The Income Tax Department of India offers taxpayers two tax regimes: the old tax regime and the new tax regime. They can choose either one and pay the taxes according to the provisions of that one tax regime. The old tax regime offers various deductions and tax exemptions for taxpayers, whereas the new tax regime has lower tax rates but does not include most of the tax exemptions and deductions.
For the financial years 2025-29, the new tax regime offers significant benefits, as it reduces the tax liability to nil for income up to Rs. 12 lakh. However, in this blog, the key differences between the two regimes are summarized, outlining their advantages, and by the end, you will be able to determine which regime suits you the best as an NRI.
What is the Old Tax Regime?
The old tax regime is based on the traditional method of income tax calculation used by Indians, which offers diverse tax exemptions and deductions under various sections of the Income Tax Act.
These deductions are investments in tax-saving schemes, such as the Public Provident Fund (PPF), the National Pension Scheme (NPS), insurance policies, house rent allowance (HRA), and mortgage interest. However, with an increase in income, there is also a progressive increase in the tax slabs of the old tax regime.
What is the New Tax Regime?
This tax regime was introduced in the 2020 budget session, offering simplicity in tax filing with low tax rates. However, these low taxes come at a cost: eliminating most of the tax exemptions and deductions that were available under the old tax regime. Under this regime, income up to Rs. 3,00,000 is exempt from income tax, and residents of India can claim tax rebates on income levels up to Rs. 7,00,000. However, this tax rebate applies to non-resident Indians.
The new tax regime is also the default tax regime, so unless you specifically select the old tax regime, the new tax regime will be imposed by default.
Key Differences Between the Old Tax Regime and the New Tax Regime for NRIs
Aspect
Old Tax Regime
New Tax Regime
Tax Rates
High tax rates, however, are accompanied by exemptions and deductions.
Low tax rates with few to no exemptions and deductions.
Exemptions and Deductions
Yes, available under various sections of the Income Tax Act.
Limited exemptions or deductions are available.
Complex
Due to multiple exemptions and deductions, the process is relatively complex.
Simple due to limited exemptions or deductions
Flexibility
Offers flexibility in tax planning and deduction optimization.
Not enough flexibility
Who Should File ITR?
An individual, a Non-resident Indian, an Overseas Indian Citizenship Card Holder, or a HUF earning above 3 lakh as per the new tax regime, and is under the age of 60, is required to file an Income Tax return (ITR).
NRI Income Tax Slab Rates for AY 2025-2026 (FY 2024-2025)- New and Old Income Tax Regime
Old Income Tax Regime
Income Tax Slab
Old Regime Income Tax Rate
Surcharge
Upto ₹ 2,50,000
Nil
Nil
₹ 2,50,001 - ₹ 5,00,000
5% above ₹ 2,50,000
Nil
₹ 5,00,001 - ₹ 10,00,000
12,500+20% above ₹ 5,00,000
Nil
₹ 10,00,001 - ₹ 50,00,000
₹ 1,12,500 + 30% above ₹ 10,00,000
Nil
₹ 50,00,001- ₹ 100,00,000
₹ 1,12,500 + 30% above ₹ 10,00,000
10%
₹ 100,00,001- ₹ 200,00,000
₹ 1,12,500 + 30% above ₹ 10,00,000
15%
₹ 200,00,001 - ₹ 500,00,000
₹ 1,12,500 + 30% above ₹ 10,00,000
25%
Above ₹500,00,000
₹ 1,12,500 + 30% above ₹ 10,00,000
37%
New Income Tax Regime
Income Tax Slab
New Regime Income Tax Rate
Surcharge
Up to ₹3,00,000
Nil
Nil
₹ 3,00,001 - ₹ 7,00,000
5% above ₹ 3,00,000
Nil
₹ 7,00,001 - ₹ 10,00,000
₹ 20,000 + 10% above ₹ 7,00,000
Nil
₹ 10,00,001 - ₹ 12,00,000
₹ 50,000 + 15% above ₹ 10,00,000
Nil
₹ 10,00,001 - ₹ 12,00,000
₹ 80,000 + 20% above ₹ 12,00,000
Nil
₹ 15,00,001 - ₹ 50,00,000
₹ 1,40,000 + 30% above ₹ 15,00,000
Nil
₹ 50,00,001 - ₹100,00,000
₹ 1,40,000 + 30% above ₹ 15,00,00
10%
₹ 100.00.001 - ₹ 200,00,000
₹ 1,40,000 + 30% above ₹ 15,00,000
15%
Above ₹ 200,00,001
₹ 1,40,000 + 30% above ₹ 15,00,000
25%
Which Tax Regime Is Better For NRIs - Old or New?
