Taxation for NRIs in India

Introduction

Many Indians spend a substantial part of the year abroad, raising an important question: Do they still need to pay taxes in India? The answer depends on several factors. Under the Income Tax Act, 1961, taxation applies not only to residents but also to individuals earning income outside India. However, the rules, benefits, and obligations for Non-Resident Indians (NRIs) differ from those for resident taxpayers.

This guide explains the key provisions, rules, and regulations governing NRI taxation in India, helping you gain clarity on your tax responsibilities and available benefits.

For expert support with all your income tax requirements, Auriga Accounting pvt. ltd. is here to help. Whether you need assistance navigating tax slabs, claiming exemptions, or filing your returns, our experienced team provides reliable, comprehensive guidance.

Definition of a Non-Resident Indian (NRI) as per the Income Tax Act

Under the Income Tax Act, a Non-Resident Indian (NRI) is an individual who does not meet the criteria for tax residency in India. Residency is determined based on the number of days an individual stays in India during a financial year.

You are considered a resident if you satisfy either of the following conditions:

You stay in India for 182 days or more during the financial year, or
You stay in India for 60 days or more in the financial year and for 365 days or more in the four preceding years.

Special Exception:
For Indian citizens and Persons of Indian Origin (PIOs) living abroad, the 60-day rule is extended to 182 days, meaning they are treated as residents only if they spend 182 days or more in India during the financial year.

Determining Residential Status for NRI Taxation in India

Correctly identifying your residential status is essential for understanding your tax liability in India.
Resident Status Criteria
You are considered a resident if you meet any one of the following within a financial year:
- You stay in India for 182 days or more, or
- You stay in India for 60 days or more during the financial year and 365 days or more in the four preceding years.
Exceptions to the 60-Day Rule
The 60-day threshold increases to 182 days for:
- Indian citizens leaving India for employment abroad or as crew members of an Indian ship
- Indian citizens or PIOs visiting India
In such cases, you become a resident only if your stay exceeds 182 days.
Non-Resident Status
You are an NRI if you do not meet any of the residency conditions above.
Resident but Not Ordinarily Resident (RNOR)
You qualify as RNOR if:
- You were an NRI for 9 out of the last 10 years, or
- You stayed in India for 729 days or less during the last 7 years.
Additional RNOR rules apply to Indian citizens/PIOs if:
- Total income (excluding foreign income) exceeds ₹15 lakh, and
- Stay in India exceeded 120 days but less than 182 days, and
- Stay in India was 365 days or more in the preceding 4 years.
Once classified as an NRI, you must file a tax return in India if your total income before deductions exceeds the basic exemption limit. NRIs are taxed only on income earned, received, or accrued in India.

NRI Taxation in India: Tax Filing Requirements

NRIs must file an income tax return in India if their income originates within the country. Taxable income includes:

Salary paid for services performed in India
Income received directly in India
Rental or sale proceeds from property in India
Foreign income credited or received in India

To ensure accurate compliance and avoid penalties, it is advisable to consult Auriga Accounting pvt. ltd. tax experts for smooth return filing.

NRI Taxation in India: Taxable Income

India follows the “source rule” of taxation, which means any income that accrues, arises, or is derived from a source within India is taxable, regardless of where the recipient lives. Identifying the origin of income is therefore essential. If the income can be linked—directly or indirectly—to an Indian source, it becomes taxable for an NRI.

Below are the key types of income taxable for Non-Resident Indians (NRIs):

Salary Received in India: Any salary credited or paid in India is taxable.
Salary for Services Rendered in India: Taxable even if the payment is received outside India.
Rental Income: Income earned from property located in India.
Capital Gains: Profits from the sale or transfer of assets such as property, shares, or securities situated in India.
Income from Deposits: Interest earned on fixed deposits or other types of deposits in Indian banks or financial institutions.
Interest on Savings Accounts: Interest from savings bank accounts held in India is also taxable.

Taxation of NRIs in India

1. Non-Resident Indians (NRIs) must file income tax returns in India if their total income before deductions exceeds the basic exemption limit of ₹2.5 lakh in a financial year. The return filing deadline is generally July 31 of the assessment year.
  Below is a breakdown of how different types of income are taxed for NRIs:
  1. Income from Salary
  NRIs are taxed on salary income under the following circumstances:
  A. Salary Received in India
  If the salary is credited to an Indian bank account or received on the NRI’s behalf within India, it is taxable in India.
  B. Salary Earned in India
  If the salary is earned for services performed in India, it is taxable in India—even if the payment is received outside the country.
  The applicable tax rate will depend on the NRI’s income slab.
  2. Taxation of Income from House Property
  Income earned from property located in India is taxable for NRIs, whether the property is rented out or vacant.
  Available Deductions:
  - 30% Standard Deduction: Applicable on net annual rental income.
  - Property Tax Deduction: Municipal taxes paid can be deducted from rental income.
  - Interest on Home Loan: Interest paid on a home loan is deductible, reducing taxable income.
  - Principal Repayment (Section 80C): Home loan principal repayment, stamp duty, and registration charges qualify for deduction under Section 80C.
  Note:
  Taxability depends on the location of the property. Even if rental income is credited directly to an overseas account or an NRE account, it remains taxable in India.
  Tax Deduction at Source (TDS) on Rent Paid to NRIs
  - TDS Rate: Residents paying rent to an NRI must deduct 30% TDS before transferring the payment.
  - Compliance Requirements:
    - The payer must file Form 15CA
    - Form 15CB may also be required depending on the value of the transaction
  These forms ensure proper reporting and compliance with non-resident taxation rules.

