How is an NRI taxed in India?

1The core principle

Your tax depends on your residential status. A resident is taxed on global income; an NRI is taxed in India only on income that accrues, arises or is received in India. Everything you earn and keep abroad stays outside the Indian tax net.

Your residential status is decided each year by the number of days you spend in India — broadly, you're a non-resident if you're in India for less than 182 days in the year (with some additional conditions).

2What's taxable in India for an NRI

These Indian-source incomes are taxable for an NRI:

• Salary for services actually rendered in India
• Rent from a house property located in India
• Capital gains on Indian shares, mutual funds or property
• Interest on an NRO (Non-Resident Ordinary) account and on Indian fixed deposits

3NRE, NRO and FCNR accounts

The account type changes the tax outcome, which is why NRIs keep them separate:

• NRE (Non-Resident External) account interest: exempt from Indian tax
• FCNR (Foreign Currency Non-Resident) deposit interest: exempt from Indian tax
• NRO (Non-Resident Ordinary) account interest: taxable in India, with TDS deducted (often at 30% plus surcharge/cess, reducible under a treaty)

4Filing and avoiding double taxation

An NRI files ITR-2 (or ITR-3 for business income) if Indian income crosses the exemption limit, or to claim a refund of TDS. To avoid being taxed on the same income both in India and in your country of residence, use the Double Taxation Avoidance Agreement (DTAA):

• Obtain a Tax Residency Certificate (TRC) from your country of residence
• File Form 10F on the Indian portal
• Claim treaty relief (either an exemption or a credit for tax paid in the other country)

5How residential status is actually determined

Everything else follows from this, and it is tested afresh every financial year on days of physical presence in India.

You are resident if you were in India for 182 days or more in the year, or for 60 days or more in the year together with 365 days or more across the four preceding years. For an Indian citizen leaving India for employment, or a crew member of an Indian ship, the 60-day limb is extended to 182 days.

For an Indian citizen or person of Indian origin visiting India whose Indian income exceeds ₹15 lakh, the 60-day limb becomes 120 days rather than 182.

6Deemed residence, and the RNOR category that softens it

An Indian citizen with Indian income above ₹15 lakh who is not liable to tax in any other country by reason of domicile or residence is deemed resident in India, however few days they spend here.

The provision is aimed at people structuring themselves into tax residence nowhere, and it is narrower than it first appears — it does not apply where you are genuinely taxed as a resident somewhere else.

A person who becomes deemed resident, or who returns to India after a long stay abroad, usually falls into Resident but Not Ordinarily Resident. RNOR status is valuable: foreign income remains outside the Indian net, so it functions as a transition period before full resident taxation begins.

7The filing threshold and what an NRI cannot claim

An NRI must file where total Indian income exceeds the basic exemption limit, and should file to recover TDS, which is frequently deducted at higher rates than the eventual liability.

Several concessions available to residents are not available to non-residents, and this is where returns go wrong.

• The basic exemption limit cannot be set against long-term capital gains for a non-resident, unlike for a resident
• The section 87A rebate is not available to a non-resident
• Deductions under 80C are available, but 80TTA interest relief is limited and 80TTB for senior citizens is not available
• The 20%-with-indexation option on land and buildings acquired before 23 July 2024 is confined to resident individuals and HUFs

8TDS on an NRI is deducted differently

Payments to a non-resident are governed by section 195 rather than the ordinary TDS sections, and the practical differences matter.

There is no basic threshold below which no deduction is required, and the rate is not a flat percentage of the payment but is meant to reflect the tax actually payable on the income element. Because the payer bears the risk of getting that wrong, deduction at the highest plausible rate is common.

The remedy is a certificate for lower or nil deduction under section 197, applied for before the transaction. Without it, the excess sits with the department until you file and claim the refund.