1. Who is an NRI for Income Tax?
Non-Resident Indian (NRI) for income tax purposes is any individual who is NOT a resident under Section 6 of ITA 2025. An individual is a resident if present in India for 182 days or more in the Tax Year, OR for 60 days or more in the Tax Year and 365 days or more in the preceding 4 years. If neither condition is met, the person is a Non-Resident. For income tax, an NRI is taxed only on income sourced in India -- not on their global income.
2. NRI India-Source Income: What Is Taxable
NRIs are taxed in India only on income that accrues or arises in India, or is received in India:
- Salary for services rendered in India
- Business income from a PE in India
- Dividends from Indian companies
- Interest from Indian banks (NRO accounts, FDs)
- Rental income from Indian property
- Capital gains on transfer of Indian assets (property, shares, mutual funds)
- Royalty/FTS from Indian entities
Income from foreign sources (foreign employer salary, foreign bank interest, foreign property rent) is NOT taxable in India during NRI status.
3. NRI Special Tax Rates: Chapter XII-A Benefits
NRIs have access to concessional tax rates on certain types of India-source income under Chapter XII-A (Sections 115C-115I equivalent in ITA 2025):
- Investment income (interest on NRO accounts, specified bonds, dividends): 20% flat rate -- without applying slab rates
- LTCG on specified assets acquired in foreign exchange: 10% (without indexation)
- These rates apply automatically -- NRIs do not need to separately claim them
4. TDS Rates for NRI Income
When Indian entities pay income to NRIs, TDS is deducted at higher rates than for residents:
| Income Type | TDS Rate (Domestic) | DTAA May Reduce |
|---|---|---|
| NRO bank interest | 30% | To 10-15% |
| Dividend | 20% | To 15% |
| Capital gains (property LTCG) | 20% of consideration | Varies |
| Royalty / FTS | 20% | To 10-15% |
| Other income | 30% | Varies |
5. NRE vs NRO vs FCNR Accounts
| Account | Currency | Deposits | Interest Tax Treatment |
|---|---|---|---|
| NRE (Non-Resident External) | INR | Foreign income repatriated to India | Fully EXEMPT as long as NRI/RNOR |
| NRO (Non-Resident Ordinary) | INR | India-source income (rent, dividends) | Taxable at 30% + DTAA benefit possible |
| FCNR(B) (Foreign Currency Non-Resident) | Foreign currency | Foreign income | Fully EXEMPT as long as NRI/RNOR |
6. ITR Filing for NRIs: When Required
NRIs must file an ITR in India if:
- Total India-source income exceeds the basic exemption limit (Rs 2.5L old regime or Rs 4L new regime for NRIs under 60)
- India-source income from which TDS was deducted at rates higher than due tax (to claim refund)
- Capital gains from India assets (even if fully covered by TDS, filing is advisable)
- Section 115G exemption: NRIs can avoid filing ITR if their only India income is "investment income" and all TDS on it has been deducted correctly -- but this exemption has narrow applicability
7. ITR Form for NRIs
NRIs cannot use ITR-1 (Sahaj) -- they must use ITR-2 at minimum:
- ITR-2: for NRIs with capital gains, multiple properties, or significant India-source income
- ITR-3: for NRIs with business income from India
- ITR-1 is specifically excluded for NRIs
8. DTAA Benefits for NRIs
India has DTAAs with 96+ countries. NRIs from treaty countries can claim lower TDS rates. To get DTAA benefits:
- Obtain Tax Residency Certificate (TRC) from the country of residence
- File Form 10F on the Indian IT Portal
- Indian PAN mandatory (without PAN, maximum TDS rate applies regardless of DTAA)
- Example: US NRI receiving NRO bank interest -- domestic TDS is 30%; under India-US DTAA, interest is taxable in India at capped rate -- but DTAA rate must be specifically applied
9. NRI Property Sale: Lower TDS Certificate
When an NRI sells Indian property, buyer deducts TDS at 20% (LTCG) or 30% (STCG) on the full consideration -- not just the gain. To avoid cash flow issues:
- Apply for lower TDS certificate from AO under Section 398 before the sale
- The AO issues a certificate for TDS on actual gains (not full consideration)
- File ITR to claim refund of excess TDS and apply capital gains exemptions (Section 54, 54EC)
10. Why TaxClue
NRI taxation -- India-source income, DTAA benefits, NRE/NRO account management, property transactions, and RNOR planning -- requires expert guidance. TaxClue specialises in NRI income tax advisory and ITR filing. Contact us under ITA 2025.