Taxation of Income from Other Sources for NRIs

1. Non-Resident Indians (NRIs) are liable to pay tax in India on income generated from various Indian sources. Below is an overview of how interest income is taxed under Indian tax laws:
  1. Interest on Fixed Deposits and Savings Accounts
  Interest earned on fixed deposits and savings accounts held with Indian banks is fully taxable for NRIs. Such income must be declared in the tax return and taxed according to the applicable income tax slabs.
  2. Interest on NRE and FCNR Accounts
  Interest earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is exempt from tax in India.
  NRE accounts are maintained in Indian rupees
  FCNR accounts are maintained in foreign currency
  These tax-free benefits make NRE and FCNR accounts attractive options for NRIs wishing to keep funds in India without creating a tax liability.
  3. Interest on NRO Accounts
  Interest earned on NRO (Non-Resident Ordinary) accounts is fully taxable in India. Because NRO accounts are used to manage income sourced from India—such as rent, dividends, or pension—the interest is taxed at the NRI’s applicable income tax slab rate.
  NRIs should carefully consider the tax treatment of each type of bank account to optimize their financial planning. Declaring interest income correctly and paying taxes accordingly is essential to ensure compliance with Indian tax regulations.

Taxation on Capital Gains for Non-Resident Indians (NRIs)

1. NRIs are liable to pay tax on capital gains arising from the transfer of capital assets located in India, such as real estate, shares, and securities.
  TDS on Capital Gains
  When an NRI sells a capital asset in India, the buyer is required to deduct tax at source:
  - Long-Term Capital Gains (LTCG): 20% TDS for assets held for more than 3 years.
  - Short-Term Capital Gains (STCG): 30% TDS for assets held for 3 years or less.
  Buyer’s Responsibilities
  - Deduct the applicable TDS and deposit it with the Indian government.
  - Obtain a TAN (Tax Deduction Account Number).
  - Issue a TDS certificate to the NRI seller.
  Exemptions Available to NRIs on Capital Gains
  NRIs can reduce their tax liability on long-term capital gains by claiming exemptions under:
  Section 54
  Exemption on gains from selling a residential property if the amount is reinvested in another residential property in India within the prescribed time.
  The new property must not be sold within 3 years.
  Section 54F
  Exemption on gains from selling any asset (other than a residential house) if the entire sale proceeds are invested in purchasing or constructing one residential house in India.
  Section 54EC
  Exemption by investing capital gains in NHAI or REC bonds within 6 months of sale.
  - Maximum investment: ₹50 lakh
  - Lock-in period: 3 years
  NRIs can claim these exemptions during tax filing and may receive a refund if excess TDS was deducted.
  TDS on Rental Payments to NRIs
  If a tenant pays rent to an NRI property owner, they must deduct 30% TDS before making the payment, regardless of whether the rent is deposited in an Indian or overseas account.
  Compliance Requirements
  - Form 15CA: Must be submitted online by the tenant to report remittance details.
  - Form 15CB: Required in certain cases; a Chartered Accountant certifies the TDS details.
  Form 15CB is not required if:
  - Annual remittance is below ₹5,00,000
  - The Assessing Officer has allowed a lower TDS rate
  - The payment falls under Rule 37BB exemptions
  Proper TDS deduction and filing of these forms ensure compliance when making rental payments to NRIs.

Is Income Earned Abroad by NRIs Taxable in India?

No. Income that accrues or arises outside India is not taxable for Non-Resident Indians (NRIs). NRIs are taxed only on income that is earned, received, or deemed to be earned in India. This includes:

Income from assets or investments located in India
Salary for services performed in India
Income from businesses operating in India
Capital gains from the sale of assets situated in India

Foreign income remains tax-free in India unless it is received in India or originates from an Indian source. This ensures that NRIs are taxed solely on income linked to India.

Special Provisions for NRI Investment Income

Non-Resident Indians (NRIs) can benefit from a special tax regime on income earned from certain specified investments in India. Under this provision:

Investment income from eligible assets is taxed at a flat rate of 20%.
NRIs are not required to file an income tax return if
- their income consists only of such investment income, and
- TDS has been duly deducted on this income.

