title: "NRI Taxation Under Income Tax Act 2025: Complete Guide for Non-Resident Indians" description: "How the Income Tax Act 2025 affects NRIs. Residential status determination, taxable income in India, DTAA benefits, TDS on NRI income, FEMA compliance, and filing ITR as an NRI for Tax Year 2026-27." date: "2026-02-21" category: "Tax Planning" tags: ["nri tax new income tax act 2025", "nri taxation india 2026", "NRI income tax", "DTAA india", "non resident indian tax"] readTime: "14 min read" featured: false author: "Taficon Team" image: "/og-image.png" slug: "nri-taxation-new-income-tax-act-2025"
For Non-Resident Indians (NRIs), taxation in India is a subject of perennial complexity. The Income Tax Act 2025 preserves the core framework governing NRI taxation — residential status rules, taxable income definitions, DTAA provisions, and TDS on NRI income — while simplifying the legal language and introducing the Tax Year concept. This comprehensive guide covers everything NRIs need to know for Tax Year 2026-27.
Step 1: Are You an NRI? Determining Residential Status
Before anything else, establish your residential status for Tax Year 2026-27 (April 1, 2026 to March 31, 2027). Under the 2025 Act (same rules as 1961 Act):
The Three Categories
Resident and Ordinarily Resident (ROR):
- Present in India ≥ 182 days in the Tax Year, OR
- Present in India ≥ 60 days in the Tax Year AND ≥ 365 days in the 4 preceding Tax Years
- Plus: Resident in India in 2 of the last 10 Tax Years AND present in India ≥ 730 days in the last 7 Tax Years
Resident but Not Ordinarily Resident (RNOR):
- Satisfies the basic resident condition (above) but NOT both the RNOR additional conditions
- Common for returning NRIs in their first 2-3 years back
Non-Resident (NR):
- Does not satisfy any resident condition — present in India < 182 days AND/OR doesn't meet the 60+365-day test
Special Rules for Indian Citizens / Persons of Indian Origin (PIO)
For Indian citizens/PIOs visiting India:
- The 60-day threshold is replaced by 120 days if they have Indian income above ₹15 lakh
- If Indian income > ₹15 lakh and visiting > 120 days → NR not possible; becomes RNOR
Deemed Resident Rule (Finance Act 2020, Preserved in 2025 Act):
- Indian citizen with Indian income > ₹15 lakh
- Not liable to tax in ANY country
- Automatically treated as Resident (RNOR) — cannot be an NRI by living in a "no-tax" country
Day Count: What Counts?
- Any part of a day in India = 1 day for counting purposes
- Days of arrival and departure: Count arrival day; departure day is not counted (historically)
- Medical treatment, transit: Count all days physically in India
What Income Is Taxable for NRIs in India?
NRI Taxable Income: India-Sourced Only
An NRI is taxed in India only on income that:
- Accrues or arises in India — salary for work done in India, rent from Indian property
- Is received in India — foreign income credited directly to Indian bank
- Deemed to accrue in India — interest on NRE/NRO accounts (NRO is taxable; NRE is exempt)
Foreign income is NOT taxable in India for NRIs — this is the key benefit of NRI status.
Types of India-Source Income for NRIs
| Income Type | Taxable for NRI? | Notes |
|---|---|---|
| Salary for work done in India | Yes | Even if paid abroad |
| Salary for work done abroad | No | Even if employer is Indian |
| Rent from Indian property | Yes | After 30% standard deduction |
| Interest on NRO account | Yes | TDS at 30% |
| Interest on NRE account | No | Fully exempt |
| Interest on FCNR(B) account | No | Fully exempt |
| Dividend from Indian companies | Yes | TDS at 20% (or DTAA rate) |
| Capital gains on Indian assets | Yes | Same rates as residents |
| Pension from Indian employer | Yes | Taxable |
| Professional income for India services | Yes |
Tax Rates for NRIs
Standard Income Tax Rates
NRIs use the old tax regime slabs by default (the new tax regime with its revised slabs is not automatically applicable to NRIs for all income types — this is an important nuance):
| Income Slab | Tax Rate |
|---|---|
| Up to ₹2,50,000 | 0% |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Note: NRIs cannot claim the basic exemption limit (₹2.5 lakh exemption) on certain incomes — specifically, capital gains and interest from Indian sources. These are taxed at flat rates.
