Determining Your Residential Status
The first and most critical step in NRI taxation is determining your residential status under the Income Tax Act. Your tax obligations depend entirely on whether you are a Resident, Non-Resident Indian (NRI), or Resident but Not Ordinarily Resident (RNOR) for a given financial year.
You are considered a Non-Resident Indian if you stay in India for fewer than 182 days in a financial year. However, from 2020, there is an additional rule: Indian citizens or persons of Indian origin visiting India with income exceeding ₹15 lakh from Indian sources are considered residents if they stay for 120 or more days.
- NRI: Stays in India < 182 days in FY
- RNOR: Resident but NRI for 9 out of 10 preceding years, or stays < 729 days in last 7 years
- Resident: Stays 182+ days, or 60+ days and 365+ days in last 4 years
What Income is Taxable for NRIs in India?
As an NRI, you are taxed only on income that is received or deemed to be received in India, or income that accrues or arises in India. Unlike residents who are taxed on global income, NRIs are taxed only on Indian-sourced income.
- Salary income for services rendered in India
- Rental income from property situated in India
- Capital gains on sale of property, shares, or mutual funds in India
- Interest income from NRO accounts (NRE account interest is tax-free)
- Dividends from Indian companies
- Business income from operations in India
NRO vs NRE Accounts — Tax Treatment
Understanding the difference between NRO and NRE accounts is fundamental to NRI tax planning:
NRE (Non-Resident External) Account: Interest earned is completely tax-free in India. The principal and interest are fully repatriable. Funds in NRE accounts are maintained in Indian Rupees but represent foreign earnings.
NRO (Non-Resident Ordinary) Account: Interest earned is taxable at 30% (plus surcharge and cess) with TDS deducted by the bank. Repatriation is limited to USD 1 million per financial year (after tax payment). Rental income, dividends, and other Indian-sourced income are credited to NRO accounts.
Double Taxation Avoidance Agreements (DTAA)
India has signed DTAA (Double Taxation Avoidance Agreement) treaties with over 90 countries. As an NRI, you can claim treaty benefits to avoid being taxed on the same income in both India and your country of residence.
For example, NRIs in UAE benefit from the India-UAE DTAA, which means certain income may be taxable only in UAE (or India), preventing double taxation. NRIs in the USA, UK, Canada, Australia, and most Gulf countries can all claim DTAA benefits — but the exact provisions vary by treaty.
- Submit Form 10F and a Tax Residency Certificate from your country of residence
- Claim Treaty rate instead of higher domestic rate on interest income
- NRIs in UAE, Bahrain, Kuwait may pay lower TDS on interest under DTAA
- Capital gains provisions differ by treaty — professional advice is essential
TDS on Sale of Property by NRI
When an NRI sells immovable property in India, the buyer is required to deduct TDS at 20% (for long-term capital gains) or 30% (for short-term capital gains) plus applicable surcharge and cess on the entire sale consideration — not just the profit.
This often results in excess TDS deduction. The NRI can apply for a Lower Deduction Certificate (Form 13) from the Income Tax Department before the sale, which directs the buyer to deduct TDS only on the actual capital gain amount. This application must be filed well in advance of the property sale.
- Apply for Lower TDS Certificate (Form 13) before sale
- File ITR to claim refund of excess TDS deducted
- Long-term capital gain: property held > 2 years — 20% + surcharge
- Short-term capital gain: property held ≤ 2 years — taxed at slab rates
- Indexation benefit available for long-term gains on property
FEMA Compliance for NRIs
The Foreign Exchange Management Act (FEMA) governs foreign exchange transactions for NRIs. Key FEMA considerations include:
Property ownership: NRIs can hold, acquire, and transfer immovable property in India (except agricultural land, plantation property, or farmhouses). No RBI permission is needed for most residential or commercial property transactions.
Investments: NRIs can invest in Indian equities through the Portfolio Investment Scheme (PIS), mutual funds, and bonds. Investments exceeding certain thresholds require RBI/government approval.
Repatriation: Funds in NRE accounts are freely repatriable. Repatriation from NRO accounts is limited to USD 1 million per year after tax compliance.
ITR Filing Requirements for NRIs
NRIs must file an Income Tax Return in India if their taxable Indian income exceeds the basic exemption limit (₹2.5 lakh for below 60 years). ITR filing is also mandatory if you have any capital gains from India or if you wish to claim a tax refund for TDS deducted in excess.
NRIs file ITR-2 (for capital gains and other income) or ITR-1 (for simple salary/rental income). Filing must be done online on the Income Tax e-filing portal. CT Associates manages the complete ITR filing process for NRI clients remotely — collecting documents online and handling everything on your behalf.