India’s tax system is under examination as non-resident individuals navigate intricate compliance requirements. With the nation gearing up for Budget 2026, industry experts and non-resident taxpayers are advocating for simplified tax rules. They contend that the current regulations create an unnecessary burden, particularly for those with minimal income or income already taxed at source. The push for reform underscores the necessity of a streamlined tax compliance process for Indians living abroad and foreign investors interacting with Indian businesses.
Current Tax Filing Requirements for Non-Residents
Under the current framework, non-resident individuals are required to file an Indian tax return if their total income surpasses Rs. 2.5 lakh, even if that income has already been subjected to Tax Deducted at Source (TDS). This filing requirement extends to various types of income, including minor interest earnings and dividend income. Tax experts express concern that this leads to unnecessary filings where no additional tax is owed, thereby cluttering the system and imposing additional costs on taxpayers who may have minimal financial ties to India. Stakeholders suggest that the upcoming Budget 2026 could introduce provisions to exempt non-residents from filing tax returns when no tax is due and they do not have business income in India.
Challenges in Obtaining Tax Residency Certificates
To avail of tax treaties that provide lower tax rates, non-resident taxpayers must present a Tax Residency Certificate (TRC). This requisite, mandated by Section 90(4) of the Income-tax Act, can be burdensome, especially for minor income levels. The process of obtaining a TRC can be time-consuming and costly, creating difficulties for both the non-resident taxpayer and the resident payer. Mahesh Nayak, a tax partner at CNK & Associates, notes that the requirement to file Form 10F electronically to claim treaty relief increases complexity. Many foreign tax authorities do not issue TRCs for future residency, further complicating the situation. Nayak recommends allowing alternative documentation for establishing tax residency to ease some of these challenges and enhance the efficiency of the process for non-residents.
Issues with Online Filing of Form 10F
The online submission of Form 10F poses additional challenges for non-resident taxpayers. If the TRC lacks certain details required by Indian tax rules, the taxpayer must include that information in Form 10F, which is submitted electronically. However, non-residents without a Permanent Account Number (PAN) in India often encounter difficulties, such as not receiving One-Time Passwords (OTPs) on foreign mobile numbers. This can result in unnecessary complications when filing a simple declaration. To mitigate these issues, experts advocate for the reinstatement of the offline submission option for Form 10F, which was permitted in the past and could alleviate the burden on non-resident taxpayers.
Practical Challenges Faced by Non-Residents
Non-resident taxpayers are also mandated to maintain a bank account in India to facilitate tax payments and receive refunds, even if they hold no other assets in the country. The e-verification process for income tax returns is tied to Indian bank accounts, Aadhaar-linked mobile numbers, or specific digital signatures. This creates a significant challenge for non-residents lacking Indian mobile numbers, making it arduous to complete their filings by the deadline. As the government readies for Budget 2026, there is a growing consensus that modernizing the tax compliance framework is critical. Streamlining these processes would greatly benefit millions of global Indians and foreign nationals, rendering compliance more manageable and efficient.
Digihunt is not a financial advisor and this is not investment advice.