NRI Tax in India: Residential Status

India's tax laws treat residents and non-residents differently on almost every dimension — which income is taxable, at what rate, how it is collected and what deductions apply. For Indian citizens or persons of Indian origin living abroad, understanding where you stand is the starting point for managing your Indian tax obligations.

This guide covers the key concepts: how residential status is determined, which incomes are taxable for NRIs, TDS rates that apply, how to use double taxation avoidance agreements, and the mechanics of filing an Indian tax return.

Step 1: Determine Your Residential Status

Your tax obligations in India depend entirely on your residential status for that financial year (April 1 to March 31). The Income Tax Act defines three categories:

Resident and Ordinarily Resident (ROR)

You are a Resident if you are in India for 182 days or more in the financial year, OR if you are in India for 60 days or more in that year AND 365 days or more in the preceding four years.

Additionally, to be Ordinarily Resident, you must have been resident in India for at least 2 out of the last 10 years AND have been in India for at least 730 days in the last 7 years.

A full ROR is taxed on their worldwide income.

Non-Resident Indian (NRI)

If you do not meet the residency thresholds above, you are an NRI for that year. NRIs are taxed only on income that is received or deemed to accrue or arise in India.

One important note: Indian citizens working abroad on a vessel or for a company abroad are not treated as resident merely because they visit India, but the standard 182-day rule applies otherwise.

Resident but Not Ordinarily Resident (RNOR)

This is an intermediate status. You qualify as RNOR if you have been a Non-Resident for 9 out of the 10 preceding years, or have been in India for 729 days or fewer in the preceding 7 years. RNOR individuals are taxed on India-sourced income and income received in India — not on foreign income. This makes RNOR status financially favourable for returning NRIs during the transition period.

What Income Is Taxable for NRIs?

NRIs are taxed on income that:

• Is received or deemed to be received in India, OR
• Accrues or arises in India, OR
• Is deemed to accrue or arise in India (under Section 9)

This includes:

Salary from India-based work: If you are physically in India performing services, that portion of salary is taxable here. If your entire work is performed abroad, salary is generally not taxable in India even if paid by an Indian company (subject to DTAA provisions).

Rental income from Indian property: Fully taxable in India at applicable rates. TDS is deducted by the tenant.

Capital gains on Indian assets: Gains from selling Indian property, shares listed on Indian exchanges, or mutual fund units are taxable in India. The rate depends on the asset type and holding period.

Interest on NRO accounts: Taxable at 30% plus surcharge and cess. NRE account interest is exempt.

Dividends from Indian companies: Taxable at applicable NRI rates.

Business income from an Indian business: Fully taxable.

TDS Rates That Apply to NRIs

Tax on NRI income is often collected at source (TDS). Key rates under the Income Tax Act (before any DTAA benefit):

Income Type	TDS Rate
Interest on NRO accounts	30%
Dividend	20%
Short-term capital gains (listed equity)	15%
Long-term capital gains (listed equity)	12.5% above ₹1.25 lakh
Long-term capital gains (property)	12.5% (without indexation)
Short-term capital gains (property)	Slab rates (30% for most NRIs)
Rent received	30% (deducted by tenant)

These are default rates. DTAA provisions with your country of residence can reduce or eliminate the rate in many cases.

DTAA Benefits — Reducing Double Taxation

India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries, including the USA, UK, UAE, Singapore, Canada, Australia, Germany and the Netherlands. A DTAA determines which country has the right to tax specific incomes and at what rate, and ensures the same income is not taxed twice.

To claim DTAA benefits in India, you typically need to:

1. Obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence
2. Submit Form 10F (a self-declaration) with the Indian income payer
3. Ensure the income payer (bank, broker, company) applies the DTAA rate instead of the standard Indian rate

Common DTAA provisions:

• UAE: India-UAE DTAA — certain incomes are taxed only in the country of residence. Since UAE has no personal income tax, NRIs in UAE often pay zero tax on specified incomes with proper DTAA compliance.
• USA: More complex. The India-USA DTAA is in force but FATCA and US worldwide income rules add compliance requirements on the US side.
• UK and Singapore: DTAAs provide beneficial treatment on dividends, royalties and certain capital gains.

Tax treaty interpretation is complex and fact-specific. Professional advice is recommended before making decisions based on DTAA benefits.

Foreign Tax Credit: Form 67

If you paid tax on India-sourced income in your country of residence AND India also taxes it, you may claim a credit for the Indian tax against your foreign tax liability (or vice versa, depending on which country has primary taxing rights under the DTAA).

To claim foreign tax credit in India, you must file Form 67 before or along with your income tax return. Form 67 requires details of foreign income, the tax paid abroad and the relevant DTAA provision relied upon.

Missing Form 67 — even if the credit is otherwise available — results in the credit being denied.

Filing Your Indian Income Tax Return as an NRI

NRIs with taxable India-sourced income must file an ITR. The relevant forms are:

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

The due date for filing (without audit) is 31 July of the assessment year. If your India income is subject to tax audit, the due date is 31 October.

NRI returns must be filed online through the Income Tax e-filing portal. An NRI can file from abroad using a valid PAN and digital signature or Aadhaar-based OTP (if Aadhaar is linked and updated). Many NRIs opt to authorise a CA in India to file on their behalf using a power of attorney.

Filing when all TDS has been deducted at the correct rate may still be worthwhile to:

• Carry forward capital losses (which can be set off against future gains)
• Claim a refund of excess TDS
• Establish a formal tax record in India (useful for property transactions)

Practical Steps for NRI Tax Compliance

1. Determine your residential status each year based on actual days in India
2. Maintain NRE/NRO accounts correctly and ensure the bank has your updated KYC and FEMA declarations
3. Collect TDS certificates (Form 16A) from all Indian income payers
4. Obtain a TRC from your country of residence if you intend to claim DTAA benefits
5. File Form 67 if claiming credit for foreign taxes paid
6. File your ITR by 31 July or appoint a CA through a power of attorney to do so

Our NRI taxation services help you determine your status correctly, claim applicable DTAA benefits and file compliant returns.

Summary

NRIs are taxed in India only on India-sourced income, not on their worldwide income. The determination of residential status each year — NRI, RNOR or Resident — drives all other tax consequences. TDS is deducted at source on most NRI incomes, often at rates that DTAA provisions can legitimately reduce. Filing an Indian income tax return is mandatory when India-sourced income exceeds the basic exemption limit and is also advisable in other situations to carry forward losses or claim TDS refunds.

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Disclaimer: Tax laws are subject to amendment by the Union Budget, CBDT circulars and Finance Acts. The DTAA provisions described are general summaries. This article does not constitute professional tax advice. Please consult a qualified Chartered Accountant for advice specific to your situation and country of residence.