Key Takeaways
- NRI status turns on days of physical presence in India, not citizenship, an OCI card or the passport held — the core test is 182 days, or 60 days plus 365 days across the preceding four years.
- The Income Tax Act, 2025 governs income from Tax Year 2026-27 onward, but residential status tests, source-based taxation, DTAA relief and NRE/FCNR exemptions continue without disturbance.
- TDS on an NRI's property sale applies from the first rupee — 12.5% plus surcharge and cess on holdings beyond 24 months, with no Rs 50 lakh threshold relief available to resident sellers.
- A lower or nil deduction certificate under Form 13, applied for before the sale agreement is signed, restricts TDS to the actual capital gains tax payable rather than the full sale value.
- DTAA benefits require paperwork completed before income is paid — a Tax Residency Certificate and Form 10F, or the payer withholds at full domestic rates.
- NRIs must use ITR-2 or ITR-3 — ITR-1 and ITR-4 are never available — and refunds are credited only to a pre-validated Indian bank account.
For NRIs with rental income, capital gains, NRO deposits or property transactions in India, these rules decide how much tax is deducted at source and what refund can be claimed. Whether you are a software professional in the US, a Gulf-based employee, a seafarer or a business owner managing Indian assets from abroad, NRI taxation determines your compliance calendar every single year.
The FundamentalsWhat Is NRI Taxation and Who Is Considered an NRI Under Indian Tax Law?
NRI taxation refers to the income tax rules that apply to individuals classified as non-residents under Indian law, and it taxes only income arising from Indian sources. A person's status as an NRI depends entirely on days of physical presence in India during the financial year, not on citizenship, an OCI card, or the passport the person holds.
Two different laws use the term NRI. The Foreign Exchange Management Act, 1999 decides which bank accounts and investments a person may hold, while the income tax rules for NRIs decide how income is taxed. A person can be a non-resident under one law and a resident under the other in the same year, which is why professional NRI tax filing support always begins with a residential status assessment. The people most affected include software professionals in the US, Gulf-based employees, seafarers, and business owners managing Indian assets from abroad. Anyone asking what is NRI taxation is really asking one question first: am I a non-resident this year?
Residential StatusHow Is Residential Status Determined for NRI Taxation in India?
Residential status is determined by counting the days an individual is physically present in India during the financial year running from 1 April to 31 March. A person becomes a resident by staying 182 days or more, or by staying 60 days or more in the year together with 365 days or more across the four preceding years; anyone who fails both tests is a non-resident for that year.
| Test | Threshold | Resulting Status |
|---|---|---|
| Standard stay test | 182 days or more in the financial year | Resident |
| Alternative stay test | 60 days in the year + 365 days across preceding 4 years | Resident |
| Relaxed limb (employment abroad, ship's crew, PIO/citizen visitors) | 60-day test relaxed to 182 days | Non-Resident, unless 182-day test met |
| High-income visitor rule (income from Indian sources > Rs 15 lakh) | 60-day limb tightens to 120 days | RNOR on crossing the threshold |
| Deemed residency | Indian citizen, Indian-source income > Rs 15 lakh, not taxed elsewhere | RNOR, regardless of day count |
The Finance Act, 2020 introduced the 120-day and deemed-residency rules. Anyone who fails every test above is a non-resident for that financial year.
RNOR status is a valuable transition category. An RNOR pays Indian tax on Indian income exactly like an NRI, and foreign income stays exempt unless it comes from a business controlled from India. Returning NRIs typically hold RNOR protection for two to three years, the right window to reorganise overseas assets.
Law ChangeWhat Has Changed in NRI Taxation Under the New Income Tax Act, 2025?
The Income Tax Act, 2025 came into force on 1 April 2026 and governs income earned from Tax Year 2026-27 onwards, while keeping the substance of the income tax rules for NRIs intact. The new law replaces the Income-tax Act, 1961, trims the statute from 819 sections to 536, and merges the confusing pair of Previous Year and Assessment Year into a single Tax Year.
| Subject | 1961 Act (up to 31 March 2026) | 2025 Act (from 1 April 2026) |
|---|---|---|
| TDS on payments to non-residents | Section 195 | Section 393 |
| Year structure | Previous Year + Assessment Year | Single Tax Year |
| Total sections | 819 | 536 |
Income earned up to 31 March 2026 remains governed by the 1961 Act in full, so the return filed in 2026 for FY 2025-26 (AY 2026-27) follows the old law.
