NRI Taxation in India: A Complete Guide for Non-Resident Indians

For the millions of Indians living and working abroad, understanding tax obligations in India is both important and often confusing. The rules governing NRI taxation touch on residential status, the source of income, applicable tax treaties, and FEMA regulations — each with its own nuances.

This guide provides a comprehensive overview of NRI taxation in India for FY 2025-26, covering everything from determining your residential status to filing your income tax return and repatriating funds.

Your tax liability in India depends entirely on your residential status for the financial year. The Income Tax Act 1961 classifies individuals into three categories:

You are ROR if you satisfy both of the following:

• You are a Resident (stayed in India for 182+ days in the current year, OR 60+ days in the current year AND 365+ days in the preceding 4 years)
• You have been Resident in India for at least 2 of the preceding 10 years AND stayed in India for at least 730 days in the preceding 7 years

Tax implication: Global income is taxable in India.

You are RNOR if you are a Resident but do not satisfy both the additional conditions above. This typically applies to individuals who have recently returned to India after a long stint abroad.

Tax implication: Indian-sourced income + income from a business controlled in India is taxable. Foreign income is generally not taxable.

You are a Non-Resident if you do not satisfy the Resident conditions — i.e., you stayed in India for fewer than 182 days in the financial year (with exceptions).

Special rule for Indian citizens: If you are an Indian citizen or a Person of Indian Origin (PIO) visiting India, the 60-day rule is extended to 120 days (if your income from Indian sources exceeds ₹15 lakh). If your income from Indian sources exceeds ₹15 lakh and you are not liable to tax in any other country, you are deemed a Resident (RNOR) regardless of days spent in India.

Tax implication as NRI: Only income that accrues or arises in India, or is received in India, is taxable.

As an NRI, you are taxed only on income that has a source in India:

• Salary received in India or for services rendered in India
• Rental income from property situated in India
• Capital gains from sale of property, shares, or mutual funds in India
• Interest income from NRO (Non-Resident Ordinary) accounts, fixed deposits, and bonds
• Dividend income from Indian companies
• Business income from a business carried on in India
• Income from profession exercised in India

• Salary received and earned entirely outside India
• Interest on NRE (Non-Resident External) accounts and FCNR (Foreign Currency Non-Resident) deposits — fully exempt
• Income earned and received outside India
• Capital gains on assets situated outside India

Understanding the tax treatment of different NRI bank accounts is essential:

Key insight: If you have rental income, dividends, or other Indian-sourced income, it must flow into your NRO account — and interest on that account is taxable. Keep your NRE account for foreign earnings to maintain tax-free interest.

Capital gains from Indian assets are taxable for NRIs, and the rates are the same as for residents:

• Short-term capital gains (STCG) — held less than 12 months: 20% (increased from 15% in Budget 2024)
• Long-term capital gains (LTCG) — held more than 12 months: 12.5% on gains exceeding ₹1.25 lakh per year (no indexation benefit)

• Gains are added to total income and taxed at slab rates (no distinction between short-term and long-term for funds with less than 35% equity)

• Short-term capital gains (held less than 24 months): Taxed at slab rates
• Long-term capital gains (held more than 24 months): 12.5% without indexation (from FY 2024-25 onwards)

TDS on property sale by NRI: When an NRI sells property in India, the buyer must deduct TDS at 12.5% on long-term gains or 30% on short-term gains — not on the sale price. The NRI can apply for a lower TDS certificate (Form 13) from the income tax department if the actual tax liability is lower.

India has signed DTAAs with over 90 countries. These treaties prevent the same income from being taxed twice — once in India and once in the country of residence.

