New vs Old Tax Regime for NRIs: Which One Works When

The old tax regime allows exemptions and deductions for NRIs under HRA, 80C, and 24 sections. It allows for flexible tax planning through expenses and investments. On the other hand, the New tax regime has low slab rates and a simplified tax structure, but removes most exemptions and deductions. The Indian tax system offers the choice to taxpayers to choose between the old and new tax regimes. 

Choosing the right tax regime depends on the deductions, income type, and tax planning strategy. Read this guide on the new vs old tax regime for NRIs to choose the best tax regime option.

New vs Old Tax Regime for NRIs

The old tax regime features high slab rates and allows several deductions and exemptions. It includes the Section 80C, 80D, and home loan interest. The new tax regime offers low tax slabs with limited exemptions/deductions, simplifies compliance, and reduces planning flexibility. 

The main difference between the new and old tax regimes lies in balancing slabs versus deductions to reduce the tax burden.

Tax Slabs and Rates for NRIs under Both Regimes 

The given table shows the slab rates under the new vs the old tax regime for NRI.

New Regime Income Tax Slabs

For the assessment year 2026-27 (FY 2025-26), under the new tax regime the income up to ₹4 lakh is exempt from tax, and subsequent slabs progress from 5% up to ₹24 lakh and 30% above ₹24 lakh.

Here are the income tax slab rates under the new tax regime 

Income Tax Slabs Under the Old Regime

The income tax slab rates under the old regime have not changed for the current financial year. Here are the slab rates applicable to NRIs:

What Types of NRI Income Actually Depend on Regime Choice

The different types of income that depend on regime choice are salary in India, interest on NRO accounts, pension income, and rental income. The incomes generated from capital gains, one-time receipts, and lottery winnings are less affected under the regime. 

The interest on the NRO account is subject to TDS, and the regime choice affects the net payable after deductions. So, NRI must map the income streams to determine which tax regime is right for them. 

Deductions, Exemptions and Perks: What NRIs Lose or Keep in Each Regime

This table highlights income tax old regime vs new regime deductions, exemptions, and tax perks. 

Old Tax Regime - Full Deduction 

• Section 80C: ₹1.5 lakh (life insurance, PPF, ELSS, home loan principal)

• Section 24(b): ₹2 lakh (home loan interest for self-occupied property), no limit on rental properties

• Section 80D: ₹25,000-₹50,000 (health insurance)

• Section 80G: Any Donations to approved charitable funds

• HRA: HRA (if you pay rent in India for Indian-sourced income)

• Standard deduction: ₹50,000 for salaried NRIs

New Tax Regime - Minimal Deductions

• Standard deduction: Rs 75,000 (salaried NRIs)

• ​Section 80CCD(2): Employer NPS contribution (up to 10% of salary)

• Section 80CCH: Agniveer Corpus Fund contributions

• Family pension deduction: Rs 25,000 (if applicable)

No Section 87A Rebate

NRIs are not eligible for the Section 87A rebate under either regime. This means NRIs pay tax from the first rupee above the basic exemption limit: ₹2.5 lakh (old regime) or the new regime threshold.

Mechanics: How and When NRIs Choose Between Regimes

You can choose the right regime option between the new vs old tax regimes for NRI, by calculating your net taxable income after claiming all eligible deductions and exemptions under the old regime. Then you need to compare the tax liability under both regimes. The regime with less tax payable is a good choice. 

Salaried non-resident individuals should inform their employer about the selected regime for correct TDS deduction. The individuals who have income up to 24 lakh and claim few or no deductions can choose the new tax regime. It offers lower tax rates without exemptions. The higher income earners who claim huge deductions under section 80C, home loan interests, or insurance premiums can choose the old tax regime. 

Detailed Comparison Between the New vs Old Tax Regimes for NRI Profiles

NRIs earn different types of income in India, and it impacts their tax regime. Here is a comparison between the old and new tax regimes with case examples. 

Case: NRI with only interest income from NRO deposits

Interest earned through an NRO account is taxed at the slab rate, so regime choice affects your net tax. For minimal deductions and modest interest, the new tax results in lower tax liability. 

Case: NRI with rental income and home loan

Rental income by NRI allows a 30% standard deduction with municipal taxes. The home loan interest is deductible under the old regime.

Case: Salaried NRI working in India temporarily

Salary income for NRI in India is taxable and eligible for the HRA and LTA exemptions under the old regime. If you stay abroad, then some exemptions do not apply, which affects the regime's advantage.

Case: NRI with capital gains from shares/mutual funds

Capital gains by NRI are taxed at a special rate, so regime choice affects the slab taxed income, like rent or interest. The total tax liability may change on the basis of other incomes. 

Case: High-income NRI (>₹25 lakh to ₹1 crore+), minimal deductions

The lower slabs and simplicity of the new tax regime result in lower tax after a few deductions. The old regime provides few benefits to NRIs without many exemptions. 

Case: Returning NRI / RNOR with global income exposure

Your global income is added to taxable income in India and affects regime choice for you. Combining Indian income with foreign income is complicated, so you should take professional guidance. 

Decision Rules: Which Tax Regime Is Better for NRIs in Common Bands

Here is your action plan to choose the right tax regime as NRIs

• For Income ₹5-12 Lakh and Minimal Deductions: Choose the new tax regime for lower rates and simplicity 

• For Income Above ₹12 Lakh and Significant Investments: Choose the old tax regime to maximise deduction benefits 

• For Property Investors: Choose the old regime because of unlimited interest deduction on rental properties 

Conclusion 

Choosing between the new and old tax regimes is important for NRIs to file income tax in India. The old tax regime offers more exemptions and deductions, and the new regimes provide lower tax rates and simplicity. So before making a decision, you must evaluate your income source, investment portfolio,  and long-term financial goals in comparison with the new vs the old tax regime for NRI. 

Need help in making the right choice between the new and old tax regimes? Connect with experts at Rupeeflo today!

FAQs

1. Can an NRI change between the old and new regimes every year?

No, NRIs with business/professional income, once chosen, cannot switch regimes for the next 5 years. Only those with a salary/other income can switch annually.

2. Does Section 87A rebate apply to NRIs?

No, NRI is not eligible for the Section 87A rebate under any tax regime. 

3. How does NRO interest affect tax regime choice?

NRO interest is taxed at slab rates. The choice between regimes affects your net tax payable on the basis of exemptions/deductions. 

4. Which regime is better for NRIs with a home loan and rental income?

The right tax regime for NRIs depends on your income streams, financial goals, and investments.