Budget 2026 layered practical changes on top of the new Act. Individual and HUF buyers purchasing property from an NRI can deposit TDS through a PAN-based challan for payments made on or after 1 October 2026, removing the earlier compulsion to obtain a TAN for a single transaction. The window to file a revised return now runs until 31 March of the following year. TCS on foreign remittances has been simplified to a uniform 2 percent above the Rs 10 lakh annual threshold, and this levy does not touch NRIs because the Liberalised Remittance Scheme covers resident individuals only. The Budget 2025 slabs continue unchanged as the default new tax regime for NRI and resident taxpayers alike, though the Section 87A rebate that makes resident income up to Rs 12 lakh tax-free is not available to non-residents.
Taxable IncomeWhich Incomes Are Taxable in India for NRIs in 2026?
The income tax rules for NRIs make every income taxable in India when it is received in India, accrues in India, or arises from an Indian asset or activity. The main heads are salary for services rendered in India, rent from Indian property, capital gains on Indian assets, interest on NRO accounts, and dividends from Indian companies.
Rental income is computed after municipal taxes and the standard 30 percent deduction, and the tenant of an NRI landlord must deduct TDS before paying rent. NRO account taxation is straightforward but harsh at source: interest is fully taxable and banks deduct TDS at 30 percent plus surcharge and cess, subject to lower treaty rates. By contrast, interest on NRE and FCNR deposits remains exempt for as long as the account holder is a person resident outside India under FEMA.
| Asset Class | Holding Period for LTCG | LTCG Rate | STCG Rate |
|---|---|---|---|
| Listed equity | Beyond 12 months | 12.5% above Rs 1.25 lakh/year | 20% |
| Immovable property | Beyond 24 months | 12.5% (no indexation) | Slab rates |
Structure effective from 23 July 2024. NRIs do not get the indexation option available to resident sellers of older property.
The new tax regime for NRI taxpayers is the default, with a basic exemption of Rs 4 lakh from FY 2025-26. An NRI can opt for the old regime and claim deductions such as Section 80C investments and Section 80D health insurance, although fresh PPF accounts and certain small savings schemes stay closed to non-residents.
Property SaleHow Does TDS Work When an NRI Sells Property in India?
When an NRI sells property in India, the buyer must deduct tax at source on the entire sale consideration before making any payment. TDS on sale of property by NRI is 12.5 percent plus surcharge and 4 percent cess where the property was held for more than 24 months, and slab rates apply for shorter holdings.
This deduction operates under Section 195 of the 1961 Act for transactions up to 31 March 2026 and under Section 393(2) of the Income Tax Act, 2025 thereafter. The buyer deposits the tax and reports it in Form 27Q; until 30 September 2026 the buyer needs a TAN, after which individual and HUF buyers switch to the simpler PAN-based challan announced in Budget 2026.
Important. TDS on sale of property by NRI applies to the full sale value from the very first rupee — the Rs 50 lakh threshold available to resident sellers does not exist here. A buyer who deducts short, or fails to complete Form 27Q through proper TDS return filing, faces interest and penalty exposure, while the seller's excess deduction stays locked until the refund is processed. Apply for the lower deduction certificate well before the sale agreement is signed.
Because tax is withheld on gross sale value, the deduction routinely exceeds the actual capital gains tax for NRI sellers. The remedy is a lower or nil deduction certificate: the NRI applies online in Form 13, the assessing officer computes the true gains, and the certificate directs the buyer to deduct only that amount. Exemptions under Sections 54, 54EC, and 54F, covering reinvestment in a residential house or specified bonds, remain fully available to NRIs and can bring the tax down to zero when planned before the sale.
