In India, income tax liability depends largely on an individual’s residential status. For income-tax purposes, individuals are broadly classified as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). Simply living outside India does not automatically make a person a non-resident for tax purposes. The residential status is determined based on the applicable stay conditions under Indian tax law.
For a non-resident, generally, only income that is received in India or accrues or arises in India is taxable in India.
Taxable Income for NRI in India
| Type of Income | Taxability in India for NRIs |
|---|---|
| Salary earned in India or for services performed in India | Taxable in India |
| Rental income from property located in India | Taxable in India |
| Capital gains from the sale of Indian shares or immovable property in India | Taxable in India |
| Interest earned on NRO accounts | Taxable in India |
| Interest earned on NRE accounts | Tax-free in India, subject to applicable conditions |
| Interest earned on FCNR accounts | Tax-free in India, subject to applicable conditions |
What is NRI Income Tax in India?
An individual who does not satisfy the prescribed stay requirements under the Income Tax Act may be classified as a non-resident for tax purposes. Therefore, many Indians living abroad may fall under the non-resident category, depending on their circumstances.
For NRIs who qualify as non-residents, their entire global income is generally not taxable in India. Instead, income that is received in India or arises or accrues in India may be subject to Indian tax. This can include salary for services rendered in India, rental income from Indian property, capital gains from Indian assets, and interest earned from certain Indian bank accounts.
How to Determine Residential Status of an NRI?
Before determining your Indian tax liability, it is important to establish your residential status. This status determines the extent to which your income may be taxable in India.
An individual is generally considered a resident of India for a financial year if they satisfy either of the following conditions:
- They stay in India for 182 days or more during the financial year; or
- They stay in India for 60 days or more during the current year and 365 days or more during the preceding four years, subject to specific exceptions applicable to certain Indian citizens and persons of Indian origin.
For individuals who qualify as residents, residential status may further be classified as:
- Resident and Ordinarily Resident (ROR)
- Resident but Not Ordinarily Resident (RNOR)
Tax Rates for Non-Residents
For non-resident individuals, income is generally taxed according to the applicable income-tax slab rates, except where specific types of income are taxable at special rates.
1. Income Tax Slabs Under Old Tax Regime – FY 2025-26
| Income Tax Slab | Income Tax Rate |
|---|---|
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% above ₹2,50,000 |
| ₹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 |
2. Income Tax Slabs Under New Tax Regime – FY 2025-26
The new tax regime is the default regime, with the following slab rates:
| Income Tax Slab | Income Tax Rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4 lakh – ₹8 lakh | 5% |
| ₹8 lakh – ₹12 lakh | 10% |
| ₹12 lakh – ₹16 lakh | 15% |
| ₹16 lakh – ₹20 lakh | 20% |
| ₹20 lakh – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Capital Gains Tax Rates for NRIs
Capital gains earned by non-residents are generally taxable in India when they arise from the transfer of Indian assets. The applicable rate depends on the nature of the asset and whether the gain is short-term or long-term.
| Asset / Income Type | Short-Term | Long-Term | Governing Section |
|---|---|---|---|
| Listed equity shares & equity mutual funds (STT paid) | 20% | 12.5% on gains exceeding ₹1.25 lakh per year | 111A / 112A |
| Other assets (immovable property, gold, unlisted shares, debt) | Slab rates | 12.5% without indexation | 112 |
| FPIs / specified funds (Category III AIF) | As per Section 115AD | As per Section 115AD | 115AD |
Is Foreign Income of NRIs Taxable in India?
An NRI’s income tax liability in India depends on their residential status for the relevant financial year under the applicable income tax rules.
- If you qualify as a resident, your global income may be taxable in India. If you qualify as an NRI, generally only income earned, received, or accruing in India is taxable in India.
- Income earned outside India is generally not taxable in India for an NRI.
- Examples of income taxable in India include:
- Salary received for services performed in India.
- Income from a house property located in India.
- Capital gains arising from the transfer of an asset situated in India.
- Interest earned from fixed deposits or savings bank accounts in India.
Salary Income
- Salary income is generally considered to arise in India when the services are performed in India.
- If the salary relates to services rendered in India, it is taxable in India regardless of where the payment is received, even if the individual is a non-resident.
- Salary received in India may also be taxable even when the related services are performed outside India, depending on the applicable provisions.
