NRI Taxation in India: Complete Guide

Why NRI Taxation in India Demands Careful Planning

India taxes Non-Resident Indians exclusively on income that is earned in, accrues in, or is received in India. Unlike resident Indians who face worldwide taxation, NRIs enjoy a narrower tax net. But that narrower net comes with unique traps: higher TDS rates with no threshold exemptions, restricted access to the INR 12 lakh rebate under Section 87A, and a maze of documentation requirements for Double Taxation Avoidance Agreement (DTAA) relief.

For FY 2025-26, the stakes are particularly high. Budget 2025 expanded the new tax regime slabs but explicitly excluded NRIs from the enhanced rebate. Capital gains rates were restructured from July 2024 onward. And the new Income Tax Bill 2025, effective from April 2026, will reshape residency rules entirely. This guide covers every dimension of NRI taxation based on current law, with specific numbers, forms, and deadlines you need to act on.

Step 1: Determining Your Residential Status

Your tax liability in India hinges entirely on whether you qualify as a Non-Resident Indian (NRI), Resident but Not Ordinarily Resident (RNOR), or Ordinary Resident. The Income Tax Act, under Section 6, lays out precise tests.

The 182-Day Primary Test

You are a Non-Resident Indian if you spent fewer than 182 days in India during the financial year (April 1 to March 31). This is the primary and most commonly applied test. Every day counts, including the day of arrival and the day of departure.

The 60-Day / 365-Day Alternative Test

An individual also becomes resident if present in India for 60 or more days during the year AND 365 or more days during the four years immediately preceding. However, this test does not apply to Indian citizens leaving India for employment abroad or NRIs visiting India. For these categories, only the 182-day test applies.

The 120-Day Rule for High-Income NRIs

Since FY 2020-21, a special provision applies to Indian citizens and PIOs whose total Indian income exceeds INR 15 lakh in a financial year. If such a person stays in India for 120 days or more (but less than 182 days), they are classified as Resident but Not Ordinarily Resident (RNOR). Critically, RNOR status means only Indian-sourced income is taxed, not worldwide income. This protection was retained under the Income Tax Bill 2025.

RNOR Conditions

Even if you qualify as a resident, you may still be RNOR if you have been an NRI in 9 out of 10 preceding years, or if your total stay in India in the 7 preceding years does not exceed 729 days. RNOR individuals are taxed only on Indian income, similar to NRIs. This status is particularly valuable for returning NRIs transitioning back to India.

Income Taxable for NRIs in India

NRIs are taxed only on the following categories of Indian-sourced income:

• Salary received or accrued in India for services rendered in India
• House property income from property situated in India (rental income)
• Capital gains from transfer of assets located in India (property, shares, mutual funds)
• Interest income from Indian bank accounts (NRO accounts, fixed deposits)
• Business income from a business controlled from or set up in India, creating a permanent establishment
• Other income such as dividends from Indian companies, royalties, and fees for technical services

Income earned outside India, including salary from a foreign employer for work performed abroad, interest on foreign bank accounts, and capital gains from foreign assets, is completely exempt for NRIs.

NRI Income Tax Slabs for FY 2026-27

NRIs can choose between the Old Tax Regime and the New Tax Regime. The new regime is the default unless you specifically opt out.

New Tax Regime Slabs (Default for FY 2026-27)

Critical NRI-specific point: Budget 2025 introduced nil tax for residents earning up to INR 12 lakh through an enhanced Section 87A rebate. This rebate does NOT apply to NRIs. NRI taxation begins from the first rupee of taxable income under the applicable slab.

Old Tax Regime Slabs

The old regime allows deductions under Section 80C (up to INR 1.5 lakh), Section 80D (health insurance), and other chapters. NRIs who have significant Indian investments generating deductible income may find the old regime more beneficial. However, NRIs cannot claim the Section 87A rebate under either regime.

Surcharge and Cess

On top of the base tax, the following surcharges apply based on total income:

• 10% surcharge on income between INR 50 lakh and INR 1 crore
• 15% surcharge on income between INR 1 crore and INR 2 crore
• 25% surcharge on income between INR 2 crore and INR 5 crore
• 37% surcharge on income above INR 5 crore (capped at 25% under new regime)

A 4% Health and Education Cess is levied on the total of tax plus surcharge. For example, an NRI earning INR 60 lakh pays 30% tax plus 10% surcharge plus 4% cess, resulting in an effective rate of approximately 34.32%.