Sale proceeds land in the NRO account, and repatriation abroad is permitted up to USD 1 million per financial year, supported by Form 15CA and 15CB. Form 15CB is a certificate issued by a practising Chartered Accountant confirming that applicable taxes on the remittance have been paid, and it forms part of the CA certification services NRIs rely on for every large transfer out of India.
Treaty ReliefHow Can NRIs Claim DTAA Benefits and Avoid Double Taxation?
India has Double Taxation Avoidance Agreements with more than 90 countries, and DTAA benefits for NRI taxpayers work in two ways: lower withholding rates in India on income such as interest, royalties, and fees for technical services, and a credit in the country of residence for taxes already paid in India. Many treaties cap Indian tax on interest between 10 and 15 percent, which is well below the 30 percent domestic TDS on NRO deposits.
Claiming treaty relief requires documentation completed before the income is paid. The NRI obtains a Tax Residency Certificate from the country of residence, files Form 10F electronically on the Indian e-filing portal, and gives the payer a declaration of beneficial ownership and, where relevant, of having no permanent establishment in India. Without these papers the payer deducts at full domestic rates, and the excess is recovered only by filing an NRI income tax return and waiting for the refund.
Filing ProcessHow Should NRIs File Their Income Tax Return in India? Step-by-Step Process
Filing an NRI income tax return follows a defined sequence, and completing it in order prevents the mismatches that trigger notices. The seven steps below cover the full NRI tax filing in India process for AY 2026-27.
Determine residential status
Count the days of stay in India using passport immigration stamps for the financial year and the four preceding years. The outcome, whether non-resident, RNOR, or resident, controls which incomes enter the return and whether Schedule FA foreign asset disclosure applies, since that schedule binds only ordinary residents.
Reconcile AIS, TIS and Form 26AS
Download the Annual Information Statement and Form 26AS from the e-filing portal and match every TDS entry, covering NRO interest, rent, property sale, and dividends, against bank and broker records. Unexplained mismatches are the biggest cause of processing delays for NRIs.
Select the correct ITR form
Use ITR-2 when there is no business income and ITR-3 when business or professional income exists in India. ITR-1 and ITR-4 are not available to non-residents, whatever the income level.
Compute income and apply reliefs
Aggregate each head of income, choose between the new and old regimes, claim eligible deductions, and apply DTAA relief with the Tax Residency Certificate and Form 10F on record.
Pay balance tax after TDS credits
Set off TDS and TCS credits, pay any balance as advance or self-assessment tax, and preserve the challans. Interest under Sections 234A, 234B, and 234C applies to shortfalls.
File and e-verify within 30 days
For AY 2026-27 the due date was 31 July 2026 for ITR-2 filers and stands at 31 August 2026 for non-audit ITR-3 filers; belated returns are accepted until 31 December 2026 with late fees. NRIs generally e-verify through net banking or a digital signature, because Aadhaar OTP fails on foreign mobile numbers.
Track the refund and plan repatriation
Refunds are credited only to a pre-validated Indian bank account. Funds then move abroad through the NRO route with Form 15CA and 15CB certification, completing the cycle.
Note. NRIs cannot use ITR-1 (Sahaj) or ITR-4 (Sugam) under any circumstances; the NRI income tax return must go in ITR-2, or ITR-3 where business income exists. Filing on time also keeps official income proof ready, because banks and embassies routinely ask for certified ITR true copies and a net worth certificate during loan and visa processing.
How Has NRI Taxation Evolved in India Since 1991?
Before 1991 — Suspicion of Foreign Exchange
The Foreign Exchange Regulation Act, 1973 treated every cross-border rupee as a controlled commodity: NRI investment routes were narrow, repatriation approvals were discretionary, and marginal tax rates that had crossed 90 percent in the 1970s left little incentive to declare Indian income.
Post-1991 — Liberalisation and Facilitation
The Foreign Exchange Management Act, 1999 replaced FERA with a management-based framework from June 2000, NRE and FCNR deposit schemes were liberalised to attract inflows, and India steadily built its present treaty network. Compliance moved online as well; returns, TDS statements, refunds, and Form 10F now run through the Income Tax Department portal at incometax.gov.in.
