The New Tax Regime Is Now the Default: What It Quietly Does to an NRI's Bill, and When You Should Still Opt Out

From 1 April 2025, an NRI who files an Indian return and does nothing is taxed under the new regime by default. No box to tick, no form to file, it is simply what the system assumes. For a salaried resident that default came wrapped in a headline gift: income up to Rs 12 lakh is now effectively tax-free because the Section 87A rebate was lifted to Rs 60,000. An NRI reading that headline should pause, because the rebate is exactly the part of the package they do not get. The same NRI with Rs 12 lakh of Indian income pays roughly Rs 60,000 of tax where the resident pays zero, and switching regimes does not fix it.

The 30-second answer: For FY 2025-26 (AY 2026-27) the new regime under Section 115BAC is the default for NRIs too. It carries a Rs 4 lakh basic exemption and lower slabs (5% from Rs 4 lakh, then 10%, 15%, 20%, 25%, 30% above Rs 24 lakh), but strips out 80C, HRA, and self-occupied home-loan interest under Section 24(b). Crucially, the Section 87A rebate (Rs 60,000) that makes Rs 12 lakh tax-free for residents is not available to NRIs, so an NRI never escapes tax the way a resident does. An NRI without business income chooses the old regime simply by selecting it in the ITR by the due date. Opt for the old regime in two cases: a large let-out interest loss you want set against other income, or stacked 80C/80D/24(b) deductions above roughly Rs 2 to 3 lakh. Otherwise the new regime usually wins.

This is the master guide to that decision. It assumes you already know your residency status and the basics of how Indian income is taxed; if your status itself is unsettled, fix that first with the residency and RNOR guide. What follows is the part that actually moves your bill: which deductions an NRI loses under the default, the rebate gap that no regime choice closes, the higher Rs 4 lakh exemption and what it is and is not worth, and the two specific situations where an NRI should still file Form 10-IEA logic and elect the old regime. Every claim is worked with rupee numbers so you can drop in your own.

The default flipped, and silence now means the new regime

The mechanics matter because they decide what happens if you forget. Under Section 115BAC as it stands for FY 2025-26, the new regime is the default for all individuals, residents and non-residents alike. If you file your ITR and make no election, your tax is computed under the new regime, full stop.

The exit door depends on whether you have Indian business or professional income. An NRI without business income, which is the large majority, the salaried-abroad person with Indian rent, interest, dividends and capital gains, opts out by simply choosing the old regime inside the return before the due date. No separate form, and the choice is not locked: you can be in the old regime this year and the new regime next year, picking whichever is cheaper each time. An NRI with Indian business or professional income must file Form 10-IEA on or before the due date to opt out, and that election is sticky, you can switch back to the new regime only once in your lifetime and then you are stuck with it. So for the rare NRI running an Indian proprietorship or profession, the old-versus-new choice is closer to a one-way door and deserves more thought than the annual flip a salaried NRI enjoys.

The practical trap is the missed deadline. The old regime is available only if the return is filed on or before the due date. File late, even by a day, and you are forced onto the new regime for that year whether or not it costs you more. For NRIs, who routinely file from a different time zone and a different financial year, this is a live risk. The due date for a non-audit NRI for AY 2026-27 is 31 July 2026 unless extended; see the ITR filing guide for AY 2026-27 for the full calendar and the ITR form to use.

What an NRI actually loses by sitting in the default

The new regime buys its lower slabs by removing almost every deduction. For an NRI the losses cluster in a few places that matter.

Section 80C goes. The familiar Rs 1.5 lakh basket, life insurance premiums on Indian policies, ELSS, the principal portion of a home-loan EMI, children's tuition fees paid in India, five-year tax-saving deposits, is simply not deductible under the new regime. Note that NRIs already cannot open a PPF or NSC account or buy new tax-saving deposits in many cases, so their 80C basket tends to be thinner than a resident's to begin with, usually just insurance premiums, ELSS and home-loan principal. That thinness is the whole reason the new regime tends to suit NRIs: you are giving up a deduction you were only half-using.

