Income tax 2026: Rule 9 puts NRI India-linked income under sharper lens
A key highlight is the introduction of Rule 9, which provides a structured mechanism for estimating taxable income of non-residents when exact figures are not readily available. This applies in cases where income arising from Indian sources, such as business connections, assets, or property, cannot be clearly determined.
- Apr 1, 2026,
- Updated Apr 1, 2026 2:48 PM IST
NRI taxation in India: The Income Tax Rules, 2026, introduce important clarifications for non-resident Indians (NRIs), particularly around how income linked to India is assessed and taxed. While the broader framework for determining residential status remains unchanged, new provisions such as Rule 9 bring sharper focus on income attribution and compliance for cross-border taxpayers.
A key highlight is the introduction of Rule 9, which provides a structured mechanism for estimating taxable income of non-residents when exact figures are not readily available. This applies in cases where income arising from Indian sources, such as business connections, assets, or property, cannot be clearly determined. In such situations, tax authorities are empowered to compute income using reasonable methods, including turnover-based or proportionate profit approaches.
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Focus on Rule 9
Explaining the provision, Ankit Patel, Co-founder & Partner at Arunasset Investment Services, said, “Under the Income-tax Act, 2025, the AO can make a best-judgment assessment if a taxpayer fails to file a return, does not comply with specified notices or directions, or, after filing, does not comply with a scrutiny notice. The AO may also resort to section 271 where the accounts are unreliable, accounting methods are not regularly followed, or income is not computed in line with the notified standards. Rule 9 of the 2026 Rules allows estimation of India-linked income of non-residents where the actual amount cannot be definitely ascertained, using turnover-based, proportionate-profit, or other suitable methods. This is broadly a continuation of the earlier framework, not a major new departure.”
Importantly, this provision does not represent a complete overhaul but rather formalises existing practices with clearer guidelines. However, it also signals a more data-driven approach by tax authorities, especially in cases involving digital transactions and cross-border income flows.
MUST READ: Income Tax 2026: Key rule changes that would increase salaried take-home pay
Compliance and documentation
For NRIs, this makes compliance and documentation critical. Patel emphasised the need for transparency and robust record-keeping to avoid disputes or estimated assessments. “Taxpayers, especially non-residents, should focus on making their India-linked income clear, documented, and easy to verify. Rule 9 applies only where a non-resident’s income from an Indian asset, source, property, or business connection cannot be definitely ascertained; in that case, the AO may estimate it. To avoid that, file returns on time, respond fully to tax notices, maintain clean India-segment accounts, and keep contracts, invoices, transfer-pricing support, withholding-tax records, and remittance trails aligned with the return,” he said.
He further added that NRIs claiming treaty benefits must ensure proper documentation is in place. “Where treaty relief is claimed, keep the Tax Residency Certificate and prescribed Form 41 ready, since Form 41 is specifically meant for non-residents claiming DTAA benefits. General best-judgment assessment also remains possible under section 271 for non-filing or non-compliance,” Patel noted.
MUST READ: More changes than last year? How April 1, 2026 tax rules compare with April 1, 2025
Residential status
Apart from Rule 9, the fundamental rules for determining residential status remain unchanged under the new law. Individuals continue to be classified based on their physical presence in India, with thresholds such as 182 days in a tax year or 60 days combined with 365 days over the preceding four years. However, a modified 120-day rule applies to high-income individuals earning over ₹15 lakh in India, tightening residency conditions for certain NRIs.
Overall, the Income Tax Rules, 2026 aim to enhance clarity and enforcement without drastically altering the tax base for NRIs. The emphasis is clearly on transparency, documentation, and timely compliance. For non-residents with India-linked income, the message is clear—accurate reporting and strong documentation are essential to avoid discretionary assessments and ensure smooth tax compliance under the evolving framework.
NRI taxation in India: The Income Tax Rules, 2026, introduce important clarifications for non-resident Indians (NRIs), particularly around how income linked to India is assessed and taxed. While the broader framework for determining residential status remains unchanged, new provisions such as Rule 9 bring sharper focus on income attribution and compliance for cross-border taxpayers.
A key highlight is the introduction of Rule 9, which provides a structured mechanism for estimating taxable income of non-residents when exact figures are not readily available. This applies in cases where income arising from Indian sources, such as business connections, assets, or property, cannot be clearly determined. In such situations, tax authorities are empowered to compute income using reasonable methods, including turnover-based or proportionate profit approaches.
MUST Read: Can't have HRA in salary? No problem: Top tax hacks under New Tax Regime for FY27 explained
Focus on Rule 9
Explaining the provision, Ankit Patel, Co-founder & Partner at Arunasset Investment Services, said, “Under the Income-tax Act, 2025, the AO can make a best-judgment assessment if a taxpayer fails to file a return, does not comply with specified notices or directions, or, after filing, does not comply with a scrutiny notice. The AO may also resort to section 271 where the accounts are unreliable, accounting methods are not regularly followed, or income is not computed in line with the notified standards. Rule 9 of the 2026 Rules allows estimation of India-linked income of non-residents where the actual amount cannot be definitely ascertained, using turnover-based, proportionate-profit, or other suitable methods. This is broadly a continuation of the earlier framework, not a major new departure.”
Importantly, this provision does not represent a complete overhaul but rather formalises existing practices with clearer guidelines. However, it also signals a more data-driven approach by tax authorities, especially in cases involving digital transactions and cross-border income flows.
MUST READ: Income Tax 2026: Key rule changes that would increase salaried take-home pay
Compliance and documentation
For NRIs, this makes compliance and documentation critical. Patel emphasised the need for transparency and robust record-keeping to avoid disputes or estimated assessments. “Taxpayers, especially non-residents, should focus on making their India-linked income clear, documented, and easy to verify. Rule 9 applies only where a non-resident’s income from an Indian asset, source, property, or business connection cannot be definitely ascertained; in that case, the AO may estimate it. To avoid that, file returns on time, respond fully to tax notices, maintain clean India-segment accounts, and keep contracts, invoices, transfer-pricing support, withholding-tax records, and remittance trails aligned with the return,” he said.
He further added that NRIs claiming treaty benefits must ensure proper documentation is in place. “Where treaty relief is claimed, keep the Tax Residency Certificate and prescribed Form 41 ready, since Form 41 is specifically meant for non-residents claiming DTAA benefits. General best-judgment assessment also remains possible under section 271 for non-filing or non-compliance,” Patel noted.
MUST READ: More changes than last year? How April 1, 2026 tax rules compare with April 1, 2025
Residential status
Apart from Rule 9, the fundamental rules for determining residential status remain unchanged under the new law. Individuals continue to be classified based on their physical presence in India, with thresholds such as 182 days in a tax year or 60 days combined with 365 days over the preceding four years. However, a modified 120-day rule applies to high-income individuals earning over ₹15 lakh in India, tightening residency conditions for certain NRIs.
Overall, the Income Tax Rules, 2026 aim to enhance clarity and enforcement without drastically altering the tax base for NRIs. The emphasis is clearly on transparency, documentation, and timely compliance. For non-residents with India-linked income, the message is clear—accurate reporting and strong documentation are essential to avoid discretionary assessments and ensure smooth tax compliance under the evolving framework.