NRIs Push for 182-Day Tax Residency Rule Return

As part of their Memorandum for the Union Budget 2026-27, the Bombay Chamber of Commerce and Industry has requested that the 182-day tax residency requirement for visiting non-resident Indians (NRIs) and persons of Indian origin (PIOs) be restored, as per reports. The recent changes to the taxation rules have made determining a taxpayer's residency status when he/she is visiting India more complex due to the Finance Act, which introduced a new graded residency test.

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There is increasing focus on residency rules in advance of the budget presentation on February 1st.

Pre-2020 Simpler Framework

Prior to the introduction of the Finance Act 2020, the old residency rules under which NRIs and PIOs were classified as Non-Residents for visits of less than 182 days in the financial year were much simpler. Under the old rules, NRIs and PIOs were classified as NRIs regardless of their previous 365-day residence status in the four years before their visit; therefore, their foreign incomes were not subject to Indian taxation.

Under the old rules, an individual's physical presence in the country was both the basis for establishing a tax liability and the means of determining residency status.

2020 Graded Residency Shift

The Finance Act included changes to the tax residency status of overseas Indians based on a 120-day residency threshold that was used during periods of economic distress instead of the simpler, but difficult to comply with, method.

The introduction of the new rules has resulted in increased difficulty for overseas Indians in understanding how much time they require to spend in India for income tax purposes, and has meant that there are a number of additional issues that they will have to address in relation to compliance.

Economic and Diaspora Impacts

With the restoration of these NRI residency rules, the Forex market will stabilise, India will have improved relationships with the diaspora, and overall consumption of goods and services will be enhanced as the benefits from shorter-term tax requirements facilitate greater clarity for travel and tax planning.

The changes also provide a clear indicator of India's confidence in its economy and a partnership with the diaspora of India. Additionally, overseas Indians will have simpler ways to track their global movements based on these rules for business and family visits.

When reviewing the Government's Budget, the industry body has evaluated the potential for changing the tax residency rules against the requirement of the Indian economy to generate new revenues to continue supporting its economic growth, and as a net positive for the long-term fiscal health of the Indian economy.