NRI Taxation in India: What You Need to Know
NRI Taxation in India: What You Need to Know
Navigating taxation as a Non-Resident Indian (NRI) can be tricky. Many NRIs earn abroad but still have financial connections in India—such as property, investments, or family businesses. Here’s a clear breakdown of the essentials.
1. Who is an NRI for Tax Purposes?
Taxation depends on residential status, not just citizenship.
- You spend less than 182 days in India during a financial year, OR
- You spend less than 60 days in that year and less than 365 days in the past 4 years.
2. What Income is Taxable for NRIs?
NRIs are taxed only on income earned or accrued in India.
Taxable in India:
- Salary for services in India
- Rent from property in India
- Capital gains from sale of shares or property
- Interest on NRO accounts
Not Taxable in India:
- Salary earned abroad
- Income from foreign investments
- Deposits in overseas banks
3. Key Tax Rules for NRIs
TDS (Tax Deducted at Source)
- Rent paid to NRI → 30% TDS by tenant
- NRO account interest → 30% TDS
Double Tax Avoidance Agreement (DTAA)
Prevents double taxation on the same income. Example: if capital gains are taxed in India, an NRI can claim credit in their country of residence (subject to that country’s rules).
Special Tax Treatment
- NRE Account interest → Tax-free in India
- NRO Account interest → Fully taxable
- FCNR deposits → Tax-free until residential status changes
4. Capital Gains for NRIs
Property Sale
- Short-Term (<24 months holding): Taxed as per slab
- Long-Term (≥24 months): 20% with indexation
Shares & Mutual Funds
- Short-Term (<12 months): 15%
- Long-Term (>12 months): 10% above ₹1 lakh
5. Filing Requirements
NRIs must file ITR in India if:
- TDS deducted but actual tax liability is lower
- Claiming a refund
- Total taxable income exceeds ₹2.5 lakh (basic exemption for NRIs)
6. Practical Tips for NRIs
- Use DTAA benefits to avoid double taxation
- Keep rent agreements, capital gain calculations, and TDS certificates ready
- Maintain NRE, NRO and FCNR accounts separately
- Consider appointing a Chartered Accountant in India for smooth filing
Key Takeaway
NRIs are taxed only on India-linked income. The most important aspects are understanding residency rules, account types, and TDS provisions. With smart planning, NRIs can minimize tax liability while staying compliant.