- If the employer is the Government of India and the employee is an Indian citizen providing services outside India, the salary income may remain taxable in India.
- Exception: Income earned by certain diplomats and ambassadors may be exempt from Indian income tax.
Illustration: Ajay was working in China on a three-year project for an Indian company. He wanted his salary to be credited in India to support his family and make housing loan payments. However, since receiving the salary in India could create Indian tax implications, Ajay chose to receive his salary in China.
Income from House Property
- Income from a property located in India is taxable in the hands of an NRI.
- The applicable calculation method and deductions for house property income are generally similar for residents and non-residents.
- Income from house property is generally taxed at the applicable slab rates.
- The tenant is required to deduct TDS from rent paid to an NRI landlord under the applicable provisions, irrespective of whether the payment falls within the threshold applicable to residents under Section 194-IB.
- The tenant may also be required to submit Form 15CA and Form 15CB, wherever applicable, when remitting rent to a non-resident landlord.
Income from Other Sources
Interest earned from fixed deposits and savings accounts maintained with Indian banks is generally taxable in India. However, interest earned on NRE and FCNR accounts is tax-free in India, subject to the applicable conditions. Interest earned on an NRO account is fully taxable.
Income from Business and Profession
Any income earned by an NRI from a business that is controlled, managed, or established in India is taxable in India, subject to the applicable provisions of the Income Tax Act.
Income from Capital Gains
- Capital gains arising from the transfer of a capital asset, such as property situated in India, are taxable in India.
- When an NRI sells property located in India, the buyer is required to deduct TDS at the applicable rate from the sale consideration.
- An NRI may claim eligible capital gains exemptions by reinvesting in a residential property under Section 54 or investing in specified capital gains bonds under Section 54EC.
- Capital gains arising from investments in Indian shares and securities are also taxable in India, subject to the applicable tax provisions.
Special Provisions Related to Investment Income
When an NRI invests in certain specified Indian assets, the income earned from such investments may be subject to a special tax rate. If this investment income is the NRI’s only income during the financial year and the applicable TDS has already been deducted, the NRI may not be required to file an income tax return, subject to the prescribed conditions.
Income earned from the following Indian assets acquired in foreign currency may qualify for special tax treatment:
- Shares of a public or private Indian company
- Debentures issued by a publicly listed Indian company
- Deposits maintained with banks and public companies
- Securities issued by the Central Government
- Other specified Central Government assets notified through the official Gazette
No deduction under Section 80 is available while calculating such investment income.
Tax Benefits for NRIs
The Income Tax Act provides several tax benefits to individuals classified as non-residents, subject to the applicable conditions and tax regime.
Foreign Income Not Taxable
For an NRI, income that is earned or accrued outside India is generally not taxable in India. Therefore, an NRI is generally required to pay Indian income tax only on income that is taxable in India and does not ordinarily need to report foreign income merely because they are an NRI.
Chapter VI-A Deductions
Several deductions under Chapter VI-A are available to NRIs, subject to eligibility requirements. Some of the commonly applicable deductions and exemptions include:
| Section | Deduction / Benefit |
|---|---|
| Section 80C | Deduction for eligible investments and payments, subject to the maximum applicable limit |
| Section 24 | Deductions from house property income, including eligible home loan interest |
| Section 80EE / Section 80EEA | Additional deduction for eligible home loan interest, subject to applicable conditions |
| Section 80D | Deduction for eligible health insurance premiums |
| Section 80E | Deduction for interest paid on an education loan |
| Section 80G | Deduction for eligible donations to specified funds and institutions |
| Section 80TTA | Deduction on eligible savings account interest, subject to the prescribed limit |
| Section 54 | Exemption on eligible LTCG from the sale of a residential house when reinvested in another residential property |
| Section 54EC | Exemption on eligible LTCG from specified assets when invested in specified bonds |
| Section 54F | Exemption on eligible LTCG from assets other than a residential house when reinvested in a residential property |
While many deductions are available to both resident and non-resident taxpayers, certain deductions are specifically restricted for NRIs.
