If you are a Non-Resident Indian (NRI) earning income in India, or if you own property, investments, or bank accounts back home, understanding the Indian tax framework is not optional — it is essential. The Income Tax Act, 1961 has specific provisions governing how NRIs are taxed, and the rules differ significantly from those applicable to resident Indians.
As a chartered accountant firm in Gurgaon with over 30 years of experience, we at SKAA & Associates regularly advise NRIs across the United States, the United Kingdom, the Middle East, Canada, and Southeast Asia. This guide distills everything you need to know about NRI taxation in India into a single, actionable resource.
1. Residential Status: The Starting Point of NRI Taxation
Your tax liability in India is determined first and foremost by your residential status for the relevant financial year (April to March). The Income Tax Act classifies individuals into three categories:
| Status | Abbreviation | Who Qualifies |
|---|---|---|
| Resident and Ordinarily Resident | ROR | Present in India for 182+ days in the FY, or 60+ days in the FY and 365+ days in the preceding 4 FYs |
| Resident but Not Ordinarily Resident | RNOR | Resident who has been NRI in 9 out of 10 preceding FYs, or present in India for 729 days or less in the preceding 7 FYs |
| Non-Resident | NR | Does not meet the basic conditions for resident status |
Why Does Residential Status Matter?
The distinction is critical because it determines the scope of taxable income:
- ROR: Taxed on global income (Indian + foreign).
- RNOR: Taxed on Indian income + income from a business controlled in India.
- NR: Taxed only on income that is earned in India or received in India.
The 2020 Budget introduced an additional condition: Indian citizens earning over Rs 15 lakh from Indian sources who are not liable to tax in any other country may be deemed resident. This "deemed resident" rule has caught many NRIs off guard and underscores the need for professional tax advice from an experienced chartered accountant in Gurgaon or your city of origin.
Special Rule for Indian Seafarers and Crew Members
Indian citizens who are crew members on Indian ships are considered NRI only if they spend 182+ days outside India in the FY. The relaxed 60-day rule does not apply to them. Similarly, Indian citizens leaving India for employment abroad get the benefit of the 182-day threshold instead of the 60-day rule.
2. What Income Is Taxable in India for NRIs?
As a Non-Resident, only the following categories of income are taxable in India:
- Salary received or earned in India — if services are rendered in India.
- Rental income from property situated in India.
- Capital gains on sale of property, shares, mutual funds, or other assets in India.
- Interest income from NRO accounts, fixed deposits, and bonds in India.
- Dividend income from Indian companies (taxable in hands of recipient post-2020).
- Business income if the business is set up in India or controlled from India.
- Income from any other source arising in India — royalties, fees for technical services, etc.
Crucially, income deposited in an NRE (Non-Resident External) account is fully tax-exempt in India. Income in an NRO (Non-Resident Ordinary) account, however, is taxable.
3. NRE vs NRO Accounts: Tax Implications
Every NRI dealing with Indian finances must understand the difference between these two account types:
| Feature | NRE Account | NRO Account |
|---|---|---|
| Purpose | Park foreign earnings in India | Manage Indian-source income |
| Interest Taxability | Tax-free in India | Taxable in India |
| TDS on Interest | None | 30% + surcharge + cess (or DTAA rate) |
| Repatriability | Fully repatriable | Up to USD 1 million per FY (with CA certificate) |
| Currency Risk | Yes (converted at prevailing rates) | Held in INR |
A common mistake NRIs make is depositing rental income or capital gains proceeds into an NRE account. Indian-source income must go into the NRO account — mixing this up can create compliance issues with RBI and the Income Tax Department.
4. DTAA Benefits: Avoiding Double Taxation
India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries, including the US, UK, Canada, Australia, Germany, UAE, Singapore, and many others. These treaties ensure that income is not taxed twice — once in India and once in your country of residence.
How DTAA Works in Practice
Under most DTAAs, you can either:
- Claim exemption in one country (typically India) by furnishing a Tax Residency Certificate (TRC) from your country of residence.
- Claim credit for taxes paid in India against your tax liability in the country of residence (Foreign Tax Credit).
For example, if you are an NRI in the US and earn interest income in India, the DTAA between India and the US caps the withholding tax at 15% (instead of the domestic 30%). You then claim credit for the 15% paid in India on your US tax return.
Documents Needed to Claim DTAA Benefits
- Tax Residency Certificate (TRC) from the country where you are a tax resident.
- Form 10F — a self-declaration filed on the Income Tax portal.
- PAN card — without a PAN, banks will deduct TDS at 20% regardless of DTAA.
- No Permanent Establishment (PE) declaration if applicable to business income.
Many NRIs lose out on DTAA benefits simply because they do not furnish these documents to their Indian bank or tenant in time. An experienced chartered accountant in Gurgaon can help you set this up correctly at the start of the financial year.
5. TDS on Property Sale by NRIs
When an NRI sells property in India, the buyer is legally obligated to deduct TDS under Section 195 at the following rates:
- Long-term capital gains (held > 2 years): 20% + surcharge + cess (effective rate ~20.8% to 23.92% depending on the gain amount).
- Short-term capital gains (held ≤ 2 years): At applicable slab rates (up to 30% + surcharge + cess).
The TDS is deducted on the entire sale consideration, not just the capital gain. This often results in excess TDS being deducted, which the NRI must then claim as a refund by filing an ITR.
