Budget 2026: Time to cut the red tape for non-resident taxpayers
India’s economic footprint extends far beyond its borders. Millions of Indians living abroad continue to hold property, investments, and financial interests back home. Foreign nationals and global investors, too, increasingly engage with Indian businesses. Yet, for all the cross-border activity, India’s tax system still places a disproportionately heavy compliance burden on those who qualify as non-residents under tax law.As Budget 2026 approaches, industry bodies, tax experts, and non-resident taxpayers are urging the government to rationalize the rules. Their central message is simple: when income is minimal, passive, or already subject to tax deducted at source (TDS), compliance should be simple and easy. Return Filing: An archaic requirementAt present, non-resident individuals must file an Indian tax return if their total income exceeds Rs. 2.5 lakh — even when every rupee of that income has already suffered TDS and there is no additional tax liability arising in India. This includes small interest earnings, or dividend income.Tax experts point out that this leads to return filings with no additional tax payable, clogging the system and adding cost and effort for taxpayers who may have no other financial connection to India.Recommendation: Perhaps Budget 2026 provisions could provide some leeway and exemption in filing a tax return, if no tax is required to be paid and the non-resident has no business income in India. Challenges relating to furnishing a Tax Residency Certificate A non-resident taxpayer can claim the benefit of a tax treaty, which often provides a lower tax rate — for instance, on dividend income from shares held in India. Under section 90(2) of the Income-tax Act, the provisions that are more favourable to the taxpayer prevail. Thus, if the treaty prescribes a lower rate than domestic law, the treaty rate applies.However, section 90(4) requires the taxpayer to furnish a Tax Residency Certificate (TRC) in order to access treaty benefits, regardless of the nature or quantum of income. When the amounts involved are very small, the requirement to obtain a TRC can create unnecessary hardship for both the non-resident recipient and the resident payer, as the process involves time and cost. Mahesh Nayak, tax partner at CNK & Associates points to several other challenges. “In addition, non-resident taxpayers must currently file Form 10F electronically on the e-filing portal to claim tax treaty relief. They are also required to provide a TRC from foreign tax authorities covering the entire financial year to establish residency in the other country. In practice, many foreign tax authorities do not issue TRCs certifying future residency. Further, in certain jurisdictions, obtaining a TRC involves incurring a significant cost to the individual taxpayer and hence, asking for multiple TRCs for recurring payments becomes a costly affair, he says.Nayak points out that submission of documents other than TRC to substantiate the tax residency of a particular jurisdiction (country) should be permitted. The objective of a TRC is only to determine that the taxpayer is a resident of a particular country and therefore, if one can substantiate the tax residency through some other document, it should suffice, as held by Tribunals. “For example, in the US, a citizen is considered as a tax resident. Therefore, in such a situation, if one can provide a copy of the passport, clearly demonstrating US citizenship, that should suffice the eligibility of the taxpayer to claim the benefit of the India – US tax treaty. Copies of the passport can also be used to help determine the number of days stay in a particular jurisdiction, which can help determine tax residency in jurisdictions which determine tax residency based on number of days stay in that particular year,” he explains. Recommendations:
- A threshold limit for seeking the TRC would help ease this burden.
- Or allow non-resident taxpayers to submit TRCs from previous years (for example, the past one or two years) along with Form 10F.
- Alternatively allow submission of documents other than TRC to substantiate residency of a particular country.
Challenges relating to online furnishing of Form 10FIf the TRC provided by the tax authorities of the relevant jurisdiction does not contain all the information as required under the Indian tax rules, the non-resident is required to provide the said details in a declaration in Form 10F, which is to be furnished electronically. “There are practical challenges for a non-resident taxpayer, who does not have a PAN in India, to furnish Form 10F as at times, the OTP is not sent to the foreign mobile number of the taxpayer. This creates an unnecessary hassle for a mere filing of a declaration along with the TRC,” states Nayak. Recommendation:
- Offline furnishing of Form 10F should be permitted, as was allowed earlier.
Practical Pain PointsNon-residents must maintain a bank account in India to pay taxes and to receive tax refunds, even when they reside abroad and hold no other Indian assets. The final step in income-tax return filing — e-verification — is linked to Indian bank accounts, Aadhaar-linked mobile numbers, or certain digital signatures. Non-residents without Indian mobile numbers often struggle to complete filings within the stipulated deadline.Budget 2026 provides the perfect moment to modernize India’s approach — and to acknowledge that, for millions of global Indians and foreign nationals, “ease of compliance” is a reality.