Deductions Not Available to NRIs
| Section | Deduction Not Available / Restricted |
|---|---|
| Section 80C | Investments in new PPF accounts, NSCs, Post Office 5-year deposits, and Senior Citizen Savings Scheme |
| Section 80DD | Deduction for maintenance or medical treatment of an eligible dependent with disability |
| Section 80DDB | Deduction for medical treatment of a dependent suffering from specified diseases |
| Section 80U | Deduction available to a taxpayer for their own disability |
When Should NRIs File Income Tax Returns in India?
For an NRI, filing an ITR becomes mandatory when taxable income in India exceeds the applicable basic exemption limit. Even when income falls below this threshold, filing an ITR can be useful for claiming a refund of TDS deducted on sources such as interest or rental income.
- Basic exemption limit under the old regime: ₹2.5 lakh for individuals below 60 years
- Basic exemption limit under the new regime for FY 2025-26: ₹4 lakh
- Due date: 31 July 2026, unless extended
- Business income: For non-residents earning business income in India, the applicable due date is 31 August 2026.
Case Study
Srishti, an Indian citizen, left India on 3 July 2025 to take up a job in the USA and has remained there since then. While checking her Form 26AS, she noticed a TDS entry of ₹21,000. The TDS was deducted at 30% on the interest earned from her NRO account. She has no other income in India. Does Srishti have to pay tax in India, and is she required to file an ITR?
Whether Srishti is liable to pay tax in India depends on her residential status. The first step is therefore to determine whether she qualifies as an NRI.
Srishti’s Residential Status
- Srishti is an Indian citizen who moved to the USA for employment. Her residential status depends on the number of days she stayed in India during the financial year.
- She left India on 3 July 2025 and therefore stayed in India for fewer than 182 days during FY 2025-26.
- Accordingly, Srishti qualifies as a Non-Resident Indian (NRI) for Indian income tax purposes.
Srishti’s Taxable Income
Srishti’s income earned in the USA is generally not taxable in India because she is an NRI. However, the interest earned from her NRO account is Indian income and is taxable in India.
Srishti’s ITR Filing Requirement
- For FY 2025-26, the basic exemption limit is ₹2.5 lakh under the old regime and ₹4 lakh under the new regime.
- If her total taxable income in India remains within the applicable basic exemption limit, she may not be required to file an ITR, subject to the applicable filing conditions.
- Since Srishti’s total income in India is below these limits, she is not required to file an ITR solely on this basis.
- However, as TDS has already been deducted, she can voluntarily file an ITR to claim a refund of the excess TDS.
Surcharge Rates for NRIs
The surcharge applicable to an NRI depends on the level of total income:
- 10% of income tax where total income exceeds ₹50 lakh but does not exceed ₹1 crore.
- 15% where total income exceeds ₹1 crore but does not exceed ₹2 crore.
- 25% where total income exceeds ₹2 crore but does not exceed ₹5 crore.
- 37% where total income exceeds ₹5 crore, subject to the applicable provisions.
- Marginal relief may be available where applicable.
Note: Under the new tax regime, the maximum surcharge is generally restricted to 25%.
Rebate Under Section 87A
The rebate under Section 87A is generally not available to non-resident taxpayers under either the old or new tax regime.
TDS on NRI Income
For NRIs, Tax Deducted at Source (TDS) applies to several types of income. The person making the payment is generally responsible for deducting TDS at the applicable rate before making the payment.
| Income Type | TDS Rate |
|---|---|
| Rent | 30% |
| Sale of property | 12.5% |
| NRO account interest | 30% |
| Dividend | 20% |
The actual rate may vary depending on the nature of the income, applicable provisions, surcharge, cess, DTAA benefits, and other conditions.
Do NRIs Have to Pay Advance Tax?
NRIs are required to pay advance tax when their estimated tax liability exceeds ₹10,000 during a financial year. If applicable advance tax is not paid on time, interest may arise under Sections 234B and 234C.
ITR Forms for NRIs
Selecting the correct ITR form is important for ensuring proper tax compliance. An NRI generally cannot use ITR-1 or ITR-4. The appropriate form depends on the taxpayer’s income and sources.
| ITR Form | Applicable Income / Status |
|---|---|
| ITR-2 | Salary, house property income, capital gains, foreign assets and other applicable income |
| ITR-3 | Business or professional income |
| ITR-5 | Applicable to firms and other specified entities |
| ITR-6 | Companies, where applicable |
Documents Required for NRI ITR Filing
A) Identity and Residency Documents
- Passport
- PAN card or Tax Identification Number
B) Income Documents
- Form 16 – Certificate issued by the employer under Section 203 showing salary and TDS details.
