Taxation

New Tax Regime vs Old Tax Regime for NRIs: Which One Saves More?

NRIs default to the new tax regime from AY 2024-25. Here is the slab comparison, four worked examples, the 87A rebate trap, and a decision framework.

Rakesh Sinha, NRI Finance WriterReviewed 11 April 202613 min read

You received a rent cheque from your Mumbai flat, interest from an NRO fixed deposit, and some short-term capital gains from selling Indian equity funds, and now your India tax for AY 2026-27 runs to somewhere around Rs 3 to 4 lakh. The question is which regime to file under, and the answer is not obvious, because the regime you are automatically on and the regime that actually saves money are often different things for an NRI.

The 30-second answer: NRIs default to the new tax regime from AY 2024-25. The new regime has lower slab rates but zero deductions. The old regime has higher slab rates but allows Section 80C (up to Rs 1.5 lakh), Section 80D (up to Rs 1 lakh), Section 24(b) home loan interest (up to Rs 2 lakh), and a few others. NRIs do not get the Rs 12 lakh rebate under Section 87A in either regime. Capital gains taxed at special rates (20% STCG on equity, 12.5% LTCG on equity) are carved out and taxed the same under both regimes. The break-even for switching to old regime is roughly Rs 4.5 to 5 lakh of usable deductions for income in the 30% slab. Run the actual numbers before you file.

The regime question gets less attention than it deserves for NRIs, in part because most of the debate in India centres on the Rs 12 lakh rebate, a benefit that NRIs cannot access at all. Strip that away and the comparison becomes: lower rates with no deductions versus higher rates with whatever deductions you can realistically use from abroad. For many NRIs, the deduction toolkit is thinner than for a resident, but it still exists, and whether that toolkit outweighs the rate gap depends on income level and income composition.

The default position: you are already on the new regime unless you acted

The Finance Act 2023 flipped the default. Before AY 2024-25, you filed under the old regime unless you selected new. Now, the new tax regime is the default for everyone, including NRIs. If you filed ITR-2 for AY 2024-25 or AY 2025-26 without specifically opting out, your return was processed under the new regime.

To switch to the old regime for AY 2026-27, you file Form 10-IEA before the ITR due date (31 July 2026 for most NRIs on ITR-2) and select the old regime in the ITR. The form is filed online through the income tax portal. If you have no income from business or profession, you can switch back to the new regime in a subsequent year. If you do have business or professional income, flipping back from old to new is a one-time option.

The practical point: every NRI should do the comparison before filing each year. The regime that was optimal for AY 2025-26 may not be optimal for AY 2026-27 if your income composition shifted.

Slab rates compared

Both regimes are as amended for AY 2026-27. The numbers below are for all individuals, including NRIs.

New regime slabs (AY 2026-27):

Income range	Rate
Up to Rs 3,00,000	Nil
Rs 3,00,001 to Rs 7,00,000	5%
Rs 7,00,001 to Rs 10,00,000	10%
Rs 10,00,001 to Rs 12,00,000	15%
Rs 12,00,001 to Rs 15,00,000	20%
Above Rs 15,00,000	30%

Old regime slabs (AY 2026-27):

Income range	Rate
Up to Rs 2,50,000	Nil
Rs 2,50,001 to Rs 5,00,000	5%
Rs 5,00,001 to Rs 10,00,000	20%
Above Rs 10,00,000	30%

Surcharge applies at 10% on tax if total income exceeds Rs 50 lakh, 15% above Rs 1 crore, 25% above Rs 2 crore. Under the new regime, surcharge is capped at 25% regardless of income. Health and education cess of 4% applies on tax plus surcharge under both regimes.

The structural difference is stark. The new regime has more gradations at lower rates, meaning the progression from nil to 30% is gentler. The old regime jumps from 5% straight to 20% at Rs 5 lakh and to 30% at Rs 10 lakh. At incomes between Rs 7 lakh and Rs 15 lakh, the new regime consistently undercuts the old regime before deductions are applied.

What the 87A rebate does and does not do for NRIs

Section 87A provides a rebate of actual tax payable or Rs 60,000, whichever is lower, for resident individuals under the new regime whose total income does not exceed Rs 12 lakh. For the old regime the rebate caps at Rs 12,500 for income up to Rs 5 lakh.

