Introduction
Many Indians live outside India for employment, business, study, or family reasons. However, they may still earn income from India through rent, interest, property sale, dividends, shares, mutual funds, or business activities.
From 1 April 2026, the Income-tax Act, 2025 has come into force and replaced the old Income-tax Act, 1961 for tax years starting on or after 1 April 2026. However, returns for earlier years will still follow the old Act where applicable. The new Act mainly simplifies the structure and reorganizes provisions, while many core tax rules remain familiar. The Income Tax Department has also clarified that the old and new laws will run side by side for transition matters.
Therefore, NRIs should understand how residential status, Indian income, TDS, capital gains, DTAA, and return filing rules apply under the updated framework.
Who is an NRI for Income Tax Purposes?
Residential status decides how India will tax your income.
In simple words, a person is generally treated as a non-resident if they do not satisfy the required stay period in India during the tax year. For most practical cases, if an individual stays in India for less than 182 days during the relevant year, they may qualify as a non-resident.
However, special rules apply to Indian citizens and Persons of Indian Origin who visit India or leave India for employment. Therefore, you should check your number of stay days every year before filing your income tax return.
Why Residential Status Matters
Residential status decides whether India can tax only Indian income or global income.
If you are an NRI, India generally taxes only income that is earned, received, or deemed to be earned or received in India.
However, if you become resident and ordinarily resident, India may tax your global income. As a result, foreign salary, foreign bank interest, foreign property income, and overseas investments may also come under Indian tax reporting.
Main Residential Status Categories
Non-Resident Indian
An NRI pays tax in India mainly on Indian income. For example, rent from Indian property, interest from NRO accounts, capital gains from Indian assets, dividend from Indian companies, and business income from India may become taxable in India.
Resident but Not Ordinarily Resident
RNOR is a middle category. A person may become RNOR in cases such as returning to India after staying abroad for many years or falling under special rules for Indian citizens and Persons of Indian Origin.
In many cases, an RNOR does not pay Indian tax on foreign income unless that income comes from a business controlled in India or a profession set up in India.
Deemed Resident
The deemed resident rule may apply to an Indian citizen whose Indian income exceeds ₹15 lakh and who is not liable to tax in any other country due to domicile, residence, or similar criteria.
Such a person is treated as RNOR, not as an ordinary resident. Therefore, foreign income generally remains outside Indian tax unless it is connected with a business controlled from India or a profession set up in India.
Which Income of NRI is Taxable in India?
India taxes an NRI mainly on Indian income. Therefore, the source and place of receipt of income become very important.
Salary Income
If an NRI earns salary for services performed in India, India taxes that salary. Also, if salary is received directly in India, it may become taxable in India even if the employment is outside India.
Therefore, NRIs should carefully check both the place of work and the place of salary receipt.
Rental Income from Property in India
If an NRI owns a house, shop, office, or land in India and receives rent, India taxes that rental income.
The tenant may also need to deduct TDS before paying rent to the NRI. As a result, the NRI should collect TDS certificates and match them with AIS and Form 26AS.
Interest Income
Interest from an NRO savings account, NRO fixed deposit, and other Indian deposits is taxable in India.
However, interest from NRE and FCNR accounts generally remains exempt in India if the person qualifies under the relevant conditions.
Capital Gains
If an NRI sells property, shares, mutual funds, or other Indian assets, India taxes the capital gain.
The tax rate depends on the type of asset, holding period, and nature of gain. Therefore, NRIs should calculate capital gains before selling the asset and should also check TDS requirements.
Dividend Income
Dividend from Indian companies is taxable in India. Usually, the company or payer deducts TDS before payment.
However, the NRI may claim DTAA benefit if the treaty allows a lower rate and the required documents are available.
Business or Professional Income
If an NRI runs a business in India or earns professional income from India, India taxes such income.
In such cases, the NRI may need to maintain books, deduct expenses, pay advance tax, and file the correct income tax return.
New Tax Regime for NRIs
For tax year 2026-27, the new tax regime continues as the default regime. NRIs can choose the old regime if it benefits them.
The Income Tax Department’s slab guidance for AY 2026-27 shows that the new regime applies to both resident and non-resident individuals.