HRA under Section 10(13A) goes, but this is largely irrelevant for NRIs, who by definition are not drawing a salary with an Indian HRA component while living abroad. Do not let a generic "you lose HRA" line in a resident-focused article scare you; for the typical NRI it was never in play.

Self-occupied home-loan interest under Section 24(b) goes, and this one can sting. A resident with a home loan on the flat they live in could deduct up to Rs 2 lakh of interest a year under the old regime. Under the new regime that deduction on a self-occupied property is gone entirely. For an NRI the picture is more subtle: a property in India that you do not live in is, for tax purposes, usually either let out or treated as one of your self-occupied properties under the rules. If it is genuinely let out, the interest survives, and that is the hinge of the whole old-versus-new decision, covered below. If it is sitting empty and you have nominated it as self-occupied, the interest deduction vanishes under the new regime exactly as it does for a resident.

Standard deduction of Rs 75,000 on salary income is retained under the new regime, but it applies to salary taxable in India. An NRI earning salary abroad does not have Indian salary to apply it to, so for most NRIs this retained benefit is also moot. Where it matters is an NRI with an Indian salary component, for instance during a transition year.

Section 80CCD(2), the employer's NPS contribution, is one of the few deductions retained under the new regime, up to 14% of salary. Again, relevant only to an NRI with Indian salary and an Indian NPS through an Indian employer.

The honest summary: the new regime takes away a long list of deductions, but for the typical NRI most of that list was already unavailable or irrelevant. The two that genuinely bite are 80C (if you were funding Indian insurance and home-loan principal) and 24(b) interest (and even then, only in the self-occupied case).

The rebate gap no regime choice closes

Here is the fact that reframes the entire decision, and that most NRI readers get wrong. The reason residents are celebrating the new regime is the Section 87A rebate, raised in Budget 2025 to Rs 60,000, which makes income up to Rs 12 lakh completely tax-free under the new regime for a resident. Section 87A, by its own wording, is available only to a resident individual. An NRI does not get it, under either regime, in any year.

So the headline "Rs 12 lakh tax-free" is a resident-only headline. An NRI with Rs 12 lakh of Indian income under the new regime pays the actual slab tax, not zero.

Put real numbers on it. Anjali is a UK-based NRI with Rs 12,00,000 of Indian income, say a mix of rent and interest, and few deductions. Under the new regime her tax is built slab by slab: nothing on the first Rs 4 lakh; 5% on the next Rs 4 lakh is Rs 20,000; 10% on the next Rs 4 lakh is Rs 40,000. Total before cess is Rs 60,000, plus 4% cess of Rs 2,400, so about Rs 62,400.

A resident with the identical Rs 12,00,000 computes the same Rs 60,000, then applies the Section 87A rebate of Rs 60,000 and pays nothing, not even cess, because the rebate zeroes the tax before cess. The gap between Anjali and an otherwise identical resident is the full Rs 62,400, created entirely by her non-resident status. No regime election changes it; if anything the old regime would tax her more, because her slabs there are higher and she has few deductions to offset them.

This is worth internalising because it kills a common piece of bad advice. NRIs sometimes ask whether they should "claim the rebate" or structure income to stay "under Rs 12 lakh". There is nothing to claim and no threshold to stay under; the rebate is simply not yours. The lever an NRI does have is the Rs 4 lakh basic exemption plus the genuinely lower new-regime slabs, and using those well is the actual game.

The Rs 4 lakh exemption is real, just smaller than the headline

The basic exemption under the new regime rose to Rs 4 lakh for FY 2025-26, up from Rs 3 lakh, and unlike the rebate, this one an NRI does get. Every NRI filer's first Rs 4 lakh of normally-taxed Indian income (rent, interest, dividends taxed at slab) is free of tax under the new regime, against Rs 2.5 lakh under the old regime.