Capital Gains Tax for NRIs

Capital gains taxation underwent a major overhaul from July 23, 2024. The rates differ based on asset type and holding period.

Long-Term Capital Gains (LTCG)

Transitional relief for property: If immovable property was acquired before July 23, 2024, and sold after that date, NRIs can choose between the old rate of 20% with indexation or the new 12.5% without indexation, whichever yields a lower tax. This choice must be evaluated case by case based on purchase price and inflation index.

Short-Term Capital Gains (STCG)

The increase in STCG on listed equity from 15% to 20% (effective July 23, 2024) is a significant change NRIs must account for. All capital gains tax computations must include the 4% cess and any applicable surcharge.

TDS on NRI Income Under Section 195

Every payment to an NRI is subject to Tax Deducted at Source (TDS) under Section 195. Unlike resident TDS, there is no minimum threshold. TDS applies from the first rupee.

Key TDS Rates for NRIs (FY 2025-26)

The payer (buyer, tenant, bank, or company) is responsible for deducting and depositing TDS. If TDS is not deducted, the payer faces penalties under Sections 271C and interest under Section 201(1A).

Getting a Lower TDS Certificate

NRIs can apply to the Assessing Officer for a lower or nil TDS certificate under Section 197. This is critical for property sales where the 12.5% TDS on the gross sale price can far exceed the actual tax on net capital gains. The application is filed on Form 13, and certificates are typically issued within 30 days.

DTAA Benefits: Reducing Your Tax Burden

India has signed DTAAs with over 90 countries. These treaties can significantly reduce TDS rates and provide mechanisms to avoid being taxed twice on the same income.

How DTAA Rates Compare

To claim DTAA benefits, you need two critical documents: a Tax Residency Certificate (TRC) from your country of residence, and Form 10F filed electronically on the Indian income tax portal. Without these, banks and payers will deduct TDS at the full domestic rate of 30%. See our complete DTAA guide for country-specific treaty details.

Steps to Claim DTAA Relief

1. Obtain a TRC from the tax authority of your country of residence
2. Log in to the Indian income tax portal and file Form 10F electronically
3. Provide both documents to the payer (bank, tenant, or buyer) before the payment date
4. If TDS was already deducted at a higher rate, claim the excess as a refund in your ITR

Forms 15CA and 15CB for Outward Remittances

When money is remitted from India to an NRI, the remitter must comply with Forms 15CA and 15CB. These forms ensure that appropriate tax has been paid before funds leave India.

• Form 15CA Part A: For remittances up to INR 5 lakh in a financial year, filed online by the remitter without a CA certificate
• Form 15CA Part B: For remittances above INR 5 lakh where the remittance is covered under a DTAA and a lower TDS certificate exists
• Form 15CA Part C: For remittances above INR 5 lakh requiring a CA certificate (Form 15CB)
• Form 15CB: A certificate from a practicing Chartered Accountant confirming that tax has been duly deducted and paid

These forms must be filed before the bank processes the remittance. Non-compliance attracts a penalty of INR 1 lakh per transaction.

Filing Your Income Tax Return as an NRI

NRIs must file an ITR if their Indian income exceeds the basic exemption limit (INR 2.5 lakh under old regime or INR 4 lakh under new regime). Even if TDS covers your full tax liability, filing an ITR is advisable to claim refunds and maintain clean records.

Which ITR Form to Use

NRIs cannot use ITR-1 (Sahaj). Most NRIs with rental income, capital gains, or interest income should file ITR-2. If you run a business in India, use ITR-3.

Key Filing Deadlines

• Non-audit cases: July 31 of the assessment year
• Audit cases (business income): October 31 of the assessment year
• Belated return: December 31 of the assessment year (with a penalty of up to INR 5,000)

Documents Required

• PAN card (mandatory for all NRIs with Indian income)
• Aadhaar (not mandatory for NRIs but linked if available)
• Form 26AS / Annual Information Statement (AIS) from the income tax portal
• TDS certificates (Form 16A from banks, tenants)
• Bank statements for NRE and NRO accounts
• Sale deed and purchase deed for property transactions
• TRC and Form 10F if claiming DTAA benefits

NRI Tax Planning Strategies

1. Structure Investments Through NRE Accounts

Interest earned on NRE accounts (savings and fixed deposits) is completely tax-free in India. Park foreign earnings in NRE fixed deposits to earn 6-7% returns with zero Indian tax liability. Compare this to NRO accounts where interest is taxed at 30%.