NRIs are not resident individuals for purposes of the Income Tax Act. Section 87A says "an assessee, being an individual resident in India", and NRIs are excluded. This means:

An NRI with Rs 11 lakh of Indian income under the new regime pays approximately Rs 75,000 in tax (nil on Rs 3 lakh, Rs 20,000 on Rs 3-7 lakh at 5%, Rs 40,000 on Rs 7-10 lakh at 10%, Rs 15,000 on Rs 10-11 lakh at 15%, totalling Rs 75,000 before cess).
A resident with identical income pays nothing after the 87A rebate.

This is the most consequential NRI-specific point in the regime comparison. The new regime's advertising of the Rs 12 lakh zero-tax threshold does not apply to NRIs. Factoring in the 4% cess, an NRI with Rs 12 lakh income under the new regime pays approximately Rs 83,200.

How capital gains interact with both regimes

Capital gains taxed at special rates under Sections 111A and 112A are handled the same under both regimes. The rate does not change based on your regime choice.

Short-term capital gains on listed equity and equity funds (Section 111A): 20% (increased from 15% in Budget 2024, effective 23 July 2024).
Long-term capital gains on listed equity and equity funds (Section 112A): 12.5% on gains above Rs 1,25,000 per year (threshold raised from Rs 1 lakh in Budget 2024).
Long-term capital gains on property (Section 112): 12.5% without indexation for assets acquired on or after 23 July 2024; for earlier acquisitions, either 12.5% without indexation or 20% with indexation, whichever is lower, is available.

The basic exemption limit applies when total income minus special-rate capital gains is below the threshold. The new regime's basic exemption is Rs 3 lakh; the old regime's is Rs 2.5 lakh. When capital gains are the dominant income, the regime choice matters primarily for the ordinary income portion. Special-rate gains are a separate computation that sits above the slab structure.

Four worked examples

Example 1: NRI with only NRO fixed deposit interest, Rs 8 lakh

Rajan is a Singapore-based NRI. His only India income is NRO FD interest of Rs 8 lakh. No deductions, no capital gains.

New regime:

Rs 3 lakh at nil = Rs 0
Rs 4 lakh at 5% = Rs 20,000
Rs 1 lakh at 10% = Rs 10,000
Tax before cess = Rs 30,000
4% cess = Rs 1,200
Total: Rs 31,200

Old regime:

Rs 2.5 lakh at nil = Rs 0
Rs 2.5 lakh at 5% = Rs 12,500
Rs 3 lakh at 20% = Rs 60,000
Tax before cess = Rs 72,500
4% cess = Rs 2,900
Total: Rs 75,400

No deductions available. New regime saves Rs 44,200. Verdict: new regime.

Example 2: NRI with Rs 15 lakh salary from Indian employer, with 80C and 80D

Priya is a UK NRI receiving India-sourced salary of Rs 15 lakh, with Rs 1.5 lakh in ELSS (Section 80C) and Rs 50,000 in Indian health insurance premiums (Section 80D). Standard deduction is Rs 75,000 under the old regime and applies in the new regime too from AY 2024-25.

New regime:

Rs 15 lakh less standard deduction Rs 75,000 = Rs 14,25,000
nil on Rs 3L, Rs 20,000 on Rs 3-7L, Rs 30,000 on Rs 7-10L, Rs 30,000 on Rs 10-12L, Rs 48,500 on Rs 12-14.25L at 20%
Tax before cess = Rs 1,28,500
4% cess = Rs 5,140
Total: Rs 1,33,640

Old regime:

Rs 15 lakh less Rs 75,000 (standard) less Rs 1,50,000 (80C) less Rs 50,000 (80D) = Rs 12,25,000
nil on Rs 2.5L, Rs 12,500 on Rs 2.5-5L, Rs 1,00,000 on Rs 5-10L at 20%, Rs 67,500 on Rs 10-12.25L at 30%
Tax before cess = Rs 1,80,000
4% cess = Rs 7,200
Total: Rs 1,87,200

New regime saves Rs 53,560. The lower slab rates in the new regime outperform the deductions at this income level. Verdict: new regime.

Example 3: NRI with Rs 25 lakh income and maximum deductions

Vikram is a UAE-based NRI with Rs 25 lakh of India income: Rs 10 lakh salary from Indian company, Rs 8 lakh rental income, Rs 7 lakh NRO interest. He has Rs 1.5 lakh Section 80C (ELSS), Rs 50,000 Section 80D, Rs 2 lakh home loan interest under Section 24(b). Standard deduction on salary: Rs 75,000.

Total old regime deductions: Rs 75,000 + Rs 1,50,000 + Rs 50,000 + Rs 2,00,000 = Rs 4,75,000.

