In the first Union Budget under the newly formed cabinet ministry in June 2024, the Finance Minister of India, Nirmala Sitharaman, unveiled a slew of new initiatives to enhance the economic engagement with the NRI (Non-Resident Indian) diaspora. The new budget introduced several initiatives to attract investments from the NRI communities in the Indian market. So, let us look at some of the major announcements in the budget and what it means for the NRIs.

• Easing investment norms

First and foremost, the government has proposed easing the norms for FDI (Foreign Direct Investment) and OI (Overseas Investment), including promoting the use of INR (Indian Rupees) for overseas investment, thus making it easier for the NRIs to invest in India. Another significant measure announced in the budget is a reduction in the holding period of long-term capital assets, like debentures, bonds, and gold, from 36 months to 24 months. This move is mainly intended to encourage NRIs to invest more in these instruments and enjoy valuable and quick returns.

• Taxation reforms

Recognising the various issues faced by NRIs with India's complex taxation structure, the government of India presented a Union Budget in 2024 that proposed simplifying the taxation rules and rationalising capital gains. With effect from July 23, 2024, the government plans to implement a revised tax structure for capital gains on investments for NRIs.

STCG (short-term capital gains) earned on listed equity shares and equity-oriented mutual funds will be subject to higher tax rates, increasing from 15% to 20%. Other STCG will continue to be taxed as per the NRIs' income tax slab rate that applies to individual taxpayers.

Simultaneously, the government also announced a modest hike in the tax rates on the LTGC (long-term capital gains) on investments in listed equity shares and equity-oriented mutual funds, from 10% to 12.5%. The exemption limit for LTCG gains will also be increased from Rs. 1 million to Rs. 1.25 million.

A major change is also expected for LTCG on assets other than mutual funds and equities. The tax rates for these will be reduced from the existing 20% to 12.5%, but the indexation benefit, which allows for the adjustment of purchase cost based on the inflation rate, will be eliminated. This means that the actual gains realised from the sale of the assets will be fully taxable.

For unlisted debentures and bonds, the capital gains will incur taxes as per the applicable tax rate for the individuals, irrespective of the holding period. The budget also proposed equalising the capital gains tax rates for the NRIs and the resident Indian citizens. However, despite this move by the government to bring tax parity, the NRIs can continue to enjoy the tax advantages offered on certain investments under the special provisions of Chapter XII-A of the Indian Income Tax Act, 1961.

• Reforms in the real estate sector for NRIs

The government of India plans to direct the state governments to reduce the stamp duty charges on property transactions, especially for property purchases by women. This stamp duty reduction will apply to both NRI and resident Indian investors.

• Higher savings on pensions for a better future

The Union Budget 2024 introduced significant changes to the NPS (National Pension System) to benefit NRI investors. One key change is the increase in the employer contribution limit under Section 80 CCD (2) from 10% to 14% of the salary (basic + DA-Dearness Allowance) for all employees, including those employed with private companies.

These changes make the NPS more attractive for NRI investors, as the additional tax savings can help them earn better returns and, therefore, guarantee a better future.

The Union Budget 2024 has elicited a range of emotions from NRIs. The measures announced in the budget reflect the government’s commitment to fostering a mutually beneficial relationship between India and the NRI diaspora. Overall, with the reduction in stamp duty on real estate transactions, higher savings on NPS investments, and increased tax on investments in market-linked financial instruments, the Union Budget has been a mixed bag for the NRI community.

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