For Non-Resident Indians (NRIs), understanding Indian income tax obligations is crucial to avoid double taxation, penalties, and compliance issues. The tax treatment of NRIs differs significantly from resident Indians — only income earned or received in India is taxable for NRIs, and various Double Taxation Avoidance Agreements (DTAAs) provide relief from being taxed twice.
Step 1: Determine Your Residential Status
Your tax liability in India depends on your residential status for the financial year. Under the Income Tax Act, you are a Resident Indian if:
- You were in India for 182 days or more during the financial year, OR
- You were in India for 60 days or more during the FY AND 365 days or more during the preceding 4 years
If you do not meet either condition, you are a Non-Resident Indian (NRI) for that year. Note: Indian citizens working abroad or crew members of Indian ships have a modified rule — 182 days threshold applies.
From FY 2020-21, Indian citizens with income above ₹15 lakh who are not taxable in any country are deemed residents of India (Resident but Not Ordinarily Resident — RNOR). This prevents stateless persons from avoiding tax.
What Income is Taxable for NRIs in India?
- Salary received or accrued in India (including salary for services rendered in India)
- Rental income from property located in India
- Capital gains on sale of property, shares, or mutual funds in India
- Interest on NRO (Non-Resident Ordinary) accounts — taxable at 30%
- Dividends from Indian companies
- Income from business or profession set up in India
What Income is NOT Taxable for NRIs?
- Interest on NRE (Non-Resident External) accounts — fully exempt
- Interest on FCNR (Foreign Currency Non-Resident) deposits — fully exempt
- Income earned outside India (foreign salary, foreign business income)
- Maturity proceeds of life insurance policies (subject to conditions)
TDS on NRI Income
Tax is deducted at source on most income paid to NRIs at higher rates:
| Income Type | TDS Rate |
|---|---|
| Interest on NRO accounts | 30% + surcharge + cess |
| Rental income | 30% + surcharge + cess |
| Short-term capital gains (equity) | 15% + surcharge + cess |
| Long-term capital gains (equity above ₹1 lakh) | 10% + surcharge + cess |
| Long-term capital gains (property) | 20% + surcharge + cess |
| Short-term capital gains (property) | 30% + surcharge + cess |
DTAA Benefits: Avoid Double Taxation
India has DTAAs with 90+ countries. If you are taxed on the same income in India and your country of residence, DTAA provides relief through:
- Exemption method: Income taxed only in one country
- Tax credit method: Tax paid in India is credited against tax payable in the other country
- Lower TDS rates: DTAA may provide for lower TDS rates than domestic law
To claim DTAA benefits, you must submit a Tax Residency Certificate (TRC) from your country of residence and Form 10F to the payer/deductor.
Should NRIs File ITR in India?
NRIs must file ITR in India if:
- Total Indian income exceeds the basic exemption limit (₹2.5 lakh)
- TDS has been deducted and you want to claim a refund
- You have capital gains from sale of property or investments in India
- You want to carry forward capital losses
NRI-Specific Deductions
NRIs can claim most deductions available to residents, including:
- Section 80C: LIC premium, ELSS, home loan principal (up to ₹1.5 lakh)
- Section 80D: Health insurance premium
- Section 80E: Interest on education loan
- Section 24(b): Home loan interest deduction
NRIs cannot invest in PPF, NSC, or Senior Citizens Savings Scheme. NRE/FCNR accounts are the best tax-free savings options for NRIs.
NRI taxation is complex — residential status, DTAA claims, TDS refunds, and property transactions all require expert handling. Bhowal Associates provides specialised NRI tax services including ITR filing, DTAA consultation, and repatriation assistance.