Flat Rates on Specific NRI Income
| Income Type | Flat Tax Rate |
|---|---|
| Interest on NRO accounts / Indian bonds | 20% (may be reduced by DTAA) |
| Dividend from Indian companies | 20% (may be reduced by DTAA) |
| LTCG on equity shares/equity MF | 12.5% (no ₹1.25L exemption for NRIs in some cases) |
| STCG on equity shares/equity MF | 20% |
| LTCG on other assets | 12.5% (no indexation) |
| STCG on other assets | Slab rate |
| Lottery / horse racing winnings | 30% |
Key difference: NRIs generally don't get the ₹1.25 lakh LTCG exemption on equity — this is a resident-specific benefit. However, if treaty provisions apply, this may differ.
TDS on NRI Income
When income is paid to an NRI, the payer in India must deduct TDS at higher rates (generally 20-30%) compared to resident rates.
TDS Rates for NRI Payments
| Income Type | TDS Rate (Without DTAA) |
|---|---|
| Interest (NRO account) | 30% |
| Dividend | 20% |
| Rent from property | 31.2% (30% + cess) |
| LTCG on property | 20% (with indexation, if applicable) |
| STCG on property | 30% |
| LTCG on equity | 12.5% |
| Professional income | 40% |
Reducing TDS Through DTAA
If India has a Double Taxation Avoidance Agreement (DTAA) with your country of residence, you can benefit from lower TDS rates:
Steps to Claim DTAA TDS Relief:
- Obtain Tax Residency Certificate (TRC) from your country of residence
- File Form 10F with the Indian payer/tenant/bank
- Payer deducts TDS at DTAA rate instead of domestic rate
- Claim credit for Indian TDS against your foreign country's tax
Key DTAAs and Their Rates
India has DTAAs with 90+ countries. Common examples:
| Country | Dividend Rate | Interest Rate | Capital Gains |
|---|---|---|---|
| USA | 15% (10% if >10% holding) | 15% | India gets right |
| UK | 15% (10% if >10% holding) | 15% | India gets right |
| UAE | 0% | 12.5% | India gets right |
| Singapore | 15% (10% if >25% holding) | 15% | India gets right |
| Canada | 25% (15% if >25% holding) | 15% | India gets right |
| Germany | 10% (5% if >10% holding) | 10% | India gets right |
| Australia | 15% | 15% | India gets right |
"India gets right" on capital gains means India can tax capital gains on Indian assets even under DTAA. Most DTAAs allocate capital gains taxing rights to the source country (India for Indian assets).
Claiming DTAA Benefits in ITR
If you file an ITR in India, claim DTAA relief in:
- Schedule FSI (Foreign Source Income)
- Schedule TR (Tax Relief — for tax paid abroad on same income)
- Schedule FA (Foreign Assets — mandatory if applicable)
NRI Bank Accounts and Investment
Bank Account Types
| Account Type | Who Can Hold | Currency | Taxability |
|---|---|---|---|
| NRE (Non-Resident External) | NRIs only | INR (from foreign earnings) | Interest exempt in India |
| NRO (Non-Resident Ordinary) | NRIs/residents | INR (Indian earnings) | Interest taxable (30% TDS) |
| FCNR(B) (Foreign Currency Non-Resident) | NRIs only | Foreign currency | Interest exempt in India |
Upon return to India: NRE/FCNR accounts must be converted to resident accounts or RFC (Resident Foreign Currency) accounts.
Investments Available to NRIs
| Investment | NRIs Allowed? | Repatriability |
|---|---|---|
| Listed equity shares (PIS route) | Yes | Repatriable |
| Equity Mutual Funds | Yes | Repatriable |
| Debt Mutual Funds | Yes | Subject to limits |
| Fixed Deposits (NRE/NRO) | Yes | NRE: full; NRO: limited |
| PPF | No (existing accounts can continue until maturity) | |
| NPS | Yes (as subscriber) | Subject to NPS rules |
| Real estate | Yes (residential / commercial, not agricultural) | Limited repatriation |
| Government bonds | Yes | Subject to limits |
Real Estate: Special NRI Rules
Buying Property in India as NRI
- NRIs can buy residential and commercial property in India
- Cannot buy: Agricultural land, plantation property, farmhouse
- No RBI approval needed for buying (auto route)
- Payment must come from NRE/NRO account or foreign remittance
Renting Out Indian Property
- Rent income = taxable in India
- TDS by tenant: 31.2% (if tenant is Indian resident)
- File ITR to claim standard deduction (30%) on rent and pay tax at applicable rate
- Claim home loan interest (if any) under "Income from House Property"
Selling Property in India
- Capital gains apply (same as residents)
- TDS on sale proceeds: Buyer must deduct TDS at 20% (LTCG) or 30% (STCG) on the full sale consideration — not just on gains
- To claim actual gains-based tax, file ITR and claim refund of excess TDS
- Repatriation of sale proceeds: Up to USD 1 million per year from NRO account (with CA certificate)
Filing ITR as an NRI
Do You Need to File?
