NRI Taxation in India

How is the Residential Status Determined for Income Tax in India?

Taxation in India depends on your residential status and not citizenship. Status is checked every financial year, so the same person can be an NRI in one financial year and a resident in another.

Conditions for Determining Residence Status

You are an Indian resident if you meet at least one of the following criteria:

• You stay in India for at least 182 days in a financial year, or

• You stay 60 days or more in the financial year and 365 days or more in the last 4 years.

The 60 day limit is relaxed under 2 circumstances:

• Indian citizen leaving the country for employment abroad, or working as a crew on an Indian ship: 60 days limit becomes 182 days

• Indian citizen or person of Indian origin visiting India: 60 days limit becomes 182 days.

An Indian citizen whose income exceeds ₹15 lakh and who is not liable to tax in any other country is treated as a deemed resident, even if he does not stay in India.

Resident and Ordinary Resident (ROR), RNOR and NRI Explained

A resident can be further classified as ROR and RNOR.

Which Income is Taxable in India for NRIs?

Non Resident Indian income taxable in India is generally the income received, earned or deemed to arise in India. Income earned abroad is generally not taxed in India. Let’s understand in detail:

Salary Income

Salary is taxable in India if it is earned from services rendered in India, even if you get paid in abroad. Salary for work done outside India and paid outside are not taxed in India.

Rental Income From Property in India

Rent from a house in India is taxable under “Income from House Property”. Tenant must deduct TDS before paying you the rent. What you can claim is:

• 30% standard deduction on NAV (Net Annual Value)

• Municiple taxes, if paid any

• Home loan interest under Section 24(b)

Interest Income from NRE, NRO, and FCNR Accounts

Tax free interest on NRE and NRO account is the reason a lot NRI Investment in India is done.

Capital Gains from Indian Investments and Property

Gains made in India shares, mutual funds, property, and gold are fully taxable in India. Rates depend on the asset purchased and how much long you have held them.

Income Earned Outside India

Foreign salary, overseas interest, and foreign rent are not taxable here for NRIs. They are taxable once you become ROR (Resident and Ordinarily Resident).

What are the Income Tax Slabs in India for NRIs?

NRIs and individual residents are taxed in the same manner, but with no age-based relief. A 75-year NRI is taxed the same as a 30-year resident. NRIs cannot claim rebates under Section 87A, so the new tax regime that offers zero taxable income up to ₹12 lakhs does not apply to them. You can compare income tax slabs for a better understanding.

Income Tax Slabs Under the Old Tax Regime

Income Tax Slabs Under the New Tax Regime

New Tax Regime has become the default in India. The rates are lower, but so are the deductions.

Surcharge and Health and Education Cess

Income tax percentage grows when you add surcharge and cess

A 4% health and education cess is added on tax plus surcharge. Surcharge on dividend income and capital gains is capped at 15%.

What are the Special Tax Rates Applicable to NRIs?

Some NRI income is taxed at flat rates and not slab rates. This applies to taxation rate in India for investment income.

Tax on Capital Gains

When an NRI is selling their property, the buyer must deduct TDS under Section 195. The TDS is deducted on the whole value and not just the gains. It is 12.5% plus surcharge and cess for long term capital gains.

Tax on Dividend and Interest Income

• Dividends from Indian companies are taxed at 20% plus surcharge and cess, with TDS at the same rate.

• NRO interest is taxed at 30% plus cess, deducted as TDS.

• If your country has DTAA with India, you can claim lower treaty rates.

What Tax Deductions and Exemptions are Available to NRIs?

Eligible Deductions Under Section 80C and Section 80D

It is important to note that these deductions are available only under the old tax regime, except for NPS contributions by the employer and standard salary deductions.

NRIs cannot claim a rebate under Section 87A or any deductions under Section 80TTB.

Tax Exemptions on Eligible Investments and Income

• Maturity proceeds from a ULIP are exempt under Section 10(10D), provided the annual premium does not exceed ₹2.5 lakh and the other conditions are met.

• Interest on NRE and FCNR(B) deposits is exempt under Section 10(4)(ii)

• Long term capital gains on property can get exempted if reinvested under Section 54

• Agricultural income is exempt

• If an NRIs only income from India is investment income or long term gains from foreign exchange assets, with TDS deducted, they need not file income tax return

How can NRIs Avoid Double Taxation in India?

Double Taxation Avoidance Agreement (DTAA)

India has signed DTAAs with more than 85 countries. A DTAA lets you pay tax on the same income either at a lower rate or in only one country. Documents required to claim DTAA are:

• A Tax Residency Certificate (TRC) from your country of residence

• Form 10F

• A self-declaration, if the payer asks for it

Claiming Foreign Tax Credit

If you have paid tax abroad on income that is also taxable in India, you can claim a foreign tax credit (FTC) against your Indian tax through Form 67 before filing your return. The credit is limited to the Indian tax payable on that income.

How to File an Income Tax Return in India as an NRI?

NRI tax filing in India is done online on the Income Tax e-filing portal.

When is an NRI Required to File an ITR?

You must file an NRI tax return in India if:

• Your Indian income exceeds the basic exemption limit (₹2.5 lakh old regime, ₹4 lakh new regime)

• You want to claim a refund of excess TDS

• You want to carry forward a capital loss

• You have capital gains, even if exempt under Section 54 or 54EC

The usual due date is 31 July after the financial year ends, unless extended. A belated return can be filed up to 31 December.

Documents Required for NRI Tax Filing

• PAN card and passport

• NRE/NRO bank statements and Form 16A

• Form 26AS and AIS

• Rent agreement and property tax receipts

• Sale deed and purchase deed for property sales

• Capital gains statements from your broker or mutual fund

• TRC, Form 10F and Form 67, if claiming treaty or foreign tax credit

Steps to File an ITR Online

• Log in to the e-filing portal using your PAN.

• Select the assessment year and choose the status as Non-Resident.

• Choose ITR-2 (no business income) or ITR-3 (business or professional income). ITR-1 is not available to NRIs.

• Fill in income, deductions and tax paid details, and check them against AIS and Form 26AS.

• Pay any balance tax, then submit.

• e-Verify within 30 days using Aadhaar OTP, net banking or EVC, and track your refund.

How to Calculate Income Tax for NRIs in India?

Here is a sample calculation under the new regime. An NRI earns ₹6 lakh in rent from a flat in India and ₹2 lakh as NRO interest.