Contact now
Call For Business Enquiries :
+91 9819 000 511
+91 916 7058 000
+91 9819 000 445
Contact now
Exempt Income for NRIs – N D Savla & Associates
NRI Tax Filing

Exempt Income for NRIs
Section 10, NRE & FCNR Interest, Schedule EI

Section 10 tax-free heads, NRE and FCNR interest exemptions, agricultural income, gift exemption, and the RNOR carve-out — structured so the right exemption is claimed and Schedule EI disclosure stays clean.

Part of our NRI Tax Filing practice: NRI Tax Filing Residential Status DTAA Benefits Returning Indian Transition

Overview

What Is Exempt Income for NRIs and Why Does It Matter?

Exempt income for NRIs refers to income heads that the Income Tax Act 1961 specifically keeps outside the Indian tax base for Non-Resident Indians, OCI card holders, and PIOs. The exempt income concept sits primarily in Section 10 of the Income Tax Act, which carves out specific income categories from the charging provisions. Therefore, exempt income for NRIs is not a discretionary concession — it is a statutory exclusion.

Understanding exempt income for NRIs is essential before filing the Indian income tax return — claiming the wrong exemption invites scrutiny, missing the right exemption pays unnecessary tax. Even tax-free income such as NRE interest, FCNR interest, agricultural income, gifts from relatives, and Section 112A LTCG must be disclosed in Schedule EI of the return. The disclosure is mandatory regardless of whether tax becomes payable on these heads.

N D Savla & Associates provides structured exempt income advisory for NRIs across every realistic profile — NRE interest exemption under Section 10(4)(ii), FCNR interest exemption under Section 10(15)(iv)(fa), agricultural income under Section 10(1), gifts from relatives under Section 56(2), Section 112A LTCG carve-out, and the RNOR window where FCNR exemption continues even after the residential status shift. This service is part of our broader NRI Tax Filing practice, which also covers residential status determination, filing return of income in India, DTAA benefits, and returning Indian transition planning.

Section 10 is the primary statutory anchor, supplemented by Section 56(2) for gift exemption, Section 112A for the long-term capital gains carve-out on listed equity, and Section 6(6) for the RNOR window. Hence, exempt income for NRIs is a multi-section framework — not a single rule — and the right combination depends entirely on the NRI's profile, banking setup, and stage of the residency journey.

Common NRI Profiles

When Should an NRI Prioritise Exempt Income Review?

Exempt income review is relevant for every NRI filing an Indian return, but there are specific profiles where getting it right changes the tax outcome materially:

UAE/Gulf NRI with NRE Fixed Deposits

NRE interest exemption under Section 10(4)(ii), full repatriability, and Schedule EI disclosure across multiple NRE accounts — the operational backbone of Gulf-region NRI banking in India.

US-Resident NRI with FCNR USD Deposits

Section 10(15)(iv)(fa) exemption, currency-stable yield in USD/GBP/EUR, and FCNR maturity laddering aligned to expected return date — survives the RNOR window unlike NRE.

OCI Receiving Family Gifts & Inheritance

Section 56(2) gift exemption from relatives without monetary limit, plus inheritance and marriage exemptions — but the relative definition is precise, and extended family does not automatically qualify.

NRI Investor in Indian Listed Equity

Section 112A long-term capital gains carve-out up to the prescribed annual limit on listed equity shares and equity-oriented mutual funds — one of the more active exempt income strategies.

Returning NRI in the RNOR Window

RNOR status under Section 6(6) preserves FCNR interest exemption until the original deposit matures, plus foreign income stays outside the Indian tax base — the most valuable transition tool.

NRI with Agricultural Land or Tax-Free Bonds

Section 10(1) for Indian agricultural income with partial integration handling, and Section 10(15) for interest on tax-free bonds issued by REC, NHAI, IRFC, and similar entities.

Our Services

Our Exempt Income for NRIs Advisory Services

Our exempt income practice is rooted in actual delivery — every claim traces back to a specific statutory clause, and every disclosure ties to AIS, TIS, and Form 26AS so that automated mismatches never appear. Below is the working framework our qualified Chartered Accountants apply across the NRI client base.