NRIs must file ITR if:
- Taxable income in India > ₹2,50,000 (before the new regime; however the regime choice for NRIs has specific nuances)
- Want to claim refund of excess TDS
- Want to carry forward capital losses
- Have foreign assets (mandatory)
Applicable ITR Form
| Situation | ITR Form |
|---|---|
| NRI with salary + house property + interest | ITR-2 |
| NRI with business income | ITR-3 |
| NRI with presumptive business/profession | ITR-4 |
Filing Deadline
Same as residents:
- July 31, 2027 for Tax Year 2026-27 (if no audit required)
- December 31, 2027 for belated return
Filing without a lawyer/CA: The income tax portal allows NRIs to file online with PAN authentication. No physical presence in India is required.
FEMA Compliance: Parallel Obligation
Tax compliance and FEMA (Foreign Exchange Management Act) compliance go together for NRIs:
| FEMA Obligation | Detail |
|---|---|
| Maintaining correct account type | NRE/NRO/FCNR based on status |
| Reporting foreign assets | Schedule FA in ITR |
| Property transactions | Report large transactions to RBI |
| Remittance from NRO | Requires Form 15CA/15CB (CA certificate) |
Key Takeaways for NRIs
- Only India-sourced income is taxable — foreign earnings remain outside Indian tax net.
- Residential status determines everything — count your India days carefully.
- NRE account interest is exempt — NRO interest is taxable at 30% (TDS applied).
- DTAA can reduce TDS — obtain TRC and file Form 10F with each payer.
- File ITR even if all tax is via TDS — to claim refunds and carry forward losses.
- Real estate sale TDS applies on full consideration — file ITR to claim refund of excess.
- New Tax Year concept applies to NRIs too — from April 2026, use "Tax Year 2026-27."
- All provisions are preserved unchanged in the 2025 Act — section numbers change, not substance.
Calculate Your India Tax Liability as NRI →
FAQ
Q1. Does the Income Tax Act 2025 change how NRIs are taxed?
No. The 2025 Act preserves all NRI-specific provisions — residential status rules, flat tax rates on interest/dividends, DTAA framework, and TDS obligations. The only changes are simplified language and the new "Tax Year" nomenclature replacing "Previous Year/Assessment Year."
Q2. Is NRE account interest still exempt under the 2025 Act?
Yes. Interest on NRE accounts and FCNR(B) accounts remains fully exempt from Indian income tax under the 2025 Act. NRO account interest continues to be taxable (TDS at 30%).
Q3. Can NRIs opt for the new tax regime under the 2025 Act?
NRIs can opt for the new tax regime for regular income tax computation. However, for specific incomes (interest, dividends, capital gains at flat rates), the special flat rates apply regardless of regime choice. The regime choice primarily affects slab-rate income like rental income and salary.
Q4. How is property sold by an NRI taxed?
If property was held > 24 months, LTCG at 12.5% (without indexation from Budget 2024) applies. If held ≤ 24 months, STCG at slab rate. The buyer must deduct TDS at 20-30% on the sale consideration. NRIs typically file ITR to claim refund of excess TDS (since TDS is on full consideration, not just gains).
Q5. What is Form 10F and when must NRIs use it?
Form 10F is a self-declaration by an NRI (or foreign company) confirencing their Tax Residency Certificate details for DTAA purposes. You submit it to each Indian payer (bank, company paying dividends, tenant) so they can deduct TDS at the lower DTAA rate instead of domestic rates. It must be filed on the income tax portal and submitted to each deductor.
Q6. I'm an NRI but have no income in India except capital gains from stocks. Do I need to file ITR?
If your capital gains from Indian stocks and mutual funds (after applying exemptions) result in taxable income, yes, you should file. Even if the LTCG is below ₹1.25 lakh (though this exemption may not apply to NRIs in all circumstances), filing ITR allows you to carry forward losses and is needed if you want to claim any TDS refund.
Q7. I am returning to India permanently. When do I become a resident again?
The year you return, if you stay ≥ 182 days in India, you become a "Resident." However, you will likely be "Resident but Not Ordinarily Resident" (RNOR) for 2-3 years after return, based on your history. As RNOR, foreign income remains exempt in India. Once you become ROR (Resident and Ordinarily Resident), worldwide income is taxable in India.
Q8. Are there any special provisions for NRIs under the new Act that help with compliance?
The new Act streamlines faceless assessment, making it easier to participate in assessments without physical presence. The Dispute Resolution Panel is also strengthened. For NRIs, the 2025 Act's simplified language makes it easier to understand obligations without a lawyer — though complex DTAA matters still warrant professional advice.