If you are a Non-Resident Indian, understanding your tax obligations in India is not optional — it is essential. Many NRIs either overpay tax due to missed deductions, or unknowingly become non-compliant by not filing returns. This complete guide covers everything you need to know about NRI taxation in India for AY 2025-26.
Who is an NRI for Tax Purposes?
Your residential status under the Income Tax Act determines what income is taxable in India. An individual is treated as a Non-Resident Indian (NRI) for a financial year if they meet either of these conditions:
They were outside India for 182 days or more during that financial year, or they were outside India for 365 days or more during the four preceding financial years and stayed in India for less than 60 days in the current year.
This determination is made fresh every financial year. Your passport, visa status, or country of residence does not automatically make you an NRI — the day count is what matters under Indian tax law.
There is also a third status called Resident but Not Ordinarily Resident (RNOR), which applies to NRIs who have recently returned to India. RNOR status offers partial tax benefits for up to two years after return and requires careful planning.
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. Your foreign income — salary earned abroad, bank interest in foreign accounts, rental income from foreign property — is not taxable in India at all.
Income that is taxable in India for NRIs includes:
Salary income — if the services are rendered in India, the salary is taxable in India regardless of where it is paid or received.
Rental income from Indian property — any property situated in India that generates rent is taxable in India. The fact that you receive the rent in a foreign account makes no difference.
Interest income from Indian bank accounts — interest earned on NRO accounts is fully taxable in India at applicable rates with TDS deducted at source. Interest on NRE and FCNR accounts is completely exempt from Indian tax.
Capital gains from Indian assets — profits from selling property, shares, mutual funds, or any other asset situated in India are taxable in India. The rates depend on whether the gain is short-term or long-term.
Business income from Indian operations — income from a business controlled or set up in India is taxable here.
TDS Rules for NRIs — Why You Often Overpay
Tax Deducted at Source works differently for NRIs compared to resident Indians. For most payments to NRIs, TDS is deducted at higher rates — often 30% plus surcharge and cess on gross income, without considering deductions or exemptions.
This means an NRI receiving rent of ₹10 lakh per year has TDS deducted at approximately ₹31,200 on the full amount, even though their actual tax liability after standard deduction and home loan interest may be zero or much lower.
The solution is a Lower TDS Certificate under Section 197. By applying on the income tax portal with a projection of your actual tax liability, you can get the TDS rate reduced to match your real obligation. This prevents large amounts from being locked with the Income Tax department for months while you wait for a refund.
Key TDS rates applicable to NRIs:
Interest on NRO accounts — 30% plus surcharge and cess. Rental income — 30% plus surcharge and cess under Section 195. Property sale proceeds paid to NRI seller — 20% on long-term gains or 30% on short-term gains, plus surcharge and cess, deducted by the buyer. Dividends — 20% plus surcharge and cess.
Which ITR Form Should NRIs File?
NRIs cannot file ITR-1 (Sahaj) under any circumstances. The correct forms are:
ITR-2 — for NRIs with income from salary, house property, capital gains, or other sources, but no business income. This is the most commonly used form for NRIs.
ITR-3 — for NRIs who have income from a proprietary business or profession in India in addition to other income.
ITR-2 requires careful attention to Schedule FA (Foreign Assets disclosure), Schedule FSI (Foreign Source Income), and Schedule TR (Tax Relief). These schedules are frequently missed, leading to defective return notices from the Income Tax department.
DTAA — How NRIs Avoid Double Taxation
India has Double Taxation Avoidance Agreements with over 90 countries including the USA, UK, UAE, Australia, Canada, Singapore, and Germany. These treaties ensure that NRIs are not taxed twice on the same income — once in India and again in their country of residence.
DTAA benefits work in two ways. Under the exemption method, income taxed in one country is exempt in the other. Under the tax credit method, the tax paid in one country is given as a credit against the tax liability in the other country.
To claim DTAA benefits in India, you need a Tax Residency Certificate (TRC) from your country of residence confirming that you are a tax resident there, and Form 10F filed on the Indian income tax portal. Without these documents, your bank or the Income Tax department will not extend DTAA benefits and full TDS will be deducted.
DTAA provisions can significantly reduce your tax outgo. For example, under the India-UAE DTAA, UAE residents pay no tax in UAE and can claim relief in India. Under India-USA DTAA, specific rates apply to dividends, interest, and royalties that are lower than domestic rates.
Capital Gains Tax for NRIs
Capital gains rules for NRIs largely mirror those for residents, but with important differences in TDS obligations and reinvestment options.
Property sale — Long-term capital gains (property held over 24 months) are taxed at 12.5% without indexation for sales after July 23, 2024 under the new regime, or 20% with indexation under the old regime for eligible cases. Short-term gains are taxed at slab rates.
Equity and mutual funds — Long-term capital gains on listed equity shares and equity mutual funds above ₹1.25 lakh are taxed at 12.5%. Short-term gains are taxed at 20%.