That Rs 1.5 lakh of extra exempt income is worth, at the 5% bottom slab, about Rs 7,500 a year to a low-income NRI filer, more if it pushes income out of a higher slab. It is not nothing, but it is an order of magnitude smaller than the resident's Rs 60,000 rebate, so do not confuse the two.

One sharp caveat that catches NRIs every year: the basic exemption, under either regime, cannot be set against capital gains taxed at special rates for a non-resident. If your only Indian income is, say, a Rs 6 lakh long-term equity gain, an NRI cannot shelter the first Rs 4 lakh of it under the basic exemption the way a low-income resident can; the gain is taxed from the first rupee above the Rs 1.25 lakh equity allowance. That denial is independent of regime and is explained in full in the capital gains guide. The Rs 4 lakh exemption helps your slab-rate income (rent, interest), not your special-rate gains.

When an NRI should still elect the old regime, case one: large let-out interest

This is the most common reason a real NRI lands in the old regime, and the rule is subtle enough that even tax preparers get it wrong.

Under the new regime, if you have a let-out property, the home-loan interest under Section 24(b) is still fully deductible against the rent from that property, with no Rs 2 lakh ceiling on the interest itself. So far the regimes look similar. The difference is what happens when the interest exceeds the rent and you have a net loss from house property. Under the new regime, that net house-property loss cannot be set off against your other income (your Indian salary, interest, or capital gains) at all; it only carries forward to be used against future house-property income. Under the old regime, up to Rs 2 lakh of that net house-property loss can be set off against your other Indian income in the same year, with the excess carried forward.

For an NRI in the early years of a let-out property loan, when interest is high and rent has not caught up, that Rs 2 lakh of current-year set-off can be the single biggest deduction available, and it is enough to flip the decision toward the old regime.

The gap is easiest to see on one property in two regimes. Take Rohan, a UAE-based NRI, who lets out a Mumbai flat. His annual rent after the standard 30% deduction comes to Rs 3,00,000. His home-loan interest for the year is Rs 5,00,000. So his house-property head shows a loss of Rs 2,00,000 (Rs 3 lakh income minus Rs 5 lakh interest). He also has Rs 8,00,000 of Indian interest income from NRO deposits, and negligible 80C.

Under the new regime, the Rs 2,00,000 house-property loss is locked away (carried forward only), so his taxable income is the full Rs 8,00,000 of interest. Tax: nothing on the first Rs 4 lakh, 5% on the next Rs 4 lakh, so Rs 20,000 plus 4% cess, about Rs 20,800.

Under the old regime, that Rs 2,00,000 loss sets off against his interest income, dropping taxable income to Rs 6,00,000. Old-regime tax on Rs 6,00,000 is nothing on the first Rs 2.5 lakh, 5% on the next Rs 2.5 lakh (Rs 12,500), and 20% on the last Rs 1 lakh (Rs 20,000), totalling Rs 32,500 plus cess, about Rs 33,800.

In Rohan's case the new regime still wins by roughly Rs 13,000, because the new regime's lower slabs more than offset the lost set-off. That is the honest result for a moderate loss and moderate income, and it is why you must actually run the numbers rather than assume the loss tilts you to the old regime.

Now change one input to show where it flips. Suppose Rohan's interest is Rs 9,00,000 against the same Rs 3,00,000 rent, a much larger house-property loss of Rs 6,00,000, but the Rs 2 lakh set-off cap still applies, so only Rs 2 lakh helps this year either way the carry-forward is the same. The set-off math is unchanged, so this is not where it flips. Where it actually flips is when his other income is high enough that the lost Rs 2 lakh set-off bites at a 20% or 30% slab while the regime's slab gap is small. Take an NRI with Rs 25,00,000 of Indian interest income and a Rs 2,00,000 let-out loss. Under the new regime the loss is lost, and Rs 2 lakh of income that would have been wiped out is taxed at the 25% slab, costing about Rs 50,000. The old regime's higher slabs at that income level cost only marginally more than the new regime's, so the Rs 50,000 saved by the set-off can outweigh the slab difference, and the old regime wins. The rule of thumb: a let-out loss tilts you to the old regime only when your other Indian income is high (so the set-off lands in a 20% to 30% slab) and your loss is close to or above Rs 2 lakh. At low and middle incomes the new regime's cheaper slabs usually still win despite losing the set-off. Read the full mechanics of rental taxation in tax on Indian rental income for NRIs.