Lower TDS Certificate (Section 197)
To avoid this cash flow burden, NRIs can apply for a Lower or Nil TDS Certificate from the Assessing Officer under Section 197. This certificate authorizes the buyer to deduct TDS only on the actual capital gain amount. The application must be filed before the transaction closes, ideally with the help of a CA who can compute the capital gain accurately and handle the AO's queries.
6. Capital Gains Tax for NRIs
Capital gains taxation for NRIs follows the same structure as residents, but with additional TDS obligations:
| Asset Type | Holding Period for LTCG | LTCG Tax Rate | STCG Tax Rate |
|---|---|---|---|
| Listed Equity Shares / Equity MFs | 12 months | 12.5% (above Rs 1.25 lakh) | 20% |
| Immovable Property | 24 months | 12.5% | Slab rates |
| Debt Mutual Funds | No LTCG benefit (taxed at slab) | Slab rates | Slab rates |
| Unlisted Shares | 24 months | 12.5% | Slab rates |
NRIs can claim the benefit of indexation on property sold before July 23, 2024. For properties sold on or after that date, the rate is a flat 12.5% without indexation. This is a significant change from the earlier 20% with indexation regime, and deciding which option is more beneficial requires careful computation by a qualified CA.
7. Rental Income from Indian Property
If you own property in India and have rented it out, the rental income is taxable under the head "Income from House Property." Here is what NRIs need to know:
- A standard deduction of 30% of net annual value is available (covering repairs, maintenance, etc.).
- Interest on home loan taken for the property is deductible (up to Rs 2 lakh for self-occupied; no limit for let-out property).
- The tenant is required to deduct TDS at 30% (plus surcharge and cess) on the rent paid to an NRI, under Section 195.
- If the tenant fails to deduct TDS, they become an "assessee in default" and may face penalties.
Many NRIs are unaware that their tenants must deduct TDS. In practice, tenants often resist this obligation. Having a CA in Gurgaon draft the rental agreement with clear TDS clauses and handle the TDS filings can prevent disputes and compliance failures.
8. NRI ITR Filing: Which Form and When
NRIs must file an income tax return in India if their total Indian income exceeds the basic exemption limit (currently Rs 3 lakh under the new regime, Rs 2.5 lakh under the old regime), or if they want to claim a refund of excess TDS.
Which ITR Form to Use?
- ITR-1 (Sahaj): Not available for NRIs.
- ITR-2: Most commonly used by NRIs — suitable if you have salary, house property, capital gains, and other sources (but no business income).
- ITR-3: If you have business or professional income in India.
Key Filing Points
- The due date is July 31 of the assessment year (e.g., July 31, 2026 for FY 2025-26), unless extended.
- NRIs must disclose all Indian bank accounts in the ITR.
- Foreign bank accounts and assets do not need to be disclosed by NRIs (unlike residents who must file the Foreign Asset Schedule).
- Return can be filed electronically using DSC, EVC (limited for NRIs), or through an authorized representative.
9. Common Mistakes NRIs Make with Indian Taxes
In our three decades of practice, we have seen NRIs repeatedly stumble over the same issues:
- Not updating residential status with the bank — leading to incorrect TDS rates and potential RBI violations.
- Failing to obtain a PAN — TDS is deducted at 20% (instead of 10% or treaty rates) if PAN is not furnished.
- Mixing NRE and NRO accounts — depositing Indian-source income into NRE accounts violates FEMA regulations.
- Not filing ITR to claim TDS refunds — many NRIs let excess TDS go unclaimed year after year.
- Ignoring capital gains on mutual fund redemption — AMCs deduct TDS, but NRIs must still file the return.
- Not furnishing Form 10F and TRC — missing out on lower DTAA tax rates.
- Assuming rental income below Rs 2.5 lakh is not taxable — TDS is deducted at source regardless of the threshold; the exemption is claimed only via ITR filing.
- Not reporting property sale in the year of transfer — even if the buyer deducts TDS, the NRI must file the return.
10. When Should an NRI Hire a Chartered Accountant?
While simple interest income may not require professional help, NRIs should engage a chartered accountant in Gurgaon (or wherever their Indian interests are concentrated) in the following situations:
- Selling immovable property — for capital gain computation, Section 197 certificate, and ITR filing.
- Receiving rental income — for TDS compliance and annual return filing.
- Holding investments in shares, mutual funds, or bonds — for capital gains tracking.
- Setting up or closing a business in India.
- Returning to India permanently — transitioning from NR to RNOR to ROR status over two years.
- Receiving an inheritance in India — while inheritance itself is not taxable, the income from inherited assets is.
- Receiving a notice from the Income Tax Department — especially scrutiny assessments or demands.
At SKAA & Associates, we have handled NRI taxation cases across all these scenarios for clients in the US, UK, UAE, Singapore, Canada, and Australia. Our proximity to the Gurgaon Income Tax offices and our three decades of relationship with the department give our clients a tangible advantage.
Key Takeaways
- Your residential status determines the scope of your tax liability in India. Get this right first.
- Only income earned or received in India is taxable for NRIs — but the definition is broader than most people think.
- DTAA benefits can significantly reduce your tax burden, but you must furnish TRC and Form 10F proactively.
- TDS on NRI transactions is higher than for residents — plan for it and apply for Section 197 certificates where applicable.
- File your ITR every year if you have Indian income, even if TDS has already been deducted.
- Engage a qualified CA for property transactions, capital gains, and any notice responses.