“Synopsis”
With the Government of India offering taxpayers the option between the Old and New Tax Regimes, NRIs (Non-Resident Indians) must make a crucial decision based on their deductions, income structure, and filing simplicity. This blog explains both tax structures, who should choose what, and how to evaluate the best tax-saving option for the Assessment Year (AY) 2025–26.
What Are the Two Income Tax Regimes?
Old Tax Regime:
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Allows popular tax deductions and exemptions.
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Deductions under Section 80C, 80D, 80G, and more.
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Suitable for those investing in India or claiming home loan interest.
New Tax Regime (default option):
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Lower tax rates.
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No deductions or exemptions.
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Ideal for those with simple income structures and fewer investments in India.
Latest Income Tax Slabs for FY 2024–25 (AY 2025–26)
New Regime (default for NRIs and residents):
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₹0 – ₹3 lakh: Nil
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₹3 – ₹6 lakh: 5%
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₹6 – ₹9 lakh: 10%
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₹9 – ₹12 lakh: 15%
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₹12 – ₹15 lakh: 20%
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Above ₹15 lakh: 30%
Old Regime (optional for NRIs who opt-in):
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₹0 – ₹2.5 lakh: Nil
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₹2.5 – ₹5 lakh: 5%
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₹5 – ₹10 lakh: 20%
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Above ₹10 lakh: 30%
What Deductions Are NRIs Eligible For in the Old Regime?
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Section 80C: Life insurance, ULIPs, ELSS, and PPF (up to ₹1.5 lakh)
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Section 80D: Health insurance premium
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Section 80G: Donations to approved funds and NGOs
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Section 24(b): Interest paid on a home loan for a property in India
If you claim any of these, the Old Regime becomes beneficial.
When Should NRIs Choose the Old Regime?
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You invest in Indian financial instruments that offer tax benefits.
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You own residential property in India with loan interest deductions.
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You or your family claim deductions under health insurance (Section 80D).
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You make donations eligible under Section 80G.
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You receive rent from property in India and wish to claim expenses and interest.
When is the New Regime Better for NRIs?
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You have no investments or deductions to claim in India.
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You prefer simplicity in tax filing and calculation.
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You earn only interest or dividend income in India.
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You are a new NRI or young professional with no tax-saving structure yet.
Example: NRI with ₹18 lakh Taxable Income
If using the Old Regime:
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₹1.5 lakh claimed under Section 80C
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₹25,000 claimed under Section 80D
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Net taxable income = ₹16.25 lakh
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Approximate tax liability = ₹2.87 lakh
If using the New Regime:
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No deductions claimed
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Total taxable income = ₹18 lakh
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Approximate tax liability = ₹2.91 lakh
Conclusion: Old Regime is better if you are able to claim even basic deductions.
How Can NRIs Opt for the Old Tax Regime?
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You must file Form 10-IEA before filing your Income Tax Return (ITR).
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If you don’t opt in, the New Regime is automatically applied.
Key Points NRIs Should Consider Before Choosing a Regime
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Do you invest in PPF, NPS, or ELSS?
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Do you own or rent a property in India?
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Do you pay medical insurance premiums?
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Are you claiming HRA or deductions like 80C, 80D, 80G?
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Do you prefer fewer calculations and easier filing?
Common Mistakes to Avoid
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Assuming the New Regime is always cheaper without calculating both.
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Forgetting to file Form 10-IEA when opting for the Old Regime.
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Ignoring tax-saving investments just because you live abroad.
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Not checking if your income is eligible under Double Taxation Avoidance Agreements (DTAAs).
Final Conclusion: Which Regime Should NRIs Use in 2025?
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If you claim tax-saving deductions in India, the Old Regime is often better.
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If you earn a flat rental or interest income and don’t invest in Indian tax instruments, the New Regime may be more convenient.
Always calculate your tax liability under both regimes before filing. A few smart choices can help NRIs save significantly in taxes while remaining compliant.
