NRI Taxation in India: Complete Guide for FY 2025-26

Understanding Residential Status for Tax Purposes

Your tax liability in India depends entirely on your residential status for the financial year. The Income Tax Act categorizes individuals into three groups:

What Income is Taxable for NRIs in India?

As an NRI, only income earned or received in India is subject to Indian income tax. Your foreign income (salary abroad, foreign investments, etc.) is not taxable in India.

Taxable Indian Income

• Salary for services rendered in India (even if received abroad)
• Rental income from Indian property— Taxable under “Income from House Property”. TDS: tenant must deduct 31.2% if rent exceeds ₹50,000/month
• Capital gains on Indian assets— Property, stocks, mutual funds
• Interest on NRO accounts— Taxable at slab rates. TDS at 30% + cess
• Dividends from Indian companies— TDS: 20% + cess if dividend exceeds ₹5,000
• Business income from India— If you have a business or profession operating in India

NOT Taxable for NRIs

• Foreign salary (earned and received abroad for work done abroad)
• Interest on NRE Fixed Deposits and NRE Savings Accounts
• Capital gains on foreign assets (property abroad, foreign stocks)
• Income from foreign business with no operations in India

NRE vs NRO Accounts

Capital Gains Tax for NRIs: Property & Investments

Property Sale by NRIs

Long-Term Capital Gains (LTCG)— Property held for more than 24 months:

• For property acquired BEFORE July 23, 2024: 20% tax rate WITH indexation benefit
• For property acquired ON/AFTER July 23, 2024: 12.5% tax rate WITHOUT indexation
• TDS (Section 195): Buyer must deduct TDS at 20% + surcharge + cess on sale consideration

LTCG Exemptions Available:

• Section 54: Reinvest gains in residential property (1 year before or 2 years after sale, or construct within 3 years)
• Section 54EC:Invest up to ₹50L in specified bonds (NHAI/REC) within 6 months of sale

Short-Term Capital Gains (STCG)— Property held for 24 months or less: Taxed at applicable income tax slab rates.

Equity & Mutual Fund Capital Gains for NRIs

• Listed equity shares/equity MFs (LTCG, held >12 months): 12.5% tax on gains above ₹1.25 lakh per year
• Listed equity shares/equity MFs (STCG, held ≤12 months): 20% tax rate
• Debt mutual funds (LTCG, held >24 months): 20% with indexation (for pre-April 2023 investments)

Repatriation: Property sale proceeds repatriable up to USD 1 million per FY (net of taxes). Equity/MF sales fully repatriable if original investment was from NRE/FCNR account. Requires Form 15CA/15CB.

DTAA: Avoiding Double Taxation

India has signed Double Taxation Avoidance Agreements (DTAA) with over 90 countries to prevent the same income from being taxed twice.

DTAA provides relief through two methods:

1. Exemption Method: Income is taxed in only ONE country. The other provides full exemption.
2. Credit Method: Income is taxed in both countries, but you get a credit for tax paid in one country when paying tax in the other.

Example: NRI in USA earning rental income from India. India taxes the rental income. USA provides Foreign Tax Credit for taxes paid in India. You avoid paying tax twice.

Lower TDS Rates under DTAA (Sample Countries)

How to Claim DTAA Benefits

1. Obtain Tax Residency Certificate (TRC) from your country
2. Submit Form 10F on the Indian income tax portal (self-declaration)
3. Provide TRC and Form 10F to the Indian payer before TDS deduction
4. File Indian ITR and claim DTAA relief under the relevant sections
5. Declare Indian income in your country of residence and claim foreign tax credit

TDS Rates for NRIs

NRIs face higher TDS rates than residents on most income types:

• Interest on NRO accounts: 30% + cess (under DTAA may be lower)
• Rental income:31.2% (30% + 4% cess) if >₹50,000/month
• LTCG on property: 20% + surcharge + cess
• LTCG on equity: 12.5% + surcharge + cess
• STCG on equity: 20% + surcharge + cess
• Dividends: 20% + cess

ITR Filing Obligations for NRIs

When Must an NRI File ITR?

• Total Indian income (before deductions) exceeds the basic exemption limit (₹4 lakh under new regime for FY 2025-26)
• You want to claim a refund of TDS deducted
• You have capital gains on which TDS was deducted at higher rate
• You want to carry forward losses for future set-off

Which ITR Form for NRIs?

• ITR-2: For NRIs with salary (India-sourced), house property, capital gains, and other income (no business income)
• ITR-3: For NRIs with business/professional income in India

Deadline

July 31, 2026 for Tax Year 2025-26 (non-audit cases). October 31, 2026 for audit cases. Late filing attracts ₹5,000 penalty.

Disclaimer: NRI taxation is complex and varies by individual circumstances. Consult a CA specializing in NRI taxation for personalized advice. Tax laws are subject to change.