New regime: Rs 25 lakh less standard deduction Rs 75,000 = Rs 24,25,000

nil Rs 3L, Rs 20,000 on Rs 3-7L, Rs 30,000 on Rs 7-10L, Rs 30,000 on Rs 10-12L, Rs 60,000 on Rs 12-15L, Rs 2,77,500 on Rs 15-24.25L at 30%
Tax before cess = Rs 4,17,500, cess Rs 16,700
Total: Rs 4,34,200

Old regime: Rs 25 lakh less Rs 4,75,000 = Rs 20,25,000

nil Rs 2.5L, Rs 12,500 on Rs 2.5-5L, Rs 1,00,000 on Rs 5-10L at 20%, Rs 3,07,500 on Rs 10-20.25L at 30%
Tax before cess = Rs 4,20,000, cess Rs 16,800
Total: Rs 4,36,800

The regimes are nearly identical, old regime slightly worse by Rs 2,600. Not worth the filing complexity of opting out. Verdict: new regime by a hair.

Example 4: NRI with Rs 40 lakh income and Rs 5 lakh deductions

Deepika is a US-based NRI with Rs 40 lakh India income and Rs 5 lakh of usable deductions (standard deduction Rs 75,000, 80C Rs 1.5 lakh, 80D Rs 75,000, home loan interest Rs 2 lakh).

New regime: Rs 40L less standard deduction Rs 75,000 = Rs 39,25,000

nil Rs 3L, Rs 20,000, Rs 30,000, Rs 30,000, Rs 60,000, Rs 7,27,500 on Rs 15-39.25L at 30%
Tax before cess = Rs 8,67,500, cess Rs 34,700
Total: Rs 9,02,200

Old regime: Rs 40L less Rs 5L = Rs 35L

nil Rs 2.5L, Rs 12,500 on Rs 2.5-5L, Rs 1,00,000 on Rs 5-10L at 20%, Rs 7,50,000 on Rs 10-35L at 30%
Tax before cess = Rs 8,62,500, cess Rs 34,500
Total: Rs 8,97,000

Old regime saves Rs 5,200. At this income level with Rs 5 lakh of deductions, the old regime just crosses into winning territory, but barely. Verdict: old regime, narrowly.

The general finding: the break-even for the old regime requires effective deductions of at least Rs 4.5 to 5 lakh at Rs 30 lakh-plus income. Below that threshold at any income level, the new regime wins.

What NRIs cannot claim in the old regime (do not count these)

Section 80TTA and 80TTB: Section 80TTA allows Rs 10,000 deduction on savings account interest for residents. Section 80TTB allows Rs 50,000 for senior citizen residents. Neither section applies to NRIs on NRO accounts; both conditions residency. NRE and FCNR interest is already exempt from tax, so the deduction question does not arise there.

HRA exemption: The house rent allowance exemption under Section 10(13A) requires occupying rented accommodation in India. An NRI living abroad cannot claim HRA for a property they do not live in.

Section 80CCD(1B) additional NPS: NPS Tier-I is not available for new NRI contributions under PFRDA rules. The Rs 50,000 additional deduction is moot for most NRIs.

NSC, Sukanya Samriddhi, new PPF contributions: All either explicitly restricted to residents or require fresh contributions that NRI banking rules do not permit. Existing PPF accounts opened as a resident can continue until maturity; the maturity amount is tax-free, but new contributions after becoming NRI are not permitted.

Decision framework

Work through this in order before filing:

List all India income streams. Salary (India-sourced), rental income, NRO interest, dividends, short-term and long-term capital gains.
List deductions you can actually use. ELSS (80C), Indian life insurance premiums paid from NRO (80C), home loan principal repayment (80C), home loan interest (Section 24b, up to Rs 2 lakh for self-occupied), Indian health insurance premiums (80D), standard deduction if receiving India salary (both regimes).
If total usable deductions are below Rs 3 lakh: new regime is better at all income levels. Do not file Form 10-IEA.
If total usable deductions exceed Rs 4.5 lakh and income is above Rs 20 lakh: compute both regimes explicitly. Old regime may save Rs 5,000 to Rs 40,000 depending on income level.
If income is below Rs 10 lakh: new regime is better in almost every NRI scenario, because the slab rates from Rs 3 to 10 lakh in the new regime (5%, 10%) are dramatically lower than the old regime's 5% to 20% jump.
If capital gains dominate income: the regime choice affects only the slab-rate portion. Special-rate gains are identical either way. Focus the comparison on ordinary income.
Do not factor in the Rs 12 lakh rebate. Every calculator and article online for "zero tax up to Rs 12 lakh" includes 87A. You do not get it. Build your comparison from scratch.