01

NRE Account Interest Exemption — Section 10(4)(ii)

Section 10(4)(ii) exempts interest credited on a Non-Resident External (NRE) account — both savings and fixed deposit interest, in any bank in India. The exemption is the single most valuable exempt income head for overseas Indians, and the entire NRE balance is freely repatriable. We verify FEMA residential status (which protects the exemption, not the Income Tax Act status), confirm that credits come from permissible foreign sources, and flag the redesignation requirement the moment the NRI becomes a FEMA Resident on return.
Income Tax Act – Section 10(4)(ii)
02

FCNR Interest Exemption — Section 10(15)(iv)(fa)

Section 10(15)(iv)(fa) exempts interest payable on Foreign Currency Non-Resident (FCNR) deposits held in permitted foreign currency. Unlike NRE, FCNR interest exemption survives the RNOR window — therefore returning NRIs in RNOR status keep the FCNR carve-out until the original deposit matures. We build the FCNR maturity ladder around the expected return date to extend exempt treatment, and plan the post-maturity redesignation into RFC or Resident rupee accounts based on the depositor's needs.
Income Tax Act – Section 10(15)(iv)(fa)
03

Other Section 10 Exempt Heads — Agricultural Income, Tax-Free Bonds, Scholarship, Short-Stay Salary

Beyond NRE and FCNR, several Section 10 sub-clauses apply to NRI profiles. Section 10(1) keeps Indian agricultural income fully exempt — but partial integration applies for rate purposes where non-agricultural income exceeds the basic exemption limit. Section 10(15) covers tax-free bond interest from REC, NHAI, IRFC, and similar issuers. Section 10(16) exempts scholarships received for education cost. Section 10(6)(vi) exempts short-stay foreign-employee salary for visiting executives. Our work is closely connected to our Capital Gain service — including the Section 112A LTCG carve-out on listed equity and equity-oriented mutual funds.
04

Gift Exemption — Section 56(2) and the Relative Definition

Section 56(2)(x) exempts gifts received from relatives without any monetary limit — covering cash, immovable property, shares, mutual funds, or jewellery from spouse, parents, siblings, lineal ascendants, lineal descendants, spouse's parents, and similar close relations. Gifts from non-relatives become fully taxable where the aggregate exceeds the prescribed threshold during the year. Gifts on the occasion of marriage, by inheritance, or under a will are exempt regardless of donor relationship. Our Gifts and Inheritance services cover the detailed framework, including gift deed documentation and donor relationship proof.
Income Tax Act – Section 56(2)(x)
05

Schedule EI Disclosure and AIS Reconciliation

Schedule EI of ITR-2 or ITR-3 is where every exempt income head — NRE interest, FCNR interest, agricultural income, gifts from relatives, Section 112A LTCG, scholarship, and tax-free bond interest — must be disclosed. The Income Tax Department reconciles AIS, TIS, and Form 26AS entries against Schedule EI; omissions trigger automated mismatches and scrutiny risk under Section 143(2) or Section 148. Our team treats Schedule EI as a compliance line as important as the tax computation itself, aggregating multiple NRE and FCNR account interest credits and tying every entry back to source documentation. This work is connected to our Filing Return of Income in India service.
06

RNOR Planning for Returning NRIs — Section 6(6) Transition

RNOR status under Section 6(6) of the Income Tax Act is the most valuable transition tool for NRIs preparing to return. FCNR interest exemption under Section 10(15)(iv)(fa) continues during the RNOR window, and foreign income earned outside India also stays outside the Indian tax base. However, NRE interest exemption ceases the moment the NRI becomes FEMA Resident — a misconception that we correct in every returning NRI advisory. We time the return date, structure FCNR maturity inside the RNOR window, plan NRE-to-RFC conversions, and coordinate with our Returning Indian and Repatriation of Assets services.
Income Tax Act – Section 6(6)

Broader Practice

Our Broader NRI Tax and Compliance Services

Exempt income for NRIs is most effective when coordinated with the wider NRI compliance map. Our complete NRI tax practice covers:

Filing Return of Income in IndiaAnnual ITR filing where Schedule EI gets reported and reconciled with AIS.
Residential Status — Section 6Section 6 framework — the basis of NRI exemption eligibility and RNOR carve-out.
Tax Residency Certificate (TRC)TRC procurement and Form 10F filing for DTAA benefit application.
DTAA BenefitsDTAA tie-breaker rules and treaty rate application across US, UK, Canada, UAE.
Returning Indian TransitionRNOR window planning, FCNR-to-RFC conversion, and NRE redesignation timing.
Repatriation of AssetsCross-border movement of NRE and FCNR funds with FEMA compliance.
15CA-15CB FilingForeign remittance compliance certificates and Section 195 TDS reconciliation.
FEMA India Rules for NRIFEMA framework — basis of NRE and FCNR account treatment under Section 10.

