NRI Taxation in India

Tax rules for Non-Resident Indians (NRIs) work differently from those that apply to residents. NRIs are taxed only on income that comes from India, while earnings from abroad are not. Once you understand how residential status is determined, what types of income are taxed, and which deductions you can claim, the entire process becomes much easier to navigate. Let's understand who qualifies as an NRI, the various residence categories, how taxation applies to each, and the tax slabs for FY 2025–26.
 

Who is a Non-Resident Indian (NRI)?

The number of days an individual lives in India is the basis which determines the NRI status. The Income Tax Act, 1961, states that individuals will be considered as NRIs if they don't meet the criteria for being a resident Indian. The criteria include:
 

• If a person stays in India for fewer than 182 days during the financial year, they are generally classified as an NRI.

• Even if someone crosses the 182-day mark, they may still fall under the NRI category if their stay in the same year is less than 60 days and their stay in the previous four years totals less than 365 days.

• Individuals working or living abroad are treated as NRIs if they are in India for less than 182 days that year.

• Separate rules apply for seafarers, where their stay is calculated based on specific guidelines for leave periods.

Different residential statuses in India

Indian tax law defines three residential categories, each with different tax implications. Understanding where you fall helps determine what income is taxable.
 

1. Resident and Ordinarily Resident (ROR)

Individuals who qualify as residents for at least 2 out of the last 10 years and have stayed in India for at least 730 days in the last 7 years fall into this group. RORs are taxed on their global income.
 

2. Resident but not Ordinarily Resident (RNOR)

This is a temporary category for people transitioning from NRI to resident status. RNORs are taxed only on income received in India and income arising from a business or profession managed from India. Other foreign income generally stays outside Indian taxation.

3. Non-Resident Indian (NRI)

Those who do not meet the stay conditions for residency are classified as NRIs. They are taxed only on income that is earned or received in India.

4. Deemed Resident

This applies to certain Indian citizens whose total income (excluding foreign income) crosses ₹15 lakh and who are not liable to tax in any other country. They are taxed like RNORs.

How are NRIs taxed?

NRI taxation focuses only on income linked to India. Different income types follow different rules:
 

• Salary income: Taxable if services are performed in India.
  

• Interest income:

  • Interest on NRE and FCNR accounts is exempt.

  • Interest on NRO accounts is taxable.
    

• Dividend income: Taxed at applicable rates, with TDS deducted before payout.
  

• Capital Gains:

  • Gains from the sale of property, shares, or other Indian assets are taxable.

  • Short-term gains follow slab rates; long-term gains have separate rates.
    

• Rental income: Taxable after allowing a standard 30% deduction for maintenance. If annual rent crosses ₹2.4 lakh, TDS is deducted by the tenant.
  

• Foreign income: Not taxable unless it comes from a business or profession controlled from India.
  

• TDS: Many income categories come with compulsory TDS. NRIs can file returns to claim refunds where applicable.
   

Tax deductions & exemptions for NRIs

NRIs are eligible for several deductions under the Income Tax Act, depending on whether they choose the old or new regime.

• Section 80C: Up to ₹1.5 lakh for investments like PPF, ELSS, NSC, and life insurance (old regime only).

• Section 80D: Deductions for health insurance premiums for self and family.

• Section 80TTA/80TTB: NRIs cannot claim 80TTA, but senior citizens may claim up to ₹50,000 under 80TTB for interest from deposits.

• HRA & LTA: Available for NRIs earning salary income in India, subject to normal conditions.

• Standard deduction: ₹50,000 for salaried income under both regimes.

Income tax slabs for NRIs (FY 2025–26)

NRIs may choose either the new tax regime (lower rates, fewer deductions) or the old tax regime (higher rates, more deductions).
 

New tax regime

• Most deductions are not allowed.

• Standard deduction of ₹75,000 is allowed for salaried NRIs.

• This is the default regime unless the old one is chosen.
   

