Quick Answer
12 min read|Updated: Apr 1, 2026|Income-tax
Quick Answer
Under the Income Tax Act 2025, NRIs are taxed only on Indian-source income — salary earned in India, rental income, capital gains on Indian assets, NRO interest, and Indian dividends. Residential status is determined by the 182-day rule (or 60-day rule with exceptions).
Income Taxable for NRIs
Salary Income
- Salary received in India or deemed to be received in India: Taxable
- Salary for services rendered in India (even if paid abroad): Taxable
- Salary for services rendered outside India (paid abroad): Not taxable
- Leave encashment and gratuity for services in India: Taxable
House Property
- Rental income from property in India: Always taxable for NRIs
- Standard deduction of 30% on net annual value available
- Home loan interest deduction available (up to ₹2 lakh for self-occupied, under old regime)
Capital Gains
- Sale of Indian shares (listed/unlisted): Taxable
- Sale of Indian property: Taxable — buyer must deduct TDS at 20% (LTCG) or 30% (STCG)
- Sale of mutual fund units (Indian AMC): Taxable
- For rates and computation, see Capital Gains Tax 2025 Guide
Interest Income
- NRO account interest: Taxable at slab rates; TDS at 30% (or DTAA rate)
- NRE account interest: Fully exempt (if NRI throughout FY)
- FCNR deposit interest: Fully exempt (if NRI throughout FY)
- Fixed deposit interest (Indian FDs): Taxable; TDS at 30% (or DTAA rate)
Dividend Income
- Dividends from Indian companies: Taxable at slab rates
- TDS at 20% (or DTAA rate, e.g., 15% for US residents under India-US DTAA)
DTAA Benefits for NRIs
India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. Key principles:
How DTAA Works
- Bilateral treaty: Both countries agree on which country has the right to tax specific income types
- Beneficial provision applies: The taxpayer can apply either the Income Tax Act rates or the DTAA rates, whichever is more favourable
- Methods of relief:
- Credit method: Income taxed in both countries; credit for foreign tax paid given against Indian tax (India-USA, India-UK)
- Exemption method: Income taxed only in one country, exempt in the other (some India treaties)
Requirements for Claiming DTAA Benefits
- Tax Residency Certificate (TRC): Mandatory — issued by the tax authority of the country of residence
- Form 10F: Additional information form filed in India — includes name, status, nationality, tax identification number, period of residential status, and address in the country of residence
- PAN: Mandatory for claiming DTAA rates (without PAN, TDS at higher rate applies)
Key DTAA Withholding Rates
| Country | Interest | Dividends | Royalties | FTS (Fees for Technical Services) |
|---|---|---|---|---|
| India-USA | 15% | 15% / 25% | 15% | 15% |
| India-UK | 15% | 15% | 15% | 15% |
| India-Singapore | 15% | 15% | 10% | 10% |
| India-UAE | 12.5% | 10% | 10% | No article (domestic rates apply) |
| India-Canada | 15% | 15% / 25% | 10% / 15% | 15% |
| India-Australia | 15% | 15% | 10% / 15% | 15% |
Note: DTAA rates do not include surcharge and cess. The actual rate under the DTAA (without surcharge/cess) is compared with the Act rate (with surcharge/cess), and the more beneficial applies. Always verify the latest DTAA text as amendments may apply.
TDS on NRI Income
Payments to NRIs attract TDS under Section 195 (equivalent). Key rates under the domestic Act:
- Interest: 30% (individuals) / 40% (foreign companies)
- Dividends: 20%
- Royalties: 10%
- Fees for technical services: 10%
- LTCG on property/unlisted shares: 20%
- STCG on equity shares (STT paid): 15%
- Other income: 30%
If the NRI furnishes TRC and Form 10F, the DTAA rate applies if it is lower than the domestic rate. Payers must ensure compliance — any payment to NRI without TDS deduction makes the payer liable. See TDS Rate Chart 2026-27 for the complete schedule.
Lower Deduction Certificate — Section 197 Equivalent
If the TDS rate results in excess deduction (e.g., TDS at 30% but actual tax liability is much lower due to deductions or slab benefit), the NRI can apply for a lower deduction or nil deduction certificate:
- Application filed on the e-filing portal (Form 13)
- AO examines income estimate and issues certificate specifying lower rate
- Certificate is furnished to the payer, who then deducts at the reduced rate
- Particularly useful for property sales where TDS at 20% on total consideration may far exceed actual capital gains tax
NRE, NRO, FCNR Accounts — Tax Treatment
| Feature | NRE Account | NRO Account | FCNR Deposit |
|---|---|---|---|
| Currency | INR (converted from foreign currency) | INR | Foreign currency (USD, GBP, EUR, etc.) |
| Source of funds | Foreign earnings only | Indian income (rent, dividends, pension, etc.) | Foreign earnings only |
| Interest taxability | Exempt (if NRI throughout FY) | Taxable at slab rates | Exempt (if NRI throughout FY) |
| TDS on interest | Nil | 30% (or DTAA rate) | Nil |
| Repatriation | Fully repatriable (principal + interest) | Up to USD 1 million per FY (after taxes) | Fully repatriable |
| Joint holding | Joint with another NRI/PIO only | Joint with resident Indian allowed | Joint with another NRI/PIO only |
| On becoming resident | Re-designated as resident account; interest becomes taxable | Re-designated as resident savings; continues taxable | Can be held till maturity; interest taxable from date of becoming resident |
Capital Gains for NRIs
Capital gains on Indian assets are fully taxable for NRIs. Key considerations:
- Property sale: Buyer must deduct TDS at 20% on total sale consideration (not just capital gain) for long-term gains. NRI should apply for lower deduction certificate to avoid excess TDS
- Listed equity shares (STT paid): LTCG above ₹1.25 lakh exempt; balance taxed at 12.5%. STCG at 20%
- Unlisted shares: LTCG at 12.5%; STCG at slab rates
- Mutual funds: Rates depend on fund type (equity/debt) and holding period
- Indexation benefit: Available for property and unlisted shares acquired before 23 July 2024 (grandfathering provisions)
For complete capital gains rates and computation, see Capital Gains Tax 2025 Guide.