2020 Onwards — Tighter Residency Tests, Cleaner Statute
The Finance Act, 2020 introduced the 120-day rule and deemed residency for high-income citizens untaxed elsewhere; the Finance (No. 2) Act, 2024 rewrote capital gains around the 12.5 percent structure; and the Income Tax Act, 2025 consolidated six decades of amendments into a single code from 1 April 2026. Each change has raised the value of disciplined, year-round accounting and tax compliance for NRIs over a once-a-year scramble at the deadline.
NRI Taxation in India — Common Questions
What is NRI taxation in India?
NRI taxation in India is the set of income tax rules that apply to Non-Resident Indians, and its central principle is that an NRI pays Indian tax only on income that is received, accrues, or arises in India. Foreign salary, business profits, and investment income earned abroad remain outside the Indian tax net. From 1 April 2026 these rules operate under the Income Tax Act, 2025, which keeps the same source-based approach for non-residents. Typical taxable items include rent from Indian property, capital gains on Indian assets, interest on NRO accounts, and dividends from Indian companies.
Who qualifies as an NRI for income tax purposes in India?
An individual qualifies as an NRI for a financial year by staying in India for less than 182 days and also failing the alternative test of 60 days in that year combined with 365 days across the preceding four years. Indian citizens leaving for employment abroad, crew members of Indian ships, and citizens or Persons of Indian Origin visiting India get the relaxed 182-day threshold. For visitors whose India-sourced income exceeds Rs 15 lakh, the limit tightens to 120 days, and crossing it makes them Resident but Not Ordinarily Resident rather than a full resident.
Is foreign income of an NRI taxable in India?
No, income earned and received outside India by an NRI is not taxable in India. Indian tax applies only to income received in India, accruing in India, or arising from an Indian source, such as rent, capital gains on Indian assets, NRO interest, or salary for services rendered in India. One caution: if foreign earnings are credited directly to an Indian account as the first point of receipt, the tax department treats them as received in India. RNOR individuals enjoy similar protection, while Ordinarily Residents are taxed on global income.
How much TDS is deducted when an NRI sells property in India?
TDS on sale of property by NRI is 12.5 percent plus applicable surcharge and 4 percent cess on the entire sale consideration where the property was held for more than 24 months, and slab rates apply for shorter holdings. There is no Rs 50 lakh exemption threshold for NRI sellers, so the deduction starts from the first rupee. The practical remedy is a lower or nil deduction certificate obtained through Form 13 before the sale, which restricts the deduction to the actual capital gains tax payable.
Can NRIs claim the Section 87A rebate that makes income up to Rs 12 lakh tax-free?
No, the Section 87A rebate is available only to resident individuals, so NRIs cannot claim it under either regime. An NRI with taxable Indian income of Rs 12 lakh pays tax at slab rates, even though a resident with identical income under the new regime pays nothing from FY 2025-26 onwards. NRIs still benefit from the same slab structure and can choose between the new tax regime and the old regime with deductions such as Section 80C and Section 80D, subject to eligibility.
Do NRIs need to file an income tax return in India every year?
An NRI must file an NRI income tax return when gross taxable Indian income exceeds the basic exemption limit of Rs 4 lakh under the new regime for FY 2025-26, or Rs 2.5 lakh under the old regime. Filing is also compulsory in specified cases, such as TDS and TCS credits of Rs 25,000 or more. Even below these limits, filing is the only way to recover excess TDS as a refund, carry forward capital losses, and maintain the income records that banks and visa authorities demand.
NRI taxation rewards NRIs who get residential status, TDS planning, DTAA documentation and filing right — and leaves excess tax locked up for those who don't. Confirm your residential status every year, apply for a lower deduction certificate before signing a property sale, keep Tax Residency Certificate and Form 10F on record, and file within ITR-2 or ITR-3 on time.
Reach N D Savla & Associates at +91 9821 83 26 83 or nainitsavla@savlagroup.in for NRI tax filing in India, lower TDS certificates, DTAA advisory and repatriation compliance — or reach the team through ndsavlaa.com/contact-us to get started.
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