When an NRI should still elect the old regime, case two: stacked deductions

The second case is the classic one: you have enough old-regime deductions to make its higher rates worthwhile. The break-even is higher than people think, because the new regime's slabs are genuinely cheaper, so you need real deduction volume, not a token Rs 50,000 of insurance.

For an NRI the deduction basket that survives in the old regime is narrower than a resident's. You can claim 80C (Indian life insurance premiums, ELSS, home-loan principal, children's Indian tuition, but not PPF or NSC, which NRIs generally cannot newly invest in), 80D (health insurance premiums for yourself and dependent parents, available to NRIs), 80E (interest on an education loan), 80G (eligible donations), 80TTA (up to Rs 10,000 of savings-account interest), and self-occupied 24(b) interest up to Rs 2 lakh if you have nominated an Indian property as self-occupied. NRIs do not get 80TTB (the larger senior-citizen interest deduction is resident-only) and do not get 80DDB and 80U in many cases, so the resident's longer list overstates what an NRI can stack.

Here is the break-even worked through. Take Priya, a US-based NRI with Rs 15,00,000 of Indian income (rent and interest), deciding between the regimes.

Under the new regime with no deductions, her tax is: nil on Rs 4 lakh, 5% on Rs 4 lakh (Rs 20,000), 10% on Rs 4 lakh (Rs 40,000), 15% on the last Rs 3 lakh (Rs 45,000), totalling Rs 1,05,000 plus 4% cess, about Rs 1,09,200.

For the old regime to beat that, her deductions have to pull her old-regime tax below Rs 1,05,000. Old-regime tax on the full Rs 15,00,000 with no deductions is far higher: nil on Rs 2.5 lakh, 5% on the next Rs 2.5 lakh (Rs 12,500), 20% on the next Rs 5 lakh (Rs 1,00,000), and 30% on the last Rs 5 lakh (Rs 1,50,000), totalling Rs 2,62,500 before cess. To get from Rs 2,62,500 down to roughly Rs 1,05,000 she would need to shave about Rs 1,57,500 of tax, which at her top 30% marginal slab means roughly Rs 5,25,000 of deductions. That is a lot: a full Rs 1.5 lakh 80C, Rs 50,000 of 80D, Rs 2 lakh of self-occupied 24(b) interest, and still Rs 1.25 lakh more to find. Most NRIs cannot assemble Rs 5 lakh of genuine Indian deductions, which is precisely why the new regime is the default winner for them.

The counterfactual that makes it concrete: if Priya could only muster Rs 2,00,000 of deductions (a common, realistic figure for an NRI with one Indian insurance policy and 80D cover), her old-regime taxable income drops to Rs 13,00,000, with tax of about Rs 2,02,500 before cess, still nearly double the new regime's Rs 1,05,000. She would be Rs 97,000 worse off in the old regime. The deduction stack only pays when it is large and when much of it lands against 30% income. For the NRI with thin deductions, sitting in the default is not laziness, it is the correct answer.