- Form 16A – TDS certificate issued for non-salary income such as rent or interest.
- Form 26AS – Tax credit statement available through the income tax e-filing portal showing TDS/TCS and other tax-related information.
- AIS (Annual Information Statement) – Contains information relating to TDS/TCS, SFT transactions, tax payments, refunds, demands, and other information reported to the Income Tax Department.
C) Bank Account Documents
- NRO account statement
- NRE account statement
- FCNR(B) account statement
D) Capital Gains Documents
- Sale deed or purchase deed
- Cost of acquisition documents
- Capital gains statement
How to File ITR as an NRI: Step-by-Step Guide
- Determine your residential status
- Select the appropriate ITR form
- Choose the applicable tax regime
- Gather all relevant documents
- Log in to the Income Tax e-Filing Portal
- Calculate your taxable income
- Claim eligible deductions
- Apply applicable special NRI capital gains provisions
- Claim DTAA benefits, where eligible
- Submit and verify your ITR
NRI Tax Implications – Specific Cases
1. Resident Individual on a Temporary Foreign Assignment
Rahul worked in Singapore for four months on a temporary assignment and earned income in Singapore dollars. The income was credited to his bank account in India, and he has now returned to India. How should he file his income tax return?
Rahul’s tax liability will depend on his residential status for the relevant financial year. Since he has not stayed outside India for more than the prescribed period, he would generally continue to qualify as a resident.
Therefore, he would need to consider his foreign assignment income while filing his Indian tax return. If he remains a resident, his foreign income may also be taxable in India, subject to applicable relief under the DTAA.
The fact that his Singapore income was credited to an Indian bank account does not, by itself, determine its taxability; residential status and the nature and source of the income are relevant.
2. Resident Individual Recently Moved Abroad
Prashant moves to the US for a new assignment. His US salary is credited to an NRE account in India. He continues to hold fixed deposits and savings in India and has also received Form 16 from his Indian employer. Does he need to file an ITR in India this year?
The requirement to file an ITR depends on his residential status, total taxable income, and other applicable filing conditions. Once Prashant qualifies as an NRI, his Indian-source income remains taxable in India, while his foreign income is generally outside the scope of Indian taxation for an NRI, subject to applicable provisions.
His taxable Indian income may include income from his Indian employment, eligible interest income from investments, and other taxable Indian sources.
| Prashant’s Income from India | Amount |
|---|---|
| Income from Indian employer | ₹3,00,000 |
| Interest income from FDs | ₹25,000 |
| Savings account interest | ₹4,500 |
| Gross Total Income | ₹3,29,500 |
| Section 80C – LIC Premium | ₹20,000 |
| Section 80TTA deduction | ₹4,500 |
| Taxable Income | ₹3,05,000 |
| Tax at 5% | ₹2,750 |
| Cess at 4% | ₹110 |
| TDS deducted by employer | ₹3,000 |
| TDS deducted by bank | ₹2,500 |
| Tax Refund | ₹2,640 |
3. Resident with Global Income
For a resident Indian, income earned or received anywhere in the world is generally taxable in India. If the same income is also taxed in another country, the taxpayer may claim relief under the applicable Double Taxation Avoidance Agreement (DTAA).
Case Study:
- Shreya returned to India in 2010 after spending more than five years in London. The French company she previously worked for retained her as a consultant and pays her fees in pounds. The payments are credited to her overseas bank account, and she pays tax in the UK. Does she need to pay tax on this income or report it in her Indian ITR?
- Shreya is an Indian resident, and the taxability of her income is determined based on her residential status. A resident is generally required to pay tax in India on global income and disclose income earned from sources in India and abroad in the income tax return.
- Therefore, Shreya’s consultancy fees received in foreign currency will also be considered taxable income in India.
- The income received in pounds must be converted into Indian rupees for calculating her taxable income and will be taxed according to the applicable tax rates.
- Since Shreya has already paid tax on this income in the UK, she may claim relief under the applicable DTAA. The relevant provisions of the India-UK tax treaty can help prevent the same income from being taxed twice.
How Can NRIs Avoid Double Taxation?
