Understanding NRI income tax: Rates & Income-Tax Deductions

Did you know that as per RBI’s balance of payments analysis, India received over $129.4 billion in remittances in 2024 – the highest in the world? A large chunk of this comes from NRIs investing in Indian real estate, stocks, and mutual funds. But with these growing investments comes a common question: How exactly are NRIs taxed?

The income of NRIs in India, be it via investment or any other means, is subject to taxation. In accordance with the Income-tax Act, 1961 (‘IT Act’), the Income Tax Department announces tax slabs for each financial year. NRIs must stay updated with the latest changes to the tax regime and fulfil their tax obligations.

The IT Act defines residency differently from the Foreign Exchange Management Act, 1999 (‘FEMA’). In regard to taxable income and applicable tax rates, NRI residency shall be determined under the provisions of the IT Act, and NRIs shall be taxed accordingly.

Here’s what we’ll cover in this article:

How NRI status is defined for taxation purposes
Taxable vs Non-Taxable income for NRIs
NRI tax slabs for the Financial Year 2025-26
Special tax provisions for Capital Gains
The question of double taxation
The avenues for deduction

Are You Considered an NRI for Income-tax Purposes?

As per the Income-tax Act, 1961, an individual will be considered a Non-Resident Individual (‘NRI’) in a Financial Year (‘FY’) if:

An Individual is not in India for 182 days or more in the concerned FY [120 days in case the total income (other than income from foreign sources) exceeds INR 15 Lakh during the FY] and
An Individual has not been in India for 365 days or more in the preceding 4 FYs

In case of an Indian citizen or a person of Indian origin who being outside India, comes on a visit to India in any FY, the said individual will be considered a Non-Resident Individual if:

An Individual is not in India for 182 days or more in the concerned FY and
An Individual has not been in India for 365 days or more in the preceding 4 FYs and is not in India for 182 days or more in the concerned FY [120 days in case the total income (other than income from foreign sources) exceeds INR 15 Lakh during the FY

Further, in case of an Indian citizen being member of the crew of a ship, the residential status is determined based on certain prescribed conditions of the IT Act.

Deemed Residency: It’s important to note that an Indian citizen having total income (other than income from foreign sources) exceeding INR 15 Lakh in the concerned FY shall be deemed to be a resident in India in that FY if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

Which Income is Taxable, and What is Non-Taxable?

Not all the income that an NRI earns is taxable. Here’s explaining which income falls in the taxable bracket for NRIs and which doesn’t:

Taxable Income:
- Any income that accrues or arises or is deemed to accrue or arise in India, whether received within the country or outside
- Any income that is received or is deemed to be received in India
Non-Taxable Income: Income that accrues and is also received outside India.

Let’s make it simple:

Type of Income	Taxable
Rent from property in India	Yes
Interest from Indian bank deposits	Yes
Dividends from Indian companies	Yes
Gains from Indian stock/property sale	Yes
Salary earned and received abroad	No

For example: If you are an NRI who owns a flat in Mumbai and you earn INR 40,000/month in rent from it, this income is taxable in India.

What Is the Income-tax Slab for NRIs in FY 2025–26?

Income is taxable as per the tax-slab rates and NRIs can choose between the Old Regime and the New Regime (Section 115BAC). Here's a quick comparison:

Old Regime		New Regime
Taxable Income Slab	Tax Rate	Taxable Income Slab	Tax Rate
Up to ₹2,50,000	None	Up to ₹4,00,000	None
₹2,50,001 to ₹5,00,000	5% above ₹2,50,000	₹4,00,001 to ₹8,00,000	5% above ₹4,00,000
₹5,00,001 to ₹10,00,000	₹12,500 + 20% above ₹5,00,000	₹8,00,001 to ₹12,00,000	₹20,000 + 10% above ₹8,00,000
₹10,00,001 to ₹50,00,000	₹1,12,500 + 30% above ₹10,00,000	₹12,00,001 to ₹16,00,000	₹60,000 + 15% above ₹12,00,000
₹50,00,001 to ₹1,00,00,000	₹1,12,500 + 30% above ₹10,00,000	₹16,00,001 to ₹20,00,000	₹1,20,000 + 20% above ₹16,00,000
-	-	₹20,00,001 to ₹24,00,000	₹2,00,000 + 25% above ₹20,00,000
-	-	Above ₹24,00,000	₹3,00,000 + 30% above ₹24,00,000