NRIs can claim capital gains exemptions under Sections 54, 54EC, and 54F by reinvesting proceeds into another residential property or specified bonds — subject to conditions and time limits.
New Tax Regime (Section 115BAC) for NRIs — Are You Eligible for the 87A Rebate?
Yes, NRIs can opt for the new tax regime (Section 115BAC) for FY 2025-26 (AY 2026-27) — it is not restricted to residents. The new regime offers lower slab rates but removes most exemptions and deductions such as Section 80C and 80D, which apply only if you stay on the old regime.
The rebate under Section 87A — which makes tax liability zero for residents with income up to ₹12 lakh under the new regime — is NOT available to NRIs, regardless of how small their India income is. This applies under both the old and new regimes. An NRI earning ₹8 lakh from rent and FD interest pays roughly ₹20,800 in tax after cess, while a resident with identical income pays ₹0 — the rebate denial, not the slab rate, is what creates the difference.
One more distinction: the 87A rebate can never offset special-rate income such as short-term capital gains under Section 111A or long-term capital gains under Section 112A, even for residents — so if your India income is mostly capital gains from property or listed shares, the new-regime/old-regime choice matters less than getting your capital gains computation right in the first place.
NRO to Foreign Account — How Repatriation Works
One of the most common pain points for NRIs is moving money from their NRO account to their foreign bank account. The process is governed by FEMA and requires specific documentation.
NRIs can repatriate up to USD 1 million per financial year from their NRO account. The requirements are that all applicable taxes must have been paid on the funds, and Form 145 and Form 146 must be filed before the bank processes the outward remittance.
Form 145/146 replaced Form 15CA/15CB under the Income Tax Act, 2025, effective April 1, 2026 — Form 146 is the CA certification confirming taxes have been paid and DTAA provisions considered, and Form 145 is filed on the income tax portal using the details from Form 146.
Without these forms, your bank cannot legally process the international transfer. Many NRIs are unaware of this requirement and face delays or are forced to use informal channels unnecessarily.
Key Deadlines for NRIs — AY 2026-27
The ITR filing deadline for AY 2026-27 (FY 2025-26) was 31st July 2026 for NRIs without an audit requirement — if you missed it, a belated return can still be filed up to 31st December 2026 with a late fee of ₹1,000 (if income below ₹5 lakh) or ₹5,000. Updated return (ITR-U) can be filed within a longer window from the end of the relevant assessment year with additional tax payment. Lower TDS certificate application (Form 128) should be filed well before income is received to avoid full TDS deduction, regardless of the ITR deadline.
8 Common NRI Tax Mistakes NRIs Make With Indian Taxes
- Assuming TDS already covers your tax liability. TDS deducted at source isn’t the same as filing your return — NRIs still have a legal obligation to file an ITR even when tax has already been withheld, and skipping it can trigger a notice.
- Filing ITR-1 instead of ITR-2. ITR-1 isn’t available to NRIs; filing the wrong form makes the return defective and can force a refiling.
- Not disclosing foreign assets in Schedule FA. Relevant once you’ve returned to India as a resident — leaving foreign accounts or assets undisclosed attracts penalties under the Black Money Act.
- Missing DTAA relief claims. Without claiming Foreign Tax Credit via Form 44 (formerly Form 67) under the DTAA, NRIs can end up paying tax twice on the same income.
- Not applying for a Lower TDS Certificate before a property sale. Without it, buyers must deduct TDS on the full sale value rather than your actual capital gain — locking up the difference as a refund claim that can take months to come back.
- Not maintaining Form 26AS. Mismatches between what’s reported and what’s actually been deducted lead to notices and delayed refunds.
- Treating NRE account interest as taxable. NRE and FCNR interest is fully tax-exempt in India — getting this wrong means overpaying tax on money that shouldn’t be taxed at all.
- Getting RNOR status wrong after returning to India. The first two years after moving back carry special Resident-but-Not-Ordinarily-Resident rules — misjudging this window can mean paying more tax than required, or under-reporting foreign income that should be included.
How NRI Tax CA Can Help
We handle complete NRI tax compliance — ITR-2 and ITR-3 filing with DTAA analysis, Schedule FA and Schedule FSI, Form 145 and 146 for remittances, Lower TDS Certificate applications under Section 197, and NRI property sale advisory including capital gains computation and reinvestment planning.
Every case is handled personally by a Fellow Chartered Accountant. Fixed price quoted upfront. 24 to 48 hour turnaround. All communication in writing.
Email us at hello@nritaxca.com or visit nritaxca.com to submit your case today.
Get a quick estimate of your NRI tax liability with our free NRI tax calculator India 2026-27. For expert ITR filing, DTAA claims, or TDS compliance, submit an enquiry to our NRI tax team.
This article is for general information purposes only and does not constitute legal or tax advice. Please consult a qualified Chartered Accountant for advice specific to your situation.
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Not reporting foreign assets in Schedule FA is a costly mistake. If you were resident when you held them, the one-time FAST-DS 2026 disclosure window (closes 31 December 2026) may help. Read our FAST-DS 2026 guide.