Which Tax Regime Is Better for NRIs?

PB Posted by: Pranav Bhattacharya
• 20 August, 2026
3 Reply

I’m an NRI living in the US and preparing my Indian income tax return for FY 2025-26 / AY 2026-27. I’m confused about whether I should choose the old tax regime or new tax regime for my Indian income.

Most of my income in India is from bank interest, rental income and some investments. I don't have an Indian salary, so I'm not sure whether the usual advice about choosing a tax regime applies in the same way to NRIs.

I’ve seen that the new tax regime is now the default, but the old regime still allows various deductions. I have some LIC premiums and housing-loan principal repayments, so Section 80C could be relevant to me.

At the same time, the new regime has lower slab rates and a higher basic exemption threshold. The Income Tax Department's current AY 2026-27 guidance specifically provides separate slab information for non-resident individuals.

I'm trying to figure out which regime would actually be better rather than simply choosing the default.

For other NRIs:

  • Which tax regime did you choose?
  • Is the new regime generally better for NRIs?
  • Can NRIs claim Section 80C under the new regime?
  • Does rental income change the calculation?
  • Does home-loan interest make the old regime more attractive?
  • Can I switch between regimes every year?
  • Is the ₹1.5 lakh Section 80C limit useful if I choose the old regime?
  • Does having foreign income affect which regime I should choose?

I'm mainly looking for real experiences and things I should compare before filing. I understand the answer will depend on individual income and deductions.

Tags : Tax Regime for NRIs

  • Samar Kulkarni 24 August, 2026

    Another thing I'd look at is the type of income rather than just the total amount.

    For example, if you have Indian rental income, the tax calculation may include deductions that are different from simply claiming 80C. If you have a home loan, the treatment can also depend on whether the property is self-occupied or let out.

    The current Income Tax Department guidance says that under the new regime, interest under Section 24(b) for a let-out house property can be deducted from house-property income, subject to the applicable rules.

    So if you're an NRI with rental property, don't decide based only on your LIC or investment deductions.

    I'd prepare two calculations:

    Old regime: taxable income after applicable deductions/exemptions.

    New regime: taxable income using the new-regime rates and only the deductions permitted under that regime.

    Then compare the final tax, surcharge and cess rather than comparing only the headline slab rates.

  • Deepthi Srinath 21 August, 2026

    I chose the new regime because my Indian income isn't very complicated and I didn't have enough eligible deductions to make the old regime worthwhile.

    For AY 2026-27, the new regime has slabs starting with no tax up to ₹4 lakh, followed by 5%, 10%, 15%, 20%, 25% and 30% slabs as income increases. The Income Tax Department lists these rates specifically for non-resident individuals as well.

    But be careful with the ₹12 lakh rebate information you may see online. The new-regime Section 87A rebate is for resident individuals, so an NRI shouldn't assume that the resident taxpayer rebate automatically applies to them.

    That's one reason I'd use an NRI-specific tax calculation rather than a generic Indian income-tax calculator.

    Also, if you're relying on Section 80C, remember that the new regime generally doesn't allow that deduction. The department's FAQ specifically says deductions such as 80C are not available under the new regime, subject to the limited exceptions provided under Section 115BAC. 

  • Sneha Reddy 20 August, 2026

    I don't think there's a single regime that's automatically better for every NRI.

    I compared both regimes for my own return because I had Indian rental income and some eligible deductions. The new regime initially looked attractive because of the lower rates and wider slabs, but once I included the deductions available to me under the old regime, the difference wasn't as obvious.

    The Income Tax Department itself says the choice between the two regimes varies from person to person and recommends comparing the tax liability under both before deciding.

    One major difference is deductions. Under the new regime, most Chapter VI-A deductions, including Section 80C, aren't available. The old regime allows various deductions and exemptions.

    So if you're an NRI with substantial 80C investments, eligible insurance payments or other deductions, I'd calculate both instead of assuming the new regime is better.

    For someone with mostly interest income and very few deductions, the new regime may come out ahead. But that's just a general observation, not a rule for every NRI.

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