Determining which tax regime is more beneficial for non-resident individuals depends on several factors, including the nature of the income, the individual's income level, investment portfolio, and personal financial goals. The new tax regime is beneficial for those non-resident individuals with minimal tax savings, deductions, and investments. Whereas the old tax regime is suitable for those who are seeking maximum benefit from the available deductions and exemptions of the income tax.
Situations When the Old Tax Regime is Better for NRIs
The old tax regime is better and beneficial if you want to claim exemptions and deductions as an NRI.
Investment in Tax-Saving Instruments: If the taxpayer invests in tax-saving schemes and instruments under the Income Tax Act section 80C.
Home loan Interest: As a non-resident Indian taxpayer, if you are paying a hefty home loan interest, you can benefit from certain income tax deductions under Section 24.
Situations When the New Tax Regime is Better for NRIs
This tax regime is better for non-resident Indians if they have minimal deductions and lower taxable income. In such cases, the new tax regime is perfect because it has lower tax rates.
This tax regime is relatively simple due to its limited deductions and exemptions; therefore, taxpayers seeking ease of compliance can adopt the new tax regime.
Deductions and Exemptions Comparison
Below is a quick table comparing the exemptions and deductions available under the old and new tax regimes.
Particulars
Old Tax Regime
New Tax Regime
Income level for rebate eligibility
Rs. 5 lakhs
Rs. 5 lakhs
Standard deduction
Rs, 50,000
Rs. 75,000
Effective Tax-Free Salary Income
Rs. 5.5 Lakhs
Rs. 7.75 lakhs
Rebate under section 87A
Rs. 12,500
Rs 25,000
HRA exemption
Yes
No
Leave Travel Allowance
Yes
No
Other allowances, such as the food allowance of Rs 50 per meal, are subject to a daily limit of 2 meals.
Yes
No
Standard Deduction
Yes
No
Entertainment Allowance and Professional Tax
Yes
No
Perquisites for official purposes
Yes
Yes
Interest on Home Loan under section 24b on: Self-occupied or vacant property
Yes
No
Interest on Home Loan under section 24b on: Let-out property
Regardless of which tax regime you choose, saving big on taxes lies with the one who holds the knowledge of Indian income tax laws, because as a non-resident Indian, filing an ITR in India can feel overwhelming. Indian tax laws can feel like an unsolved puzzle, leaving you with no clear understanding. Well, not anymore.
Savetaxs has been helping NRIs for decades in filing their ITR. Our satisfied client base of thousands of NRIs, along with our team of experts, is a testament to the quality of services we offer. We provide NRIs with an NRI-specific ITR strategy, ensuring that we minimize your taxability. Hence, no matter where you are in the world, we work 24/7 across all times so that you can file your ITR from anywhere, at any time.
Note: This guide is for informational purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taxing any decision based on the information or the contents. It is advisable to consult with either a Chartered Accountant (CA) or a professional Company Secretary (CS) from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
No matter what your source of income is, we've got you covered. There’s a plan for everybody!
The new regime under section 115BAC offers low tax rates but also eliminates some of the tax exemptions nd deductions. In contrast, the old tax regime retains these tax exemptions and deductions.
No, the new tax regime is the default tax regime; however, both Indian residents and non-resident Indians can opt for the old tax regime as well.
For the financial year 2025-2026, income up to 12 lakh is tax-free, with incremental slab rates above that of up to 30%.
Yes, but only under the old regime. The new regime allows limited deductions, except for a few specified ones, such as the employer's NPS contribution.
From the financial year 2024-2025 onwards, the standard deduction is Rs. 75,000, which is available in both the tax regimes for salaried taxpayers; however, this is typically not applicable to most of the NRIs.
As a taxpayer, if you don't want to claim a deduction, for example, by not claiming HRA and no investments, the new regime is generally more tax-efficient due to the lower tax rates.
While filing their income tax return, NRIs can choose the regime each year. Taxpayers with business income can select the option in the ITR, while those with business income must submit Form 10-IEA.
No, the beneficiaries under the DTAA or the origin application are independent of the tax regime choice. The regime you hope will affect Indian taxation only; the treaty relief is additional.
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