2. Maximize DTAA Benefits

Many NRIs lose thousands of rupees simply because they fail to submit Form 10F and TRC before TDS is deducted. Set up these documents at the start of each financial year and provide them proactively to all payers.

3. Use Section 54 and 54EC for Capital Gains Exemption

NRIs selling property can claim exemption under Section 54 by reinvesting the capital gains in another residential property within 2 years (purchase) or 3 years (construction). Alternatively, invest up to INR 50 lakh in Section 54EC bonds (NHAI, REC) within 6 months of the sale to save LTCG tax entirely.

4. Consider the Capital Gains Account Scheme (CGAS)

If you cannot immediately reinvest capital gains, deposit the amount in a CGAS account with an authorized bank before the ITR filing deadline. This preserves your Section 54/54EC exemption while you find a suitable property.

5. Time Your Visits Strategically

If your Indian income exceeds INR 15 lakh, ensure your total stay in India remains below 120 days to avoid triggering RNOR status. If your income is below INR 15 lakh, the 182-day threshold applies. Maintain a travel log with passport stamps as evidence.

Common Mistakes NRIs Make on Indian Taxes

• Not updating resident status with banks: If banks treat you as a resident, they will not deduct proper NRI TDS, leading to notices from the income tax department
• Ignoring NRO interest TDS: Banks deduct 30% TDS on NRO interest. Without DTAA documentation, you cannot reduce this rate
• Missing the ITR filing deadline: Late filing means you cannot carry forward capital losses and face penalties up to INR 5,000
• Claiming the INR 12 lakh rebate: NRIs are not eligible for the enhanced Section 87A rebate introduced in Budget 2025. Claims will be rejected and may trigger scrutiny
• Neglecting FEMA compliance: Tax compliance and FEMA compliance are separate. Even if your taxes are filed correctly, failure to convert resident bank accounts to NRE/NRO accounts after becoming an NRI violates FEMA regulations

NRI Taxation for Business Income

NRIs running businesses in India face additional complexities. If your business activities create a permanent establishment in India, profits attributable to that PE are taxable. Corporate tax for foreign companies (including NRI-owned entities) is 35% plus surcharge and cess, compared to 25% for domestic companies.

For NRIs considering setting up an Indian entity, the choice between a private limited company, LLP, or branch office has significant tax implications. A private limited company offers the most favorable tax rate at 25.17% (effective rate with cess), while an LLP is taxed at 34.94%. Consult our tax advisory team for entity-specific guidance.

Transfer pricing rules apply to all transactions between the NRI and their Indian entity. Arm's length documentation is mandatory for any cross-border payments including management fees, royalties, and intercompany loans.

Penalties for Non-Compliance

The consequences of tax non-compliance for NRIs are substantial and have been strengthened in recent years:

• Late filing penalty: INR 5,000 if ITR is filed after July 31 but before December 31. INR 1,000 if total income is below INR 5 lakh.
• Interest under Section 234A: 1% per month on unpaid tax from the due date until the filing date
• Interest under Section 234B: 1% per month if advance tax paid is less than 90% of the assessed tax
• Interest under Section 234C: 1% per month for deferment of advance tax installments
• Prosecution under Section 276CC: For willful failure to file ITR where tax evaded exceeds INR 25,000, imprisonment of 6 months to 7 years
• Black money penalties: Under the Black Money Act 2015, failure to disclose foreign assets and income can attract penalties of INR 10 lakh and prosecution

NRIs who hold foreign assets must disclose them in Schedule FA of ITR-2/ITR-3. This includes bank accounts, immovable property, financial interests, and signing authority in any account outside India. Non-disclosure attracts a flat penalty of INR 10 lakh per year.

Key Takeaways

• NRIs are taxed only on Indian-sourced income; determine residential status carefully using the 182-day and 120-day tests
• The INR 12 lakh tax-free rebate under Section 87A does NOT apply to NRIs; taxation starts from the first rupee under applicable slabs
• Capital gains rates were restructured from July 2024: LTCG at 12.5% and STCG on listed equity at 20%
• Always submit TRC and Form 10F proactively to claim DTAA benefits and reduce TDS from 30% to treaty rates of 10-15%
• NRIs must use ITR-2 or ITR-3 for filing; ITR-1 is not available. File by July 31 to avoid penalties and preserve loss carry-forward rights