Taxation Rules for NRI In India

India has a well-structured and monitored taxation system that covers people’s income from different sources. While NRIs may not live in the country, they hold citizenship, and many continue to have income sources within the country, be it from salary, property, investments, or business. This income is subject to Indian taxation laws. The Indian Income Tax Department prescribes income-tax slab rates besides special rates of tax for certain categories of income.

In this article, we will cover the following:

What NRI income is taxable?
Special provision on taxable income
The old and new tax regimes for NRIs
What deductions can NRIs enjoy under the IT Act?

What NRI Income Is Taxable in India?

The Income-tax Act, 1961 (‘IT Act’) defines residency differently from the Foreign Exchange Management Act, 1999. 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.

As per the IT Act, one needs to evaluate the residential status in each Financial Year (‘FY’) and based on fulfilment of certain prescribed conditions, an individual is considered a Non-Resident Individual. Accordingly, considering the non-residential status in a particular FY, instances of taxability of income from certain sources like salary, business/profession, rent, FCNR, NRE, NRO account interest and capital gains have been discussed briefly for reference:

Income from Salary

The salary received in India is taxable. Any NRI getting salary in an Indian account is subject to Indian tax laws and will be taxed as per the respective income-tax slab rate.

Suppose Rohan, an NRI, is working remotely for an Indian IT firm and receives ₹10 lakhs annually in his Indian bank account. In that case, he will be taxed under the applicable income-tax slab rate.

Income from Business and Profession

NRI income generated through any business set up or operated in India falls within the purview of the IT Act. For instance, if an NRI owns a consultancy entity registered in India and earns ₹20 lakhs a year, the profits from this business are fully taxable in India.

Income from House Property

Earnings of an NRI from a house property in the form of rent shall be subject to taxation as per the applicable income-tax slab rate.

For example, if Maira, an NRI based in Singapore, owns a flat in Pune and earns ₹30,000 per month as rent, her annual earning of ₹3.6 lakhs shall be subject to income-tax in India.

Rental Payments to an NRI

If an NRI has any tenant and receives rent, the tenant is required to deduct TDS at 31.2%+ (30% tax + Surcharge as applicable + 4% cess) while paying rent.

For example, Priya, an NRI based in Dubai, owns a rental property in Mumbai. She earns ₹60,000 per month as rent, which is to be credited to her Indian NRO account. However, her tenant is required to deduct 31.2% TDS, i.e., ₹18,720, and deposit it with the Income Tax Department. Even though Priya resides abroad, this rental income is taxable in India under the head ‘Income from House Property’. So, the tenant will pay the net amount of ₹41,280 to Priya.

Income from Investments

Interest earned from savings accounts and fixed deposits held in Indian bank accounts is subject to tax. NRE and FCNR account-generated interest is not taxable, while any interest accumulated in NRO accounts is taxable.

An example for better understanding will be, if Raj holds ₹10 lakhs in an NRO fixed deposit that earns ₹70,000 as annual interest, this amount is fully taxable. However, if the same money was held in an NRE FD, the interest would not be taxable.

Special Provision Related to Investment Income

If the special investment income (being income derived from a prescribed foreign exchange asset) and/or long term capital gains as per section 115C of the Income-tax Act, 1961 is the only income NRIs generate in the respective financial year, and the TDS has already been deducted, there is no need to file an ITR, as per Section 115G of the IT Act.

Section 115C of the IT Act provides the assets that qualify for special treatment under Chapter XII-A of the Act as under:

The shares of an Indian company, whether private or public
Debentures of a publicly traded Indian company (other than private companies)
Deposits of a publicly traded Indian company (other than private companies)
Securities of the Central Government
Other assets of the Central Government, as notified in the official gazette

Income from Capital Gains

Capital gains in India are taxable, and the same rule applies to NRIs.

If investments in Indian shares and securities lead to capital gains, they shall be subject to taxation depending on the kind of investment and holding period.
If capital gains are generated through a house property sale and the said house property has been held for more than 24 months, the buyer must deduct 12.5% TDS along with applicable surcharge and cess.

Further, the said rate of 12.5% is subject to furnishing PAN or prescribed details like name, email id, contact number, address, Tax Identification Number and Tax Residency Certificate to the deductor. For instance, Aditya, an NRI living in the UK, sold his apartment in Mumbai which he had held for more than 24 months. The buyer, Simran, will be liable to deduct TDS at 12.5% along with applicable surcharge and cess on the sale amount before paying Aditya, as required by Indian income-tax laws. This TDS is on account of long-term capital gains and Aditya can report it while filing his ITR.

Special Provision Related to Long-Term Capital Gains

For long-term capital gains on the sale or transfer of foreign exchange assets as provided in section 115C of the IT Act, indexation benefit is not available, and no deduction under chapter VI-A can be availed.

However, based on the amount of net consideration (from transfer of the foreign exchange asset) that is invested in certain prescribed assets as per section 115C or prescribed savings certificates, the whole or the proportion of amount invested to the sale price shall not be chargeable to tax as per Section 115F.

Further, if the asset that is newly acquired (by investing the net consideration) is transferred or converted into money within three years from the date of acquisition, the earlier exempted capital gain will be chargeable to tax in the year of transfer or conversion into money.

NRI Taxation Slab Rates: Old vs. New Regime

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 for FY 2025-26:

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.

Deductions for NRIs

NRIs can avail deductions (available only under the old tax regime, kindly verify before choosing a regime), much like Indian citizens. Here’s how:

Deductions under Section 80C

Deductions for specific investments and expenditures up to ₹1.5 lakhs. Deductions allowed under Section 80C include:

Deduction on principal repayment of residential house property
Stamp duty and registration charges for a residential house property
Life insurance premium payment, provided it is less than 10% of the sum assured
Tuition fee payment for children
Investments in ELSS
Unit-Linked Insurance Plan

Deduction under Section 80D

Section 80D allows a deduction of up to ₹25,000 on the premium paid for health insurance. It is applicable to self, spouse, and any dependent child. NRIs can also claim deductions on their parents’ insurance premiums.

Deduction under Section 80E

This section permits a deduction on the interest paid for an education loan. The loan can be used to finance higher education for the NRIs themselves, their spouse, their children, and any student for whom they have legal guardianship. No maximum cap is applicable to the amount that can be claimed for deduction.

Deduction under Section 80G

If NRIs make donations for social welfare to certain funds, charitable institutions, etc. they can claim a deduction under section 80G.

Deduction under Section 80TTA

NRIs may claim deductions on income generated in the form of interest from savings bank accounts held at banks, prescribed cooperative societies, and post offices. The maximum limit for deduction is ₹10,000.

Wrapping Up!

NRIs must stay updated about their tax implications, keep an eye on applicable income-tax slab rates and ensure compliance. While you get familiar with the tax system and taxable incomes, check out Kotak Mahindra Bank’s NRI banking solutions and convenient digital services to make saving, investing, and earning quick and hassle-free.

FAQs

1. Does advance tax apply to NRIs?

NRIs can be subject to advance tax if their tax liability is ₹10,000 or more in a financial year.

2. What is the last date for NRIs to file an ITR in India?

NRIs must file the ITR by July 31 in the respective assessment year. It may be otherwise only if the government extends the deadline.

Taxation Rules for NRIs: What Income is Taxable in India?