Frequently Asked Questions

Common Questions on Exempt Income for NRIs

What is exempt income for NRIs under the Income Tax Act 1961?
Exempt income for NRIs refers to income heads that the Income Tax Act 1961 specifically keeps outside the Indian tax base for Non-Resident Indians. The primary exempt heads include NRE interest under Section 10(4)(ii), FCNR interest under Section 10(15)(iv)(fa), agricultural income under Section 10(1), tax-free bond interest under Section 10(15), gifts from relatives under Section 56(2), short-term foreign-employee salary under Section 10(6)(vi), and scholarships under Section 10(16). Exempt income continues outside the tax base, but disclosure under Schedule EI of ITR-2 or ITR-3 is mandatory. Our filing return of income in India service handles the Schedule EI disclosure step.
Is NRE account interest tax-free for NRIs in India?
Yes, NRE interest is fully tax-free in India for an NRI under Section 10(4)(ii) of the Income Tax Act 1961. The exemption covers interest credited to a Non-Resident External account as long as the account holder qualifies as a person resident outside India under FEMA. NRE interest exemption applies to both NRE savings and NRE fixed deposit balances. The exemption ceases the moment the NRI becomes a Resident under FEMA — NRE redesignation is required at that point. Our Returning Indian page covers the transition framework.
Does FCNR account interest stay tax-free for RNOR taxpayers?
Yes, FCNR interest exemption under Section 10(15)(iv)(fa) survives the RNOR window. Therefore, a returning NRI in RNOR status keeps the FCNR exemption until the original deposit matures. After FCNR maturity, the deposit converts to a Resident Foreign Currency (RFC) account or a Resident rupee account, after which the tax treatment changes. The FCNR carve-out is one of the most valuable tools in returning NRI planning. Our Repatriation of Assets page covers the broader cross-border framework.
Is agricultural income earned in India taxable for an NRI?
No, agricultural income earned in India is fully exempt for an NRI under Section 10(1) of the Income Tax Act 1961. The exemption applies regardless of residential status. However, agricultural income enters total income for rate purposes (partial integration) where non-agricultural income exceeds the basic exemption limit. Therefore, agricultural income can push other Indian-sourced income into a higher slab even though the agricultural amount itself stays exempt. Disclosure under Schedule EI is mandatory. Our Filing Return of Income in India service handles the return disclosure.
Are gifts received by NRIs from relatives taxable in India?
Gifts from relatives are fully exempt under Section 56(2)(x) of the Income Tax Act 1961 — without any monetary limit. The relative definition covers spouse, parents, siblings, lineal ascendants, lineal descendants, spouse's parents, spouse's siblings, and similar close relations. Gifts from non-relatives become taxable where the aggregate exceeds the prescribed threshold during the financial year. Gifts on marriage, by inheritance, or under a will are exempt regardless of donor relationship. Our Gifts service covers the detailed gift framework.
Do NRIs need to disclose exempt income while filing the Indian income tax return?
Yes, NRIs must disclose exempt income in Schedule EI of ITR-2 or ITR-3. Schedule EI captures NRE interest, FCNR interest, agricultural income, gifts from relatives, Section 112A LTCG up to the prescribed limit, and other exempt heads. Disclosure is mandatory for AIS-TIS-Form 26AS reconciliation and to protect against future scrutiny. The Indian return cannot be treated as complete if exempt income heads are omitted. Our ITR-2 Return Filing page covers the Schedule EI disclosure mechanics.
What happens to NRE interest exemption when an NRI returns to India?
NRE interest exemption under Section 10(4)(ii) ceases the moment the NRI becomes a Resident under FEMA. Therefore, the residential status shift triggers the exemption loss — not the account redesignation date. The returning NRI must redesignate the NRE account as a Resident account. From the date of becoming Resident, NRE interest becomes fully taxable at slab rates. RNOR status under the Income Tax Act does not preserve NRE interest exemption — only FCNR continues. Our Returning Indian service handles the transition planning.

Ready to get your NRI exempt income disclosures right?

Talk to our NRI Tax team to review your NRE, FCNR, gift, and Section 112A positions before the return is filed.

Get in Touch

Popular Cities

Popular Cities

Popular Cities

Popular Cities

©2026.  ND Savla & Associates. All Rights Reserved.

Privacy Policy

WhatsApp Call Email