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.
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 15CA and Form 15CB must be filed before the bank processes the outward remittance.
Form 15CB is a certificate issued by a practising Chartered Accountant confirming that taxes have been paid on the remittance amount and the applicable DTAA provisions have been considered. Form 15CA is then filed on the income tax portal using the details from Form 15CB.
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 2025-26
ITR filing deadline — 31st July 2025 for AY 2025-26 for NRIs without audit requirement. Belated return — can be filed up to 31st December 2025 with a late fee of ₹1,000 (if income below ₹5 lakh) or ₹5,000. Updated return (ITR-U) — can be filed within 2 years from the end of the relevant assessment year with additional tax payment. Lower TDS certificate application — should be filed well before income is received to avoid full TDS deduction.
Common Mistakes NRIs Make with Indian Taxes
Not filing ITR assuming TDS has covered all liability — TDS does not eliminate the filing obligation. Filing ITR-1 instead of ITR-2 — renders the return defective. Not disclosing foreign assets in Schedule FA — attracts penalties under Black Money Act. Missing DTAA benefit claims — results in excess tax payment. Not applying for Lower TDS Certificate — locks refundable amounts with the department for months. Not maintaining Form 26AS — leads to mismatches and notices. Treating NRE interest as taxable — NRE and FCNR interest is fully exempt. Not filing on return to India — RNOR status requires careful handling in the first two years after return.
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 15CA and 15CB 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.
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.