Tax Deductions & Exemptions NRIs Can Claim In 2026

NRIs earning income in India must understand the tax deductions and exemptions available under Indian Income Tax laws. It is because having a strategic approach to tax exemptions or deductions is not just about compliance; it is about protecting your hard-earned wealth. 

In this blog, we will understand the key tax deductions and exemptions for NRIs in India, along with the practical strategy for NRI tax filing for FY 2025-26. 

The Default Regime For AY 2026-2027

For NRI tax filing for FY 2025-26, the new tax regime is applicable automatically. 

As an NRI, if you want to claim the NRI deduction in 2026, such as Section 80D, Section 80C, Section 80TTA, Section 54, and 54F exemptions, or home loan interest and other benefits, you shall opt out of the new regime and choose the old tax regime to file your returns. 

The tax deductions and exemptions available under the new and old tax regimes differ. 

Old Vs New Tax Regime For NRIs In AY 2026-27

For NRIs earning income from capital gains or rental income, the old tax regime often results in a lower tax rate. 

Tax Deductions & Exemptions NRIs Can Claim

The following are the tax exemptions and deductions NRIs can claim, depending on the tax regime they choose. 

Section 80D: Health Insurance Tax Benefit For NRI Parents

Section 80D is one of the most underused and powerful NRI tax deductions in India in 2026. 

Here you can claim the deduction for the health insurance premium you have paid for yourself, spouse, spouse's dependent children, and parents. 

• Deduction limit for Section 80D under the old tax regime is Rs 25,000 for self and family (below the age of 60)
• Rs 50,000 if the insured person is 60 or older. 
• Additional Rs 25,000 or Rs 50,000 for parents, depending on the age. 

Example 

Let us assume that an NRI pays Rs 23,000 for his own policy and Rs 48,000 for his 63-year-old mother. In this situation, he can claim Rs 23,000 and Rs 48,000. The total deduction is Rs 71,000. 

This deduction is specifically useful when you are planning for health insurance tax benefits for NRI parents. 

Section 80TTA: An NRO Account Interest Deduction

Any interest earned from an NRO savings account is taxable in India. However, under Section 80TTA, you can still claim a tax deduction of up to Rs 10,000. 

This applies only to savings account interest and NRO savings accounts, not to NRE accounts, fixed deposits, or recurring deposits. 

Example: Let us assume an NRI earned Rs 9,500 interest; the full amount is deductible. Where an NRI earned Rs 15,000, the deduction value is capped at Rs 10,000. 

Capital Gains Exemption For NRIs 

If we talk about one of the largest tax exposures for NRIs, it is capital gains. If everything is properly planned here, it can save lakhs. 

Section 54 Capital Gains Exemptions For NRIs

Under this section, if you are a resident of a property in India and reinvest the sale proceeds in another residential property in India, you can claim the exemptions. 

The conditions for it are

• The gains must be for the long term. 
• Purchase the property either 1 year before or 2 years after the sale. 
• Construction within three years. 
• The new property must be in India.

Example: A UK-based NRI sells a flat. The long-term capital gain here is for Rs 60 lakhs. The NRI buys the new property for Rs 65 lakh within 1 year. The entire Rs 60 lakh capital gains for the NRI became tax-free in India. That's how tax deductions or exemptions save you. 

Section 54F: Sale Of Shares, Plot or Other Assets

if you sell shares, gold, or other capital assets and invest the full sale consideration in a residential house in India, you are eligible under Section 54F, provided you do not own more than one residential house (excluding the new one)

However, you shall now own more than one residence at the time of sale, excluding the new one. 

In a nutshell, if the partial investment is made, the exemption is proportionate. 

Section 54EC: Capital Gains Bonds

There are capital gains bonds, meaning that instead of reinvesting the gains or proceeds in a property, you can invest them in specified bonds, such as those issued by the REC or NHAI. 

The maximum investment limit is Rs 50 lakh, the investment timing is within 6 months of the sale, and the lock-in period is 5 years. 

This option works well for people who do not want to manage another property. 

Section 24(b): How can NRIs Save Tax On Rental Income In India

In NRI tax planning in India, the home loan interest deduction plays a major role. The following table demonstrates a detailed comparison: 

An Example: Let us assume an NRI earns Rs 4 lakh in rental income and pays Rs 6 lakh in home loan interest. Under the old regime, the net loss of Rs 2 lakh can be set off against other income, and the remaining loss can be carried forward. 

Under the new tax regime, the loss cannot be deducted from income or carried forward. 

Henceforth, while choosing the regime, NRIs shall be mindful. 

Section 80C: Investment Deductions

Under Section 80C of the old tax regime, NRIs can claim up to Rs 1.5 lakh for:

• Life insurance premium from an Indian insurer.
• Principal repayment of the home loan. 
• ELSS mutual funds
• Children's tuition fees are paid in India. 

Section 80G: Donations

NRIs can claim a deduction for donations made towards the approved Indian funds. 

The common funds eligible for 100 per cent deduction include:

• Prime Minister's National Relief Fund
• National Defense Fund
• Prime Minister Citizen Assistance and Relief in Emergency Situations Fund. 
• National Foundation for Community Harmony. 

There are several approved situations that might qualify for 50% or 100% deduction, depending on the category. Furthermore, donations above Rs 2000 must not be made in cash. 

Key Limitation NRI Must Know

The following are the key limitations every NRI must know: 

• Most deductions are not available under the new tax regime. 
• The reinvestment of the capital gains must be made in India for capital gains tax purposes. 
• Higher TDS on property sales. 
• Filing a return is required to claim a refund. 
• All Indian income must be reported, even if TDS has been deducted. 

The Practical Strategy For NRI Tax Filing FY 2025-26

The following is a practical strategy for NRI tax filing for FY 2025-26. 

• NRIs shall compare the tax liability under both regimes before filing. 
• Evaluate the rental income and home loan interest impact. 
• Plan the reinvestment of capital gains within the timelines. 
• You shall maximize Section 80D for the family in India. 
• Review Form 26AS and AIS carefully. 
• File ITR-2 or ITR-3 accurately based on your income. 

The Bottom Line

Generally, when filing their tax returns in India, NRIs end up paying more because they do not optimize deductions or claim capital gains exemptions. For the financial year 2025-26 and AY 2026-27, NRIs must plan their investments carefully around Sections 80D, 80TTA, 54F, 54EC, and 24(b), which can have a significant tax impact on their Indian income. 

For NRIs earning income in India, you shall review your eligibility carefully before filing out the ITR. However, if you are seeking professional assistance to file your taxes in India, Savetaxs is the name to trust. Our CAs provide end-to-end consultation, ITR preparation and filing, tax compliance, advisory services, TDS refund management, repatriation regulatory support, notice management, PAN documentation, and everything related to your financial and tax stability in India. Furthermore, the experts at Savetaxs are a team of CAs and CPAs who support your cross-border taxation compliance, FEMA compliance, and DTAA compliance, and handle everything beyond with 100% compliance. 

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