NRI Tax Filing in India: Old vs. New Tax Regime, Which One Should You Choose in AY 2025–26?

Once upon a time, filing taxes in India was simple for most people. But now, for Non-Resident Indians (NRIs), it has become important to understand two different paths, the old and the new tax regime.

Think of it like this: the old regime is a traditional road with many stops where you can claim deductions like Section 80C, 80D (for insurance), or even house loan interest. These stops help reduce your total taxable income.

On the other hand, the new regime is a faster expressway. Its simpler, offering lower tax rates, but without those deduction stops. For many, it feels quick and easy, but you may miss out on savings if you had eligible investments or expenses.

For the assessment year 2025–26, NRIs must choose wisely. This decision affects how much tax you pay. If you claim deductions and investments, the old regime may suit you. If you don’t, the new one could save more.

This article breaks down the deductions NRIs can claim under both regimes and helps you decide which option could work best for your situation. Choosing the right path today can save money and reduce stress tomorrow, making your tax journey smoother and smarter.So before filing your income tax return, take a good look at your financial journey.

Overview: Old vs. New Tax Regime

Let’s imagine you’re planning a journey to reduce your taxes. You have two routes to choose from: the Old Regime and the New Regime (Section 115BAC).

• Old Regime: This is the scenic route. It takes a bit more time and planning, but you can stop at many points along the way to claim deductions and exemptions, like for life insurance, home loans, health policies, and more. If you’ve invested or spent money in specific areas, this road could help you save more on tax.
• New Regime: This is the express highway. It’s fast and simple, with lower tax rates and no need to track your investments or expenses. But there’s a catch—you don’t get to claim most of the deductions and exemptions. It’s straightforward, but less flexible.

Both routes lead to the same destination, filing your income tax return, but your choice can impact how much tax you pay. The best path depends on your income, spending, and investments. Choose wisely!

Deductions for NRIs Under the Old Tax Regime

If you are a Non-Resident Indian (NRI) and have opted for the old tax regime for the assessment year 2025–26, you’re in a better position to reduce your taxable income by claiming various deductions. Although NRIs don’t qualify for every deduction that residents enjoy, there are still several beneficial options available.

Let’s take a closer look at the deductions NRIs can claim under the old regime:

1. Section 80C – Limit of ₹1.5 lakh

This is the most commonly used section for tax savings. Under this section, NRIs can claim deductions up to ₹1.5 lakh by investing or spending in specified instruments. Heres what qualifies:

• Life Insurance Premiums: Premiums paid for life insurance policies (for self, spouse, or children) qualify, provided the premium is not more than 10% of the sum assured.
• Tuition Fees: Tuition fees paid for the full-time education of up to two children studying in India are deductible.
• Principal Repayment on Home Loan: If you are repaying a home loan for a property located in India, the principal portion qualifies for deduction.
• Equity Linked Savings Schemes (ELSS): Investments in ELSS funds are allowed under this section and offer both tax benefits and potential capital appreciation.
• ULIPs: Contributions to Unit Linked Insurance Plans are also eligible.
• Tax-saving Fixed Deposits: NRIs can claim deductions for 5-year tax-saving fixed deposits made through their Non-Resident Ordinary (NRO) account.

2. Section 80D – Health Insurance Premiums

• NRIs can claim a deduction of up to ₹25,000 for premiums paid towards health insurance for self, spouse, and dependent children.
• If you’re also paying for your parents’ health insurance, you can claim an additional ₹25,000—or ₹50,000 if either parent is a senior citizen.

3. Section 80E – Education Loan Interest

If youve taken an education loan for higher studies, the interest paid is fully deductible under this section.

• There’s no maximum limit, but the deduction is allowed only for 8 consecutive years starting from the year the repayment begins.

4. Section 80G – Donations

Donations made to notified and eligible charitable institutions and relief funds can also be claimed as deductions under Section 80G.

• The eligible amount and percentage of deduction depend on the type of organization to which the donation is made.