This simplifies compliance for NRIs whose primary earnings in India come from specified investments where taxes are already withheld at source.

Eligible Investments Under the Special Provision

Income from the following specified assets qualifies for this preferential treatment:

Shares of Indian companies (public or private)
Debentures of publicly-listed Indian companies
Bank deposits and deposits with public companies
Central Government securities
Any other assets notified by the Central Government

Note: Deductions under Section 80 are not allowed when calculating investment income under this provision.

Special Rules for Long-Term Capital Gains (LTCG)

For NRIs, long-term capital gains from the sale of these specified assets:

Do not qualify for indexation benefits
Do not receive deductions under Section 80

However, NRIs can claim exemptions under Section 115F by reinvesting the net consideration in any of the following:

Shares of an Indian company
Debentures of an Indian public company
Deposits with banks or Indian public companies
Central Government securities
National Savings Certificates (NSC) – VI or VII issues

Exemption Rules:

Full Exemption: If the entire net sale consideration is reinvested, the entire capital gain is exempt.
Proportional Exemption: If only part of the consideration is reinvested, exemption is allowed proportionately.

Important: The exemption is withdrawn if the reinvested asset is sold or converted into money within three years.
NRIs may also opt out of this special scheme and be taxed under general income tax provisions instead.

Tax Deductions Available to NRIs

NRIs are eligible for several tax deductions, though some are restricted. Below is a summary:

Deductions Allowed

Section 80C

Life Insurance Premiums: For self, spouse, or children (premium ≤ 10% of sum assured)
Tuition Fees: For full-time education of children in India
Home Loan Principal Repayment: Includes stamp duty and registration charges
ULIPs: Eligible with a 5-year lock-in
ELSS: Eligible with a 3-year lock-in; maximum deduction ₹1.5 lakh

Section 80D

Health insurance premium deductions:

Self, spouse, children + parents (< 60): ₹25,000 + ₹25,000
Self, spouse, children (< 60) + parents (60+): ₹25,000 + ₹30,000
Self, spouse, children (60+) + parents (60+): ₹30,000 + ₹30,000

Section 80E

Interest on education loans for self, spouse, children, or dependents (no upper limit; available for max 8 years)

Section 80G

Donations to eligible charitable institutions

Section 80TTA

Deduction of up to ₹10,000 on savings account interest

Deductions Not Available to NRIs

NRIs cannot claim deductions for:

Public Provident Fund (PPF) – cannot open new accounts
National Savings Certificates (NSC)
Post Office 5-Year Deposit Scheme
Senior Citizen Savings Scheme (SCSS)
Section 80CCG – Rajiv Gandhi Equity Savings Scheme
Section 80DD – Maintenance of dependents with disability
Section 80DDB – Treatment of specified diseases
Section 80U – Personal disability deduction

NRI Income Tax Slab Rates for FY 2023–24

NRIs are taxed uniformly, regardless of age.

Old Tax Regime

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	₹12,500 + 20% above ₹5,00,000
Above ₹10,00,000	₹1,12,500 + 30% above ₹10,00,000

New Tax Regime (Section 115BAC)

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹7,50,000	₹12,500 + 10% above ₹5,00,000
₹7,50,001 – ₹10,00,000	₹37,500 + 15% above ₹7,50,000
₹10,00,001 – ₹12,50,000	₹75,000 + 20% above ₹10,00,000
₹12,50,001 – ₹15,00,000	₹1,25,000 + 25% above ₹12,50,000
Above ₹15,00,000	₹1,87,500 + 30% above ₹15,00,000

Revised Default New Tax Regime Slabs

Up to ₹3 lakh — Nil
₹3 lakh to ₹6 lakh — 5%
₹6 lakh to ₹9 lakh — 10%
₹9 lakh to ₹12 lakh — 15%
₹12 lakh to ₹15 lakh — 20%
Above ₹15 lakh — 30%

Surcharge for NRIs

10% on income above ₹50 lakh up to ₹1 crore
15% on income above ₹1 crore up to ₹2 crore
25% on income above ₹2 crore up to ₹5 crore
37% on income above ₹5 crore

Note: Rebate under Section 87A is not available to NRIs.

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For end-to-end guidance on NRI taxation—return filing, compliance, planning, and investment-related tax optimisation— Auriga Accounting pvt. ltd. offers specialized support tailored to the unique needs of NRIs.
Connect with Auriga Accounting pvt. ltd. for reliable, professional assistance in managing your tax obligations in India.

About the Author

Vinod

Vinod is an experienced legal writer who breaks down complex legal topics into clear, practical insights. His work empowers entrepreneurs to understand their legal obligations and build compliant, sustainable businesses with confidence.

January 8, 2026