The closing read

The new tax regime is the right default for most NRIs. The lower slab rates across Rs 3 to 15 lakh outweigh the deductions that NRIs can realistically use from abroad, particularly since the three biggest old-regime benefits for residents (HRA, 80TTA/80TTB, and the Rs 12 lakh rebate) simply do not apply to NRIs. The exception is the NRI with a meaningful home loan, Indian health insurance, and ELSS all running simultaneously at income above Rs 25 lakh. That group should run the numbers explicitly before each filing. Everyone else should stay on the new regime default and not overcomplicate it.

Cross-references:

This guide is for general information only and does not constitute tax advice. Tax laws change frequently. Consult a qualified chartered accountant before making regime elections or filing your return. Slab rates, rebate thresholds, and surcharge provisions cited above are as per the Finance Act 2025 applicable to AY 2026-27 and may differ in subsequent assessment years.

Frequently asked questions

Are NRIs automatically on the new tax regime?

Yes. From AY 2024-25 onwards, the new tax regime is the default for all taxpayers, including NRIs. If you filed your return and did not explicitly opt out to the old regime, you are on the new regime. Opting out is done by filing Form 10-IEA before the due date of the return, or by selecting the old regime in the regime selection field of ITR-2 if you have no business income. The opt-out is reversible once as long as you have no income from business or profession. If you have business income, the choice, once made to opt back to old, is permanent. Most NRIs file ITR-2 for salary, property, capital gains, and other income, so the once-reversal rule does not trap them the way it does freelancers and consultants.

Do NRIs get the Rs 12 lakh rebate under Section 87A in the new regime?

No. Section 87A provides a rebate up to Rs 60,000 under the new regime for the financial year 2025-26, effectively making income up to Rs 12 lakh tax-free for resident individuals. The rebate is available only to resident individuals, not to NRIs. This is a hard statutory restriction that the Finance Act 2025 did not change. An NRI with Rs 11 lakh of Indian income under the new regime pays tax at the applicable slabs with no rebate. The old regime's rebate under 87A was also only for residents and capped at a far lower Rs 5 lakh threshold, so the exclusion is consistent across both regimes; the new regime's rebate is simply far more generous to residents than the old one ever was.

Can NRIs claim Section 80C in the new tax regime?

No. The new tax regime disallows all deductions under Chapter VI-A, which includes Section 80C, Section 80D, Section 80TTA, and every other deduction in that chapter. It also disallows the standard deduction and HRA exemption. If you opt for the new regime, none of your ELSS investments, life insurance premiums, or home loan principal repayments produce any tax relief. The new regime is a clean slab-rate structure with no deductions at all, in exchange for lower slab rates. The only deductions still allowed in the new regime are the employer's contribution to NPS under Section 80CCD(2), employer-paid gratuity, and a few other employment-specific benefits that do not apply to most NRIs.

Under the old regime, what deductions can NRIs actually use in practice?

NRIs can claim Section 80C up to Rs 1.5 lakh, including ELSS, India life insurance premiums, PPF maturity proceeds from accounts opened as a resident, NRO-funded five-year FDs, home loan principal repayment, and tuition fees for children in India. Section 80D works for Indian health insurance premiums paid from NRO. Section 24(b) allows up to Rs 2 lakh interest deduction on a home loan for a self-occupied property in India. What NRIs cannot use: 80TTA savings account interest deduction (restricted to residents), HRA (they live abroad), and NSC or SSA. An NRI with ELSS plus 80D plus home loan interest can realistically assemble Rs 3.5 to Rs 4.5 lakh of deductions, making the old regime competitive at income levels where the 20% or 30% slab applies.

Rakesh Sinha, NRI Finance Writer

Rakesh Sinha is a technology professional and an NRI since 2016. He holds a master’s from Carnegie Mellon University and a BTech in Computer Science from IIT Guwahati, and has worked at Microsoft, Cisco, InMobi and Google across Bengaluru, the United States and London. He has personally navigated the decisions these guides cover: moving foreign salary and tech-company RSUs across borders, opening NRE, NRO and FCNR accounts, filing Indian returns as a non-resident, and claiming DTAA relief between the US, UK and India. How these guides are written and reviewed.

Disclaimer: This guide is educational and general in nature. It is not individual financial, tax, or legal advice. Tax and FEMA rules change and your situation may differ, so confirm specifics with a qualified chartered accountant or financial adviser before acting. See our editorial standards for how these guides are researched, reviewed and updated.