5. Section 80TTA – Interest from Savings Account

Interest earned up to ₹10,000 from savings accounts held with banks or post offices in India (in your name) can be claimed as a deduction under Section 80TTA.

6. Section 24(b) – Home Loan Interest

• For self-occupied property, you can claim a deduction of up to ₹2 lakh per annum on the interest paid.
• If the property is let out, there is no upper limit—you can claim the actual interest paid as a deduction.

7. Other Allowances – HRA and LTA

If you are a salaried NRI, you may also be eligible to claim exemptions such as:

• House Rent Allowance (HRA), if you are living in rented accommodation
• Leave Travel Allowance (LTA), for travel within India (as per the employer’s policy and tax rules)

Basic Exemption Threshold for NRIs

Before calculating your total income tax, it’s important to understand the basic exemption limit—this is the amount of income on which you do not have to pay any tax.

For Non-Resident Indians (NRIs), the basic exemption limit varies depending on the tax regime chosen:

• Old Tax Regime: The basic exemption limit for NRIs is ₹2.5 lakh. This means if your total taxable income is up to ₹2.5 lakh, you do not need to pay any income tax under the old system.
• New Tax Regime (Section 115BAC): Under the new regime, the exemption limit is slightly higher—₹3 lakh. This gives NRIs a small additional tax-free income buffer.

However, it’s important to note that NRIs are not eligible for the Section 87A rebate, which is a tax relief of up to ₹12,500 available to resident individuals with income up to ₹5 lakh. So, even if your income is below ₹5 lakh, you still may have to pay tax, unlike resident taxpayers who get this relief.

In short, the new regime offers a higher starting point, but less flexibility, while the old regime has more deduction options, but starts at a lower limit.

Quick Comparison: NRI Deductions

Key Points NRIs Should Keep in Mind

When it comes to filing income tax in India, NRIs need to be aware of a few specific rules that are different from those for resident taxpayers. Here are the most important points to note:

a. Section 87A Rebate – Not for NRIs

One of the biggest misconceptions is about the popular Section 87A rebate, which provides tax relief for incomes up to ₹7 lakh under the new regime. However, this rebate is only available to resident individuals. NRIs are not eligible, even if their income is below ₹7 lakh.

b. Basic Exemption Limits

• Under the old regime, the basic tax exemption for NRIs is ₹2.5 lakh.
• Under the new regime, it increases slightly to ₹3 lakh.
  Also note: Senior citizen benefits, like a higher exemption limit (₹3 lakh or ₹5 lakh), apply only to resident Indians—NRIs do not get this benefit, regardless of age.

c. Switching Between Regimes

If youre an NRI without business income, you can switch between the old and new tax regimes every year. This gives you flexibility to choose the regime that saves you more tax.

However, if you have business or professional income, switching is restricted—once you choose the new regime, switching back is allowed only once in a lifetime.

d. Taxable Income for NRIs

As an NRI, India only taxes:

• Income earned or received in India, such as salary earned in India, rent from property in India, capital gains from Indian investments, etc.
• Foreign income is not taxable in India unless it is received directly in an Indian bank account.

Final Thought

As an NRI, selecting between the old and new tax regimes is not a one-time decision, it’s a choice you may revisit each year depending on your financial situation in India. Both regimes offer their own advantages. The old regime is ideal for those who have made tax-saving investments or have eligible deductions such as insurance premiums, home loan repayments, or education loan interest. These deductions can significantly reduce your taxable income, making the higher tax rates under the old regime worthwhile. On the other hand, the new regime is better suited for NRIs with limited or no investments in India, as it provides lower tax rates and a cleaner, more straightforward filing process by removing the complexity of claiming deductions. Its important to note that benefits like the Section 87A rebate and higher exemption limits for senior citizens are available only to residents, not NRIs, which makes careful planning even more critical. Also, remember that foreign income is not taxable in India, so only income earned or received in India needs to be considered.

Ultimately, tax planning is not just about reducing liability, its about making informed financial decisions that align with your goals. By reviewing your Indian income, deductions, and financial obligations annually, you can choose the regime that offers maximum benefit and peace of mind.