Budget FY27: Govt announces tax relief and market access for non-residents

New Delhi: Finance Minister Nirmala Sitharaman on Sunday proposed to exempt Minimum Alternate Tax (MAT) for non-residents who pay tax on presumptive basis.

In her Budget speech, she said the threshold for availing safe harbour for IT services is being enhanced from Rs 300 crore to Rs 2,000 crore.

Sitharaman added that the tax collected at source rate on liquor, scrap, and mineral has been rationalised to 2 per cent.

The minister also announced to rationalise definition of accountants for safe harbour rules to promote home-grown accounting firms. She said the government would allow inter-cooperative societies dividend income as deduction under the new tax regime.

Further, in a move that can help boost equity capital market liquidity, the government proposed allowing Indian non-residents to invest in domestic stocks through the portfolio investment scheme.

“Individual Persons Resident Outside India (PROI) will be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme. It is also proposed to increase the investment limit for an individual PROI under this scheme from 5 per cent to 10 per cent, with an overall investment limit for all individual PROIs to 24 per cent, from the current 10 per cent,” Sitharaman said in her speech.

Experts said the step can help increase inflows as well as stabilise the Indian currency.

Himanshu Srivastava, Principal, Manager Research at Morningstar Investment Research India, said allowing individuals resident outside India to invest domestically appears to be a positive reform.

It could prove to be a step toward widening India’s capital market access, improve liquidity and deepen market participation, he said but also added that the wide-ranging implications of the announcement can be assessed only after more details are out.

“Until operational details emerge, investors should view this as a directional signal rather than a near-term catalyst,” he noted.

Manoj Purohit, Partner, Financial Services Tax, Tax & Regulatory Advisory at advisory firm BDO India said the much-awaited amendment has been proposed to open up the Indian capital markets for PROIs.

Indian non-residents understand the sentiment of the Indian capital markets and are keen to invest in them. This welcoming measure will not only increase inflows but also help stabilise the currency and capital markets, he added.

According to Dhruv Chopra, Managing Partner, Dewan PN Chopra & Co, the regulatory shift is designed to reduce the market’s reliance on volatile institutional hot money by courting stable, long-term individual investors.

Moreover, to ease compliance burden, the government proposed that an individual purchasing immovable properties from non-residents will not be required to furnish TAN details for tax deduction.

Under the new framework proposed in the Union Budget 2026-27, resident individuals or Hindu Undivided family (HUF) can report the Tax Deducted at Source (TDS) by quoting PAN numbers, as it is done when the transactions are between two residents.

The revised norm will be effective from October 1.

Tax Deduction and Collection Account Number (TAN) are issued to corporate entities, while Permanent Account Number (PAN) are for individuals. In her budget speech, Finance Minister Nirmala Sitharaman said, “TDS on the sale of immovable property by a non-resident is proposed to be deducted and deposited through the resident buyer’s PAN-based challan instead of requiring TAN”.

A resident individual or HUF would not be required to obtain a TAN to deduct tax at source in respect of any consideration on transfer of any immovable property by a non-resident under section 393(2), as per the annexure in the budget speech. Instead, the deduction should be reported by quoting the PAN in the same manner as a transaction of a similar nature between two residents.