New Tax Regime Slabs
| Taxable Income | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 to ₹8,00,000 | 5% |
| ₹8,00,001 to ₹12,00,000 | 10% |
| ₹12,00,001 to ₹16,00,000 | 15% |
| ₹16,00,001 to ₹20,00,000 | 20% |
| ₹20,00,001 to ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Health and education cess applies separately. Surcharge may also apply if income crosses the applicable threshold.
Old Tax Regime for NRIs
NRIs can still choose the old regime if it gives a better result. However, the old regime usually helps only when the taxpayer has eligible deductions or exemptions.
For example, an NRI with housing loan interest on let-out property, eligible 80C investments, health insurance premium, or other deductions may compare both regimes before filing the return.
Important Point About Section 87A Rebate
Section 87A rebate is not available to NRIs. This is very important.
Resident individuals may get rebate benefits in certain cases, but NRIs cannot claim this rebate. Therefore, an NRI may have tax payable even when a resident person with similar income gets rebate relief.
TDS Rules Under the Income-tax Act, 2025
The new law has reorganized TDS provisions. The Income Tax Department has stated that TDS sections from the 1961 Act have broadly been consolidated under sections 392 and 393 of the Income-tax Act, 2025. The Department has also clarified that the change is mainly structural and that the policy is broadly not changed.
Section 393 deals with tax deducted at source for various payments. The official Income Tax Department page also shows section 393 as the provision for tax to be deducted at source.
Common TDS Cases for NRIs
| Income Type | TDS Treatment |
|---|---|
| NRO fixed deposit interest | TDS generally applies |
| Rent from Indian property | TDS generally applies |
| Sale of Indian property | Buyer must deduct TDS |
| Dividend from Indian company | TDS generally applies |
| Capital gains from shares or mutual funds | TDS may apply |
| Professional or business payment from India | TDS may apply |
Because NRI TDS rates can be high, many NRIs receive less money upfront. However, they can claim a refund by filing an income tax return if the final tax liability is lower than the TDS deducted.
Capital Gains Rules for NRIs
Capital gains rules are very important for NRIs because many NRIs sell Indian property, shares, or mutual funds after moving abroad.
Listed Shares and Equity Mutual Funds
If an NRI sells listed equity shares or equity-oriented mutual funds after holding them for more than 12 months, the gain is generally treated as long-term capital gain.
Long-term capital gains on listed equity shares and equity mutual funds are taxed at 12.5% above the applicable exemption limit of ₹1.25 lakh, subject to conditions.
Real Estate and Unlisted Assets
For real estate and many unlisted assets, long-term holding usually requires more than 24 months.
Long-term capital gain may attract 12.5% tax without indexation under the updated capital gains framework. However, property transactions need careful calculation because TDS may apply on the sale value.
TDS on Property Sale by NRI
When an NRI sells property in India, the buyer must deduct TDS. In practice, TDS can apply on the total sale consideration and not merely on the capital gain.
Therefore, an NRI seller should apply for a lower deduction certificate before completing the sale if the actual capital gain is lower. This helps reduce excess TDS blockage.
NRE, NRO, and FCNR Accounts
NRIs should use the correct bank account because tax treatment differs.
NRE Account
An NRE account holds foreign income remitted to India. Interest on an NRE account generally remains tax-free in India for eligible NRIs.
NRO Account
An NRO account holds Indian income such as rent, dividend, pension, or interest. Interest from an NRO account is taxable in India, and banks usually deduct TDS.
FCNR Account
An FCNR account holds foreign currency deposits. Interest from FCNR deposits generally remains exempt in India for eligible NRIs.
DTAA Relief for NRIs
Sometimes, the same income may be taxed in India and in the country where the NRI lives. To reduce double taxation, India has Double Taxation Avoidance Agreements with many countries.
For example, DTAA may reduce TDS on interest, dividend, royalty, or fees for technical services, depending on the treaty.
Documents Required for DTAA Benefit
NRIs generally need the following documents:
| Document | Purpose |
|---|---|
| Tax Residency Certificate | Proves tax residency in foreign country |
| Form 10F | Provides additional treaty information |
| PAN | Helps in Indian tax compliance |
| Self-declaration | Confirms beneficial ownership and treaty eligibility |
Therefore, NRIs should keep these documents ready before claiming treaty benefit.
Income Tax Return Filing for NRIs
An NRI should file an income tax return in India if their taxable Indian income exceeds the basic exemption limit.
