Union Budget 2026: NRIs seek return to simpler 182-day tax residency rule

Bombay Chambers says graded residency norms introduced in 2020 have made tax status harder to assess for visiting NRIs and PIOs

With the Union Budget 2026-27 due on February 1, tax rules affecting visiting Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) are back in focus after industry body Bombay Chambers of Commerce and Industry (BCCI) flagged concerns over the complexity of residency norms introduced five years ago. In its pre-Budget memorandum, BCCI has asked the government to roll back changes made under the Finance Act, 2020, saying the current framework has made it harder for overseas Indians to assess their tax status during visits to India.

 

Before the Finance Act, 2020, visiting NRIs and PIOs were treated as non-residents if their stay in India was below 182 days in a financial year, even if they had spent more than 365 days in India during the preceding four years. This meant they were not required to pay tax in India on income earned outside the country.

 

That position changed in 2020, when the government introduced graded extended residency rules, linking tax status not just to physical presence but also to the level of India-sourced income.

 

“The restoration of the 182-day rule would represent a strategic trade-off with a net positive economic impact despite short-term revenue losses. The benefits extend beyond immediate fiscal metrics to include improved diaspora relations, forex stability, and domestic consumption,” Nikita Seth, advocate at Jotwani Associates told Business Standard.

 

Seth said the 2020 shift to a 120-day threshold was driven by revenue considerations during a period of financial stress. “A reversion in 2026 would signal confidence in India’s growth and recognise the NRI community as long-term economic partners rather than just revenue sources,” she said.

 

 

How the residency rules changed in 2020

 

Under the revised provisions introduced by the Finance Act, 2020:

 

• Visiting NRIs and PIOs are treated as non-residents if their stay in India during the relevant financial year is less than 120 days, instead of 182 days.

 

• If India-sourced income is less than ₹15 lakh, they continue to be treated as non-residents provided their stay in India is below 182 days, as was the case earlier.

 

• If India-sourced income exceeds ₹15 lakh and the visiting NRI or PIO stays in India for 120 days or more but less than 182 days, the individual is treated as ‘not ordinarily resident’.

 

These changes replaced a single test based on days of stay with multiple checks involving income thresholds and travel history.

 

Why industry wants a rollback

 

In its pre-Budget note, BCCI said the revised rules have led to confusion for taxpayers who earlier only had to track the number of days spent in India.

 

“Earlier, they simply had to keep a check on the period of stay in India below 182 days. Now, they also need to keep a tab on India sourced income of ₹15 lakh as also their stay in preceding four tax years. This creates various issues and confusion for taxpayers,” BCCI said.

 

The chamber said residency determination now requires monitoring several variables at the same time, increasing the compliance burden for visiting NRIs and PIOs.

 

What BCCI has proposed

 

BCCI has asked the government to restore the 182-day residency rule without linking it to an income threshold, listing several reasons in support of the change.

 

• Restoring the earlier limit of 182 days without an income condition could encourage NRIs and PIOs to spend more time in India with family and friends, increase spending on travel and accommodation, and lead to indirect revenue gains.

 

• It would remove complications created by graded residency rules based on physical presence and the quantum of India-sourced income.

 

• The residency framework would become easier for taxpayers to follow and simpler for the tax department to administer.

 

• If NRIs and PIOs restrict their stay to under 120 days, it could worsen the impact on India’s travel and hospitality sectors.

 

• Lowering the threshold from 182 days to 120 days does not address concerns around individuals carrying out economic activity from India while avoiding tax residency.

 

• The 120-day threshold could prompt NRIs and PIOs to limit wealth creation or investments in India to keep Indian income below ₹15 lakh.

 

• Individuals seeking to avoid higher tax exposure can still do so by limiting their stay to under 120 days instead of 182 days.

 

BCCI said restoring the earlier rule would simplify the system without materially altering tax collections.

 

“The above change will at the highest result in taxation of certain India sourced incomes like dividends, interest, etc. at special rates instead of slab rates. But residency rules for individuals will get considerably simplified and easy to understand,” BCCI said.

 

 

What could change for NRIs if rules are amended

 

Seth said that if the Finance Act, 2026 amends Section 6 of the Income-tax Act by removing the 120-day rule and reverting to 182 days as the primary residency trigger, along with existing rules for ‘resident but not ordinarily resident’ status, the impact on a typical NRI could play out in several ways.

 

1. Tax filings

 

• Fewer NRIs becoming accidental residents, as those managing visits between 120 and 182 days would retain non-resident status.

 

• Reduced reporting burden, with no need to track a four-year travel history for the 365-day test.

 

• Easier retention of RNOR status for returning Indians, since the 182-day threshold is harder to breach.

 

2. Investments

 

• Continued access to NRE and foreign currency account benefits without fear of reclassification.

 

• Capital gains from foreign assets remaining outside the Indian tax net for NRIs, allowing longer stays without triggering residency.

 

• Greater flexibility in managing real estate holdings without shifting tax status.

 

• No change in equity taxation, but relief from the risk of worldwide income taxation linked to residency.

 

3. Time spent in India

 

• More flexibility to stay in India for close to 180 days, compared with the current effective cap of 119 days for some individuals.

 

• Family visits, business travel, and medical stays becoming easier without complex tax planning.

 

• Dual residents continuing to rely on tie-breaker clauses under double taxation avoidance agreements, with domestic law becoming more lenient.

 

4. Possible trade-offs

 

• The government may adjust other measures, such as higher tax deducted at source on NRO income, to offset revenue impact.

 

• RNOR benefits could be tightened further, including shorter transition periods.

 

“The decision ultimately hinges on whether policymakers prioritise immediate revenue collection or deeper economic engagement with the 32 million-strong Indian diaspora, which controls about $1.5 trillion in annual spending power,” said Seth.

 

Finance Minister Nirmala Sitharaman will present the Union Budget 2026 on February 1, 2026.