Non-Resident Indians (NRIs) are subject to Indian income tax only on income earned or received in India. While foreign income remains exempt, NRIs must comply with TDS rules, disclosure requirements, and filing deadlines to avoid penalties. With India’s updated tax regime (effective FY 2025–26), understanding residential status, exemptions, and tax rates has become more important than ever.
Key Highlights (2025)
- Only Indian income is taxable for NRIs; foreign income remains exempt.
- Deductions allowed: Section 80C (limited), 80D, 80E, 80G, 80TTA and capital-gain exemptions.
- Tax Filing: NRIs cannot use ITR-1 and ITR-4.
- TDS is compulsory on rent, property sale, NRO interest, and dividends.
- Special rules apply for capital gains, DTAA relief, and investment income.
- What Counts as Taxable Income for NRIs?
Only income earned or received in India is taxable. This includes:
| Type of Income | Taxability for NRI | Notes |
| Salary for services rendered in India | Taxable | Location of work decides taxability |
| Salary received in India | Taxable | Even if work was performed abroad |
| Rental income from Indian property | Taxable | Tenant must deduct TDS |
| Capital gains from Indian assets | Taxable | Property, shares, securities |
| Interest on NRO account | Taxable | TDS @ 30% |
| Interest on NRE/FCNR account | Exempt | Fully tax-free |
| Foreign income | Not taxable | If NRI for tax purposes |
- Determining NRI Residential Status
Your residential status under the Income Tax Act determines whether global income is taxable.
You are a resident if you meet any of the following:
- Stay ≥ 182 days in India in the FY
- Stay ≥ 60 days in the FY and ≥ 365 days in the last 4 years
If neither condition is met → NRI.
Further classification for residents:
- Resident & Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
- Taxation of Different Income Types
3.1 Salary Income
- Taxable if services are performed in India, regardless of where payment is received.
- Salary paid in India is taxable even if the job is abroad.
- Government employees working abroad (except diplomats) are taxable in India.
Illustration:
Ajay, working in China, chooses to receive salary abroad to avoid Indian tax. Since services were rendered outside India and salary was received outside India → not taxable in India.
3.2 Income from House Property
- Rent from Indian property is fully taxable.
- Standard deductions:
- 30% standard deduction
- Interest on home loan (Sec 24)
- Principal repayment (80C)
- Tenant must deduct 30% TDS, and submit Form 15CA/CB for remittance.
3.3 Other Income
| Income Type | Taxable for NRI | Notes |
| NRO interest | Yes | TDS @30% |
| NRE/FCNR interest | No | Exempt |
| Business income | Yes | If business is in India |
| Capital gains | Yes | From Indian assets |
3.4 Capital Gains for NRIs
- Long-Term Capital Gains (LTCG) rate: 12.5%
- TDS applicable when buyer purchases property from NRI.
- Exemptions allowed:
| Section | Capital Gains Source | Reinvestment Allowed In |
| 54 | Residential property | Another residential property |
| 54EC | Property | Capital gain bonds |
| 54F | Any capital asset | Residential property |
- Special Investment Income Rules
NRIs investing in Indian assets using foreign currency are taxed at a concessional flat 20% rate.
Eligible assets:
- Shares of Indian companies
- Listed debentures
- Bank/public company deposits
- Government securities
If only this income exists and TDS is already deducted → No ITR filing required.
- Deductions & Exemptions Available to NRIs
5.1 Allowed Deductions
| Section | Benefit | NRI Eligible? |
| 80C | LIC, tuition fees, ELSS, home-loan principal | Yes (PPF/NSC/SCSS not allowed) |
| 80D | Health insurance (self + family + parents) | Yes |
| 80E | Education loan interest | Yes |
| 80G | Donations | Yes |
| 80TTA | Savings interest up to ₹10,000 | Yes |
| 54/54EC/54F | Capital gain exemptions | Yes |
5.2 Deductions NOT Allowed for NRIs
- PPF (new account)
- NSC
- Post-office 5-year deposits
- Senior Citizen Savings Scheme
- Deductions for disability (80DD, 80DDB, 80U)
- When Should NRIs File ITR?
ITR filing required if:
- Indian income exceeds exemption limit
- TDS refund is to be claimed
- Capital gains are incurred
| Regime | Basic Exemption (FY 2025–26) |
| Old regime | ₹2.5 lakh |
| New regime (default) | ₹4 lakh |
Due date: 31 July 2026 (unless extended)
- Income Tax Slabs for NRIs (FY 2025–26)
Old Tax Regime
| Income Range | Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
New Tax Regime (Default FY 2025–26)
| Income Range | Tax Rate |
| Up to ₹4 lakh | Nil |
| ₹4 – 8 lakh | 5% |
| ₹8 – 12 lakh | 10% |
| ₹12 – 16 lakh | 15% |
| ₹16 – 20 lakh | 20% |
| ₹20 – 24 lakh | 25% |
| Above ₹24 lakh | 30% |
- Surcharge & Rebate
| Income Level | Surcharge |
| ₹50 lakh – ₹1 crore | 10% |
| ₹1 – 2 crore | 15% |
| ₹2 – 5 crore | 25% |
| Above ₹5 crore | 37% (capped at 25% in new regime) |
Rebate under 87A is NOT available to NRIs.
- TDS on NRI Income
| Income Type | TDS Rate |
| Rent | 30% |
| Property sale | 12.5% |
| NRO interest | 30% |
| Dividend | 20% |
NRIs must pay advance tax if liability exceeds ₹10,000.
- ITR Forms for NRIs
| ITR Form | Applicable For |
| ITR-2 | Salary, house property, capital gains, foreign assets |
| ITR-3 | Business or profession |
| ITR-5 | Firms |
| ITR-6 | Companies |
NRIs cannot file ITR-1 or ITR-4.
- Case Studies (Quick Illustrations)
Case Study 1: NRI with only NRO Interest
Srishti earns only NRO interest; TDS is deducted at 30%.
Her income is below exemption limits, so filing ITR is not mandatory, but she can file to claim refund.
Case Study 2: Resident on Temporary Foreign Assignment
Rahul worked in Singapore for 4 months but stayed in India >182 days → Resident.
His Singapore income credited in India becomes taxable in India.
Case Study 3: Recently Moved Abroad
Prashant moved to the US. His Indian income (salary + FD + savings) is taxable.
After deductions, he becomes eligible for a refund.
Case Study 4: Resident with Foreign Income
Shreya, living in India, earns consulting income from the UK.
Being a resident, she must declare global income in India.
DTAA relief prevents double taxation.
- Avoiding Double Taxation (DTAA Benefits)
DTAA relief can be claimed using:
- Exemption method → Income taxed only in one country
- Tax credit method → Credit for tax paid abroad
Section 89A provides relief for NRIs taxed on withdrawal of foreign retirement accounts.
Conclusion
NRI taxation in India is straightforward once residential status and income sources are clearly identified. With updated tax slabs, capital-gain concessions, DTAA benefits, and clearly outlined ITR rules, NRIs can optimize tax liability and avoid compliance issues. When in doubt, filing an ITR is often beneficial—especially for TDS refunds or claiming exemptions.
