Updated as per Income Tax Act 2025 (effective 1 Apr 2026). Residency rules, India-taxable income, new Sec 393(2) TDS codes for non-residents, DTAA benefits, Form 128 lower TDS, ITR filing, FEMA & repatriation — complete guide for NRIs and returning Indians.
Determining Your Residential Status
Your tax liability in India depends entirely on your residential status for the financial year (1 April – 31 March). Three statuses exist under the Income Tax Act 2025 — rules remain unchanged from ITA 1961.
| Status | Condition | India-sourced Income | Foreign Income |
|---|---|---|---|
| Resident & Ordinary Resident (ROR) | In India ≥182 days in FY, OR ≥60 days in FY + ≥365 days in last 4 FYs | Taxable | Taxable (worldwide) |
| Resident but Not Ordinarily Resident (RNOR) | NRI for 9 of last 10 FYs, OR in India <729 days in last 7 FYs | Taxable | Only if India-derived |
| Non-Resident Indian (NRI) | In India <182 days in FY (or <60 days for Indian citizen abroad) | Taxable | Not taxable in India |
💡 Special Rule for Indian Citizens Going Abroad for Employment
If you are an Indian citizen leaving India for employment (or as a crew member), you become NRI only if you are in India for less than 182 days (the 60-day rule does not apply to you). This is a common area of confusion that can lead to filing errors.
What Income is Taxable in India for NRIs?
As an NRI, only income that accrues or arises in India, or is received in India, is taxable here.
| Income Type | Taxable for NRI? | Notes |
|---|---|---|
| Rental income from Indian property | Yes | TDS @ 30% deducted by tenant; can claim deductions |
| Capital gains on Indian shares/MF/property | Yes | STCG 20%, LTCG 12.5% (equity, exemption up to ₹1.25L); LTCG 12.5% on property (no indexation); surcharge may apply. NRIs cannot set off LTCG against basic exemption limit. |
| Interest on NRE account | Exempt | Fully exempt for NRIs |
| Interest on NRO account | Yes | TDS @ 30% + applicable surcharge & cess |
| Interest on FCNR deposits | Exempt | Exempt during NRI status |
| Salary for work performed in India | Yes | Even if paid abroad — source is India |
| Salary paid by Indian company for work done abroad | Partially | Taxable if received in India; DTAA may reduce/eliminate |
| Dividends from Indian companies | Yes | Taxable at slab rates; TDS @ 20% deducted |
| Foreign salary / pension for work outside India | Exempt | Accrues outside India |
TDS Rates Applicable to NRIs
Under ITA 2025, NRI TDS provisions are governed by Section 393(2) (codes 1039–1057), replacing old Section 195. Rates are deducted at source — claim refund by filing ITR. Apply for lower TDS via Form 128 (replaced old Form 13) under Sec 395(1).
| Income Type | TDS Rate | ITA 2025 Sec | DTAA Reduce? |
|---|---|---|---|
| NRO account interest | 30% + surcharge + 4% cess | 393(2) | Yes |
| Rental income from Indian property | 30% + surcharge + 4% cess | 393(2) | Yes |
| LTCG on equity (listed) — above ₹1.25L exemption | 12.5% | 393(2) | Yes |
| STCG on equity (listed) | 20% | 393(2) | Yes |
| LTCG on property (held >24 months) | 12.5% (no indexation) | 393(2) | Yes |
| STCG on property (held ≤24 months) | 30% + surcharge + cess | 393(2) | Yes |
| Dividends from Indian companies | 20% | 393(2) | Yes |
| Professional fees / royalty / FTS | 10% – 40% | 393(2) | Yes |
✓ ITA 2025 Change: Old Section 195 (payments to non-residents) is now Section 393(2) under ITA 2025. TDS certificate issued to NRI sellers/deductees is now Form 131 (was Form 16A), per Sec 395(4). Lower/Nil TDS applications now use Form 128 (was Form 13), under Sec 395(1).
How NRIs File Income Tax Returns in India
NRIs who have taxable income in India must file ITR-2. The due date is 31 July (or 31 October if audit required).
Determine if filing is mandatory
Filing is mandatory if gross India income exceeds ₹2.5 lakh (before claiming exemptions or DTAA benefits). Even if no tax is payable after DTAA, file to claim TDS refund.
Collect all income documents
Gather: Form 130 (was Form 16 — for salary TDS; use Form 16 for pre-Apr 2026 periods), AIS/26AS from income tax portal, Form 131 (was Form 16A) for non-salary TDS, bank statements for NRO/NRE accounts, capital gains statements from broker/mutual funds, rent receipts, DTAA Tax Residency Certificate (TRC) from your country of residence.
Claim DTAA benefits (if applicable)
India has DTAA with 90+ countries. To claim DTAA benefit, submit TRC from your resident country and Form 10F declaration (now governed by Sec 159(8) under ITA 2025) to the TDS deductor or while filing ITR. From 1 Apr 2026, CBDT DTAA circulars are mandatorily binding on tax authorities. DTAA can reduce or eliminate withholding tax.
Choose ITR-2 and file online
NRIs use ITR-2 (or ITR-3 if business income) for AY 2026-27 (FY 2025-26). For Tax Year 2026-27 (AY 2027-28) onwards, ITR form names may change under ITA 2025 — check the IT portal at filing time. File on incometax.gov.in. Use Aadhaar OTP or net banking-based e-verification. Ensure PAN is linked with Aadhaar or mark NRI exemption in PAN records to avoid 20% higher TDS (Sec 206AA).
Repatriation of funds
NRIs can repatriate up to USD 1 million per FY from NRO account (after paying applicable taxes) using Form 15CA/15CB. CA certification on Form 15CB is mandatory for remittances above ₹5 lakh per transaction. NRE and FCNR accounts are freely repatriable.
✓ ITA 2025 Key Changes for NRIs (from 1 Apr 2026):
• Old Sec 195 (NRI TDS) → Sec 393(2) with codes 1039–1057 • Lower TDS application: Form 128 (was Form 13, Sec 395(1)) • TDS certificate to NRI: Form 131 (was Form 16A) • DTAA governed by Sec 159(8) • LTCG equity exemption ₹1.25 lakh • Property LTCG holding period now 24 months (was 2 years — same)
💡 TaxClue Tip: Many NRIs over-pay TDS on NRO interest (30%+) but never file an ITR to claim the refund. If your income slab rate is lower than 30%, you are entitled to a refund. Under ITA 2025, apply for a lower TDS certificate (Form 128) proactively before the deduction to avoid the over-deduction entirely. Our CA team has helped hundreds of NRIs recover ₹50,000–₹3 lakh in TDS refunds.