Further to the above rates of income-tax, surcharge is also levied when taxable income exceeds prescribed thresholds.

Are There Any Special Tax Rates?

The IT Act defines capital assets (eg. property, shares, bonds to name a few) and any profit or gains arising from the transfer of capital assets are taxed at special rates.

Depending on the prescribed period of holding, capital assets are categorised into short-term capital assets or long-term capital assets and taxed at different rates accordingly. Further, it is pertinent to note that indexation benefit is not available to non-residents post the Union Budget announced in July 2024.

The tax rates in case of certain capital assets depending on the holding period have been tabulated below considering sale/redemption in FY 2025-26 for quick reference:

Long-Term Capital Gain (LTCG) [Holding for > 12 Months]
Nature of Income	Tax Rate
Listed equity shares (stock exchange recognised by India and STT has been paid on purchase and sale of shares) Equity-oriented mutual fund (STT has been paid on sale of units)	Above INR 1.25 lakhs: 12.5%
Zero Coupon Bond	12.5%
Listed preference shares	12.5%
Long-Term Capital Gain (LTCG) [Holding for > 24 Months]
Unlisted shares	12.5%
Land & Building	12.5%
Short-Term Capital Gain (STCG) [Holding for < 12 Months]
Nature of Income	Tax Rate
Listed equity shares Equity-oriented mutual funds Units of business trusts	20% (if STT has been paid on sale)
Listed preference shares	Applicable slab rate
Zero Coupon Bond	Applicable slab rate
Short-Term Capital Gain (STCG) [Holding for < 24 Months]
Unlisted shares		Applicable slab rate
Land & Building		Applicable slab rate

Double Taxation: Here's How DTAA Saves You

Investing from the U.S. or UAE? You may be worried about being taxed on the same income, both, in India and your country of residence. In case of countries with which India has a Double Taxation Avoidance Agreement (‘DTAA’), NRIs can avail eligible relief based on required documentation.

The DTAA allows NRIs to enjoy exemption from taxation in India or lower rates of tax as compared to the IT Act. So far, India has entered into DTAA with more than 80 countries, including the USA, UK, Canada and Singapore.

Are There Any Income-Tax Deductions for NRIs?

There are various deductions available as per the IT Act and some can be availed only on choosing the old regime of taxation. Listed below are some deductions that NRIs can enjoy under the old regime based on their income category:

As per Section 80TTA, NRIs can get a deduction on income generated via interest earned on savings accounts up to a maximum of INR 10,000. It is applicable for savings accounts held at a bank, post office, or prescribed cooperative society.
Deductions in respect of donations to certain funds, charitable institutions, etc. as per Section 80G of the IT Act.

Summing Up!

The Indian investment markets have exciting earning opportunities for NRIs. While they can profit from the investment landscape, they must stay updated about their tax obligations. It will aid keep them informed about their expected returns and smartly plan their finances. Check out Kotak Mahindra Bank’s NRI solutions and breeze through the investment market without any hassle.

FAQs

1. Are NRIs required to file an income tax return in India?

Depending on the taxable income earned and/or received in India, NRIs may be required to file the income-tax return in India.

2. Is advance tax applicable to NRIs?

NRIs have to pay advance tax if their income-tax liability is INR 10,000 or more in the concerned FY.

3. Can NRIs pick between the old and new regime?

Yes, NRIs can choose between the old and new tax regimes.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.