with only:

• Investment income

• Long-term capital gains
  …provided tax has been deducted at source.

  
  “If you meet these conditions and have no other taxable income in India, you don’t have to file a return,” Jain says.

8. Refunds, NIL-TDS certificates

• Filing a return is mandatory to claim any refund.

• NRIs with no tax liability can obtain a NIL-TDS certificate to avoid unnecessary withholding on NRO accounts or other Indian income sources.

9. Effective date

The law will replace the Income Tax Act, 1961, starting April 1, 2026. The 2025–26 financial year will be the transition period for planning.

Bottom line for UAE NRIs

The Income Tax Bill, 2025 doesn’t radically alter NRI taxation, but it offers more clarity, retains key concessions, and eases compliance in specific cases.

For UAE-based investors, the protection for offshore funds, continued capital gains concessions, and property-related deductions stand out as beneficial.

Early planning before April 2026 will ensure NRIs make the most of these provisions while avoiding refund delays or unnecessary filings.