Old tax regime

• Allows deductions under 80C, 80D, 80TTB, and other exemptions.

• NRIs need to opt in if they want to use the old regime benefits.
   

Additional surcharge and cess

• A 4% health and education cess applies in both regimes.

• Surcharge is added at higher income levels (starting from ₹50 lakh onwards), depending on the total taxable income.

Special NRI taxation provisions in India for 2026

NRIs pay different tax rates on certain types of income, and these rates don’t always match the standard NRI tax slabs. The table below gives a quick overview of the main rules you need to know.
 

Points to remember regarding special provisions 

Key provisions to note are:
 

1. Holding Period Rules  

The holding period for classifying capital gains has been simplified as follows: 

• 12 months for listed securities 

• 24 months for all other assets
   

2. Double taxation avoidance agreement (DTAA) 

If an NRI is taxed on the same income in both India and their country of residence, they may claim DTAA benefits or a Foreign Tax Credit (FTC). However, the resident country should have a DTAA with India. This helps NRIs to prevent double taxation on the same income.
 

3. Exemption on long-term capital gains 

NRIs may be exempt from tax on long-term capital gains arising from specified foreign exchange assets, subject to reinvestment of the sale proceeds in Indian assets such as shares, debentures, or bank deposits.

Filing NRI income tax returns 

NRIs are required to file an Income Tax Return (ITR) if their total income from Indian sources exceeds: 

• ₹2.5 lakh under the old tax regime, or 

• ₹3 lakh under the new tax regime. 
   

Moreover, submitting an Income Tax Return (ITR) is required in order to get back the funds deducted at source (TDS), even where the total income is less than the basic exemption limit. The regular date for ITR filing is usually 31st July of the assessment year unless the government decides to extend it.
 

Example

Priya, who is a non-resident Indian and receives income from Canada, has been credited with the interest income in her NRO account. TDS of ₹20,000 was deducted from her income. She has been choosing the old tax regime for the FY 2025–26 (AY 2026–27). As Priya’s total income from India is less than ₹2.5 lakh, she is free of tax liability. But to get her TDS of ₹20,000 back, she has to file an ITR.

Latest updates in NRI tax rules (FY 2025–26) 

The changes in the NRI tax rules are as follows:
 

• The NRI’s who are filing ITR-2 and whose Indian total assets exceed ₹1 crore must declare them.

• The mentioned assets consist of deposits, fixed deposits, real estate, mutual funds, and shares.

• Any associated liabilities that are over ₹50 lakh, like home loans, need to be included in the report as well.

• Complete and correct disclosure lowers the chances of receiving notices and getting charged penalties by the authorities.  

• Recent changes to India’s tax treaties with countries such as the UK, UAE, and Singapore may help NRIs pay lower withholding tax on income like interest, dividends, and royalties.

• To claim these treaty benefits, NRIs must submit a valid Tax Residency Certificate along with Form 10F.

• Both the old and new tax regimes for FY 2025–26 have been updated, which means the overall tax outgo for NRIs is likely to shift accordingly.

• Reviewing both regimes annually helps NRIs choose the most tax-efficient option. 

• RBI guidelines stress mandatory reporting of foreign assets and foreign income in ITRs. 

• The Income Tax Department has clarified TDS rules on NRO account interest and property sales by NRIs. 

• NRIs with high-value Indian assets should maintain proper documentation and valuation records. 

• High-income NRIs and DTAA claimants should reassess compliance each year to reduce tax liability legally and avoid penalties under FY 2025–26 rules. 

   

Conclusion 

NRIs are subject to separate tax rules for certain types of income, which are not covered under the standard NRI tax slabs. These special rates apply to earnings such as interest, dividends, royalties, and specific investment gains, and they are usually taxed at fixed percentages rather than the regular progressive slabs. The purpose is to simplify taxation on income that is more transactional or investment-driven. Individuals need to stay informed about all the latest guidelines so that they can comply with the required regulations.