An NRI should also file ITR if TDS has been deducted and they want to claim refund. Filing also helps when the NRI has capital gains, wants to carry forward losses, or needs tax records for banking, loan, property, or visa purposes.
Due Date for Filing ITR
For most NRIs who do not require audit, the usual due date is 31 July of the assessment year.
However, if audit or transfer pricing provisions apply, the due date may differ.
Foreign Asset Reporting
Foreign asset reporting becomes important when a person becomes resident in India.
If an NRI becomes resident and ordinarily resident, they may need to disclose foreign bank accounts, foreign property, foreign shares, foreign retirement accounts, and other overseas assets in the income tax return.
Failure to report foreign assets may create serious consequences under Indian tax laws, including Black Money Act implications. Therefore, returning NRIs should take special care before filing ITR.
AIS and Form 26AS Check
NRIs should always check their Annual Information Statement before filing the return.
AIS shows Indian financial information such as interest, dividend, mutual fund transactions, securities transactions, property transactions, TDS, TCS, and other high-value data.
Therefore, the ITR should match AIS and Form 26AS as far as possible. If there is a mismatch, the taxpayer should check the reason and take corrective action before filing.
TCS on Remittances
TCS rules may apply when money is remitted outside India under the Liberalised Remittance Scheme.
For education and medical purposes, the rate and threshold depend on the nature of payment and the latest law. Therefore, NRIs and resident family members should check the applicable TCS rule before making high-value remittances.
Common Mistakes NRIs Should Avoid
| Mistake | Why It Creates Problem |
|---|---|
| Not checking residential status every year | Taxability can change every year |
| Keeping Indian income in the wrong account | TDS and reporting issues may arise |
| Ignoring AIS and Form 26AS | Notices may come due to mismatch |
| Not filing ITR despite TDS deduction | Refund may remain unclaimed |
| Selling property without planning TDS | Large amount may get blocked |
| Not applying for lower TDS certificate | Excess TDS may be deducted |
| Claiming 87A rebate wrongly | NRIs are not eligible |
| Not using DTAA benefit | Higher TDS may apply |
| Not reporting foreign assets after becoming resident | Serious penalties may arise |
Conclusion
NRI taxation in India mainly depends on residential status and the source of income. If you are an NRI, India generally taxes only your Indian income. However, rent, NRO interest, dividends, capital gains, business income, and property sale transactions can create tax liability in India.
From 1 April 2026, the Income-tax Act, 2025 has simplified and reorganized many provisions, especially TDS rules. However, NRIs still need proper tax planning, correct bank accounts, DTAA documents, AIS matching, and timely ITR filing.
Therefore, every NRI should review their Indian income, stay days, TDS, capital gains, and residential status before filing the return.
FAQs on NRI Income Tax Rules in India
1. Is foreign income of an NRI taxable in India?
No, foreign income is generally not taxable in India if the person qualifies as an NRI. However, Indian income remains taxable in India.
2. Is rental income from Indian property taxable for NRI?
Yes, rent from property located in India is taxable in India. The tenant may also need to deduct TDS before paying rent.
3. Is NRE account interest taxable in India?
No, NRE account interest is generally exempt in India for eligible NRIs.
4. Is NRO account interest taxable in India?
Yes, NRO account interest is taxable in India. Banks usually deduct TDS on such interest.
5. Can NRI claim Section 87A rebate?
No, NRIs cannot claim Section 87A rebate. This rebate applies only to resident individuals.
6. Which ITR form should an NRI file?
Generally, an NRI files ITR-2 if there is no business or professional income. If the NRI has business or professional income, ITR-3 may apply.
7. Is capital gain from sale of Indian property taxable for NRI?
Yes, capital gain from sale of property located in India is taxable in India.
8. Can NRI claim lower TDS on property sale?
Yes, an NRI can apply for a lower deduction certificate if the actual tax liability is lower than the TDS amount.
9. Can NRI choose the old tax regime?
Yes, NRIs can choose the old tax regime if it gives a better tax result.
10. Why should NRI check AIS before filing ITR?
AIS shows income, TDS, TCS, property transactions, securities transactions, and other financial data reported to the Income Tax Department. Therefore, checking AIS helps avoid mismatch notices.