How DTAA helps NRIs:

• Reduces withholding tax rates on dividends, interest, and royalties
• Provides exemption for certain types of income
• Determines which country has the primary right to tax specific income

Common DTAA benefits:

• India-UAE DTAA: UAE has no income tax, so Indian-sourced income of UAE residents is taxable only in India — but at treaty rates
• India-USA DTAA: Reduces withholding tax on dividends to 15% (vs. 20% domestic rate)
• India-UK DTAA: Provides relief on pension income and capital gains

To claim DTAA benefits, you must:

1. Obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence
2. File Form 10F with the Indian income tax department
3. Provide a self-declaration of your tax residency and the nature of income

Without a TRC and Form 10F, the deductor (bank, company) must deduct TDS at the higher domestic rate.

An NRI must file an ITR in India if:

• Total income from Indian sources exceeds the basic exemption limit (₹2.5 lakh)
• You want to claim a refund of TDS deducted in excess of your actual tax liability
• You have capital gains (even if below the exemption limit, filing is advisable)
• You have carried forward losses that you want to set off in future years

• ITR-2: Most NRIs use this form — it covers salary, house property, capital gains, and foreign income/assets
• ITR-3: If you have business income from India
• ITR-1: NRIs cannot use ITR-1 (it is only for Resident Ordinary Residents)

• 31st July for non-audit cases
• 31st October for audit cases

If you are an RNOR or ROR (i.e., you have returned to India), you must report foreign assets in Schedule FA of the ITR. NRIs (non-residents) are not required to report foreign assets.

The Foreign Exchange Management Act (FEMA) governs NRI investments and transactions in India. Key FEMA rules for NRIs:

• Immovable property (other than agricultural land, plantation, farmhouse)
• Shares and securities of Indian companies
• Fixed deposits with Indian banks

• Shares and securities under Portfolio Investment Scheme (PIS) through a designated bank
• Mutual funds
• Government securities

NRIs can repatriate up to USD 1 million per financial year from their NRO account, subject to:

• Payment of applicable taxes in India
• Submission of Form 15CA and Form 15CB (CA certificate) to the bank
• Compliance with FEMA regulations

Funds in NRE and FCNR accounts are freely repatriable without any limit.

NRIs can purchase residential and commercial property in India without RBI approval. However, agricultural land, plantation property, and farmhouses cannot be purchased by NRIs (they can be inherited). Sale proceeds from property can be repatriated subject to the USD 1 million annual limit and tax compliance.

1. Maximise NRE account usage Route all foreign earnings through NRE accounts to earn tax-free interest in India. Keep NRO accounts only for Indian-sourced income.

2. Claim DTAA benefits proactively Obtain a TRC from your country of residence and file Form 10F before the income is credited — this ensures TDS is deducted at the lower DTAA rate rather than the higher domestic rate.

3. Apply for lower TDS certificate before property sale If you are selling property in India, apply for Form 13 (lower TDS certificate) well in advance. This prevents the buyer from deducting TDS at 30% on the entire gain — which you would then have to claim as a refund after filing your ITR.

4. Consider returning to India as RNOR When you return to India after a long stint abroad, you may qualify as RNOR for up to 3 years. During this period, your foreign income is not taxable in India — giving you time to restructure your investments before becoming fully taxable as an ROR.

5. Gift assets to resident relatives Gifts between specified relatives are exempt from tax in India. NRIs can gift money or assets to resident relatives (spouse, children, parents, siblings) without tax implications — though the recipient's income from the gifted asset may be clubbed with the NRI's income in certain cases.

When you return to India permanently, your residential status changes — and with it, your tax obligations:

• Year of return: Likely RNOR — foreign income not taxable
• Subsequent years: Transition to ROR — global income becomes taxable
• NRE account: Must be redesignated to Resident Foreign Currency (RFC) account or regular savings account within a reasonable time after returning
• Foreign assets: Must be reported in Schedule FA of ITR once you become ROR
• FEMA: Your investment permissions change — some NRI-specific investments must be restructured

Planning your return carefully — ideally with professional advice — can significantly reduce your tax burden in the transition years.

NRI taxation is complex, and the rules change frequently. Contact AccentTax Consulting for personalised NRI tax advisory — from ITR filing and DTAA claims to FEMA compliance and repatriation planning. Our international advisory team specialises in India-linked cross-border taxation.