Indian Budget Unveils Major Tax Relief, Tightens Rules For Nris

Among the most significant announcements was the introduction of a new income tax Regime that exempts individuals earning up to Rs1.2 million from tax. This move is anticipated to provide substantial relief to nearly 10 million taxpayers, marking a pivotal shift in India's tax landscape.

In a post-budget interview, Sitharaman quoted Abraham Lincoln, framing the budget as "by the people, for the people, of the people." The revised tax slabs will significantly benefit those in the middle-income bracket, allowing them to retain more of their earnings. The new structure stipulates that income up to Rs1.2 million will incur no tax liability, while salaried individuals earning up to Rs1.275 million will also see their tax obligations reduced to zero. This decision, while leading to an estimated revenue loss of Rs1 trillion, aims to stimulate consumer spending and enhance disposable income for millions of households.

The tightening of tax regulations for NRIs, including students and professionals abroad, signals an increasing scrutiny of foreign income and residency status. These changes are part of the government's broader strategy to combat tax evasion and enhance compliance with international tax standards.

Key changes affecting NRIs include greater scrutiny of foreign-earned income. The Indian government will implement enhanced data-sharing agreements with countries involved in Double Tax Avoidance Agreements. This means that NRIs, particularly those who have taken jobs abroad, may need to declare their foreign earnings to Indian tax authorities, even if they do not maintain active income sources in India.

The budget hints at a potential tightening of residency definitions for taxation purposes. Previously, NRIs were subject to Indian taxation on their Indian-sourced income only if they spent more than 182 days in the country. Recent reforms have already reduced this threshold to 120 days for high-income earners, and further adjustments could complicate the ability of students and professionals to maintain NRI status if they have significant financial ties to India.

The Finance Minister emphasised that this change aligns with the government's broader vision of economic empowerment. By alleviating the tax burden on the middle class, the budget aims to foster a more robust consumer market, which is vital for sustaining economic growth.

Despite these tax cuts, Sitharaman reiterated the government's commitment to fiscal prudence. The budget aims to reduce the fiscal deficit to 4.4 per cent of GDP by 2025-26, reflecting a balanced approach between fiscal responsibility and economic stimulation. To support these goals, the capital expenditure (Capex) is projected to rise to Rs11.21 trillion, up from Rs11.11 trillion in the previous fiscal year. This increase in Capex is intended to promote infrastructure development and job creation, with the government estimating that approximately 2.2 million jobs will be generated through various initiatives.

The budget has laid down a framework aimed at invigorating the Indian economy, particularly for the middle class, through significant tax relief measures. However, the implications for NRIs are profound and complex, with increased regulatory scrutiny and potential tax burdens looming on the horizon. As India navigates its fiscal future, the balance between facilitating growth domestically and ensuring compliance among its global citizens will be critical.

Sitharaman's commitment to fiscal discipline, alongside her ambitious plans for capital expenditure, provides a mixed yet hopeful outlook for the nation. As the government endeavours to foster a more inclusive economic environment, it remains to be seen how these policies will shape the financial landscape for both residents and NRIs in the years to come.