Special Provisions for NRI Income
Section 115A Equivalent — Royalties & FTS
Non-residents receiving royalties or fees for technical services (FTS) from an Indian payer can opt for a flat rate of 10% (plus surcharge and cess) without claiming deductions or exemptions. This simplifies compliance for NRIs with specific income types.
Section 115E Equivalent — Investment Income of NRI
Investment income (dividends, interest on specified assets, long-term capital gains) earned by an NRI on foreign exchange assets acquired through convertible foreign exchange is taxed at a concessional flat rate of 20% (LTCG at 10%). This provision incentivises NRI investment in India.
NRI Return Filing Requirements
- Mandatory filing: If total Indian income exceeds the basic exemption limit (₹3,00,000 under new regime for AY 2026-27)
- Recommended filing: Even if income is below the threshold, filing is advisable to claim TDS refunds, establish compliance history, and address AIS discrepancies
- ITR form: ITR-2 (for NRIs with salary, house property, capital gains, other sources — no business income) or ITR-3 (if business income exists)
- Due date: 31 July 2026 (non-audit); 31 October 2026 (if audit applies)
- Verification: E-verify using EVC (Electronic Verification Code) generated through bank account, Aadhaar OTP (if Aadhaar linked), or DSC
For complete filing details, see ITR Filing 2026-27 Due Dates & Forms.
Repatriation & Form 15CA/15CB
When remitting funds from India to abroad, compliance with Form 15CA and 15CB is required:
- Form 15CA: Online declaration by the remitter (payer) to the income tax department before making any foreign remittance. Filed on the e-filing portal. Divided into Part A (remittance below ₹5 lakh, no CA certificate needed), Part B (remittance covered under RBI specified list), Part C (remittance above ₹5 lakh requiring CA certificate), and Part D (remittance not taxable under Act)
- Form 15CB: Certificate from a Chartered Accountant certifying the nature of payment, applicable TDS rate, DTAA provisions invoked, TRC details, and confirmation that tax has been deducted and deposited. Required for Part C remittances
- When required: All foreign remittances except a specified list of exempt payments (personal gifts below threshold, embassy remittances, certain RBI-permitted transactions)
Expert Insight — CA V. Viswanathan
NRI taxation is one of the most complex areas of Indian income tax, primarily because of the interplay between domestic law, DTAA provisions, and FEMA regulations. My top recommendations for NRIs: (1) Get your residential status right — count your days in India carefully. The difference between 181 and 182 days can change your entire tax position. (2) Always obtain a TRC from your country of residence before claiming DTAA benefits — without TRC, the domestic rate (30%) applies, which is significantly higher. (3) If selling Indian property, apply for a lower deduction certificate before the sale — otherwise the buyer deducts TDS at 20% on the full sale price, leading to a large refund claim and long wait. (4) Maintain NRE accounts for foreign earnings and NRO for Indian income — do not mix the two. (5) File your Indian return even if income is below the threshold — it helps build a clean compliance record and makes future transactions smoother. For NRI tax advisory, contact Virtual Auditor.
Key Takeaways
- NRI status: present in India for less than 182 days (with exceptions for employment abroad)
- NRIs taxed only on Indian-source income: salary in India, property, capital gains, NRO interest, dividends
- NRE and FCNR interest: exempt; NRO interest: taxable at 30% (or DTAA rate)
- DTAA benefits require Tax Residency Certificate (TRC) + Form 10F + PAN
- TDS on NRI payments: 30%/40% domestic; significantly lower under DTAA
- Deemed residency: Indian citizens with Indian income > ₹15L, not tax-resident anywhere — treated as RNOR
- Property sale: apply for lower deduction certificate (Sec 197) before sale to avoid excess TDS
- Form 15CA/15CB required for foreign remittances above ₹5 lakh
- File Indian return if income exceeds ₹3 lakh; recommended even below threshold for TDS refunds
Frequently Asked Questions — NRI Taxation
Related Articles: Income Tax Act 2025 Complete Guide | Income Tax Slabs 2026-27 | Capital Gains Tax 2025 | TDS Rate Chart 2026-27 | ITR Filing 2026-27