NRIs can prevent double taxation, where the same income is taxed in both India and another country, by claiming relief under the applicable Double Taxation Avoidance Agreement (DTAA).
DTAA generally provides two methods of claiming tax relief:
- Exemption Method: Under this method, income is taxed in only one country and is exempt from tax in the other country, subject to the treaty provisions.
- Tax Credit Method: Under this method, the income may be taxed in both countries, but the taxpayer can claim credit for the tax paid in the foreign country against the tax payable in the country of residence, subject to applicable conditions.
Budget 2021 introduced Section 89A to address potential double taxation difficulties faced by specified persons concerning income from foreign retirement accounts.
This provision applies where income from certain foreign retirement accounts is not taxed on an accrual basis in India but is taxed in the notified foreign country when the funds are withdrawn or redeemed.
NRI Taxation – Income Tax Act 2025 Changes
The Income Tax Act, 2025 comes into effect from 1 April 2026. However, for AY 2026-27, the provisions of the Income Tax Act, 1961 continue to apply because the assessment relates to income earned up to 31 March 2026.
| Topic | Income Tax Act, 1961 | Income Tax Act, 2025 |
|---|---|---|
| Investments and principal deductions | Section 80C | Section 123 |
| Interest deduction on home loan | Section 24 | Section 22(1)(b) and 22(2) |
| Additional interest deduction – eligible 2016-17 loans | Section 80EE | Section 130 |
| Additional interest deduction – eligible 2019-22 loans | Section 80EEA | Section 313 |
| Health insurance premium | Section 80D | Section 126 |
| Education loan interest | Section 80E | Section 129 |
| Donations to charitable funds | Section 80G | Section 133 |
| Savings account interest | Section 80TTA | Section 153(2)(a) |
| Capital gains investment in specified assets | Section 54F | Section 86 |
Frequently Asked Questions (FAQs)
1. Who is considered an NRI for income tax purposes in India?
An individual is generally treated as a Non-Resident Indian (NRI) if they do not satisfy the prescribed conditions for being a resident of India under the applicable income tax rules.
2. Is an NRI required to pay income tax in India?
Yes. An NRI is generally taxable in India on income that is received, accrued, or deemed to accrue or arise in India, subject to applicable tax provisions and tax treaties.
3. Which income of an NRI is taxable in India?
Indian-source income such as rental income from property in India, capital gains from Indian assets, interest from taxable bank accounts, and other income taxable under Indian law may be subject to tax in India.
4. Which ITR form should an NRI use in India?
The appropriate ITR form depends on the NRI’s sources of income. For example, ITR-2 may apply to individuals without business or professional income, while ITR-3 may apply where there is income from business or profession.
5. Are NRI salary earnings from working abroad taxable in India?
Taxability depends on factors such as residential status, where the services are performed, where the income is received, and the applicable tax provisions. Salary for services performed outside India may not necessarily be taxable in India merely because the individual is an Indian citizen.
6. How are capital gains taxed for NRIs in India?
NRIs may be liable to pay tax on capital gains arising from the transfer of Indian assets. The applicable tax treatment depends on the type of asset, holding period, date of transfer, and other relevant provisions.
7. Can NRIs claim deductions under the Income-tax Act?
Yes, NRIs can claim certain deductions where they satisfy the applicable conditions. However, some deductions and benefits may not be available to NRIs.
8. Are NRE and NRO account interest earnings taxable in India?
Interest on NRE accounts is generally exempt in India subject to applicable conditions, while interest earned on NRO accounts is generally taxable in India.
9. Can an NRI claim DTAA benefits in India?
Yes, an eligible NRI may claim benefits under an applicable Double Taxation Avoidance Agreement (DTAA), subject to the treaty conditions and required documentation.
10. Is an NRI required to file an income tax return in India?
An NRI may need to file an ITR if their taxable income or other applicable conditions require filing under Indian tax law. Filing may also be necessary in certain cases to claim a refund or report specific income.
11. How is rental income from property in India taxed for an NRI?
Rental income from property situated in India is generally taxable in India. Eligible deductions, including the applicable standard deduction and interest deduction subject to conditions, may be available.
12. Are capital gains from the sale of property in India taxable for NRIs?
Yes, capital gains arising from the sale of property situated in India are generally taxable in India. The tax treatment depends on whether the gain is short-term or long-term and the applicable provisions for the relevant year.