The regime comparison at a glance

Feature	New regime (default)	Old regime (must elect by due date)
Basic exemption	Rs 4,00,000	Rs 2,50,000
Slab rates	5% / 10% / 15% / 20% / 25% / 30% (gentler bands)	5% / 20% / 30% (steeper jumps)
Section 87A rebate	Rs 60,000 (residents only, NRIs never)	Rs 12,500 (residents only, NRIs never)
80C, 80D, 80E, 80G	Not allowed	Allowed (NRI-eligible subset)
Self-occupied 24(b) interest	Not allowed	Up to Rs 2,00,000
Let-out 24(b) interest vs that rent	Allowed (no cap)	Allowed (no cap)
Net house-property loss vs other income	Not allowed (carry forward only)	Up to Rs 2,00,000 this year
Standard deduction on Indian salary	Rs 75,000	Rs 50,000
Top surcharge	Capped at 25%	Up to 37%
Switching	Free, year to year (no business income)	Form 10-IEA and sticky if business income

Edge cases

The high-income surcharge flip. For an NRI with very large Indian income, mostly slab-taxed income above Rs 2 crore, the new regime's surcharge is capped at 25% while the old regime runs to 37% above Rs 5 crore. At those levels the surcharge difference alone can swamp any deduction advantage, pushing even a deduction-heavy NRI back to the new regime. The 15% surcharge cap on capital gains applies under both regimes and is separate; see the capital gains guide.

RNOR in the transition year. An NRI returning to India and holding Resident-but-Not-Ordinarily-Resident status is taxed like a resident on Indian income for that year, which means they do qualify for the Section 87A rebate while RNOR, since 87A keys off residency under Section 6, not off the NRI label. If you are in or approaching an RNOR year, the regime maths changes materially because the rebate comes back; check your status against the RNOR rules before assuming the NRI gap applies.

The late-filing forced default. If a non-audit NRI misses the due date, the old regime is off the table for that year and the return is computed under the new regime regardless of cost. An NRI who needs the old regime (large let-out loss, heavy deductions) must therefore file on time, not in the grace period. This is the most common avoidable mistake.

Business-income NRIs and Form 10-IEA. An NRI with Indian business or professional income who wants the old regime must file Form 10-IEA before the due date, and the switch back to the new regime is once-only. Treat that election as semi-permanent and model several years, not just this one.

The closing read

The honest read is that the default flip mostly helps NRIs, and the thing that hurts them, the missing Section 87A rebate, is not something any regime choice can fix. So stop chasing the resident's "Rs 12 lakh tax-free" headline, because it was never available to you, and focus on the two levers that are: the Rs 4 lakh basic exemption and the genuinely cheaper new-regime slabs.

For the large majority of NRIs, those with Indian rent, interest, dividends and capital gains and a thin deduction basket, the recommendation is plain: stay in the default new regime. It taxes you less, it asks nothing of you, and the deductions you would give up were mostly unavailable to you anyway. Elect the old regime only in two named cases: when you have a net let-out house-property loss near or above Rs 2 lakh and high other Indian income so the lost set-off bites at a 20% to 30% slab, or when you can genuinely stack Rs 3 lakh or more of NRI-eligible deductions (80C, 80D, self-occupied 24(b)), with the break-even running higher the lower your income. In both cases, run the return both ways before you file, because as Rohan's numbers showed, even a real Rs 2 lakh loss can leave the new regime ahead. And whatever you choose, file by the due date, because a late return strips the old regime away whether or not it would have saved you money. If your situation is a business-income election under Form 10-IEA or a large property year, that is the point to pay a chartered accountant, not to rely on a blog, this one included.

Related guides

• ITR filing for NRIs: AY 2026-27 master guide
• Tax on Indian rental income for NRIs
• Budget 2026: what changed for NRIs
• NRI residency and RNOR rules
• Capital gains tax for NRIs on shares and mutual funds
• All News and analysis
• All Taxation guides

This guide is educational and general in nature. It is not individual tax advice. Regime outcomes depend on your exact income mix, deductions, residency and the year's slab and surcharge rules, several of which changed for FY 2025-26 and may change again, so run your own numbers both ways and confirm your specific position with a qualified chartered accountant before you file.