NRI Taxation in India: Residency Rules, India-Source Income, TDS & ITR Filing Essentials
Understanding NRI Residency Rules
NRI taxation in India follows source-based principles, where only income accruing, arising, or received in India is taxable for Non-Resident Indians (NRIs). Residential status is determined under Section 6 of the Income Tax Act, 1961, primarily based on days spent in India during the financial year.[10][1]
Currently, an individual is a **Non-Resident** if they stay in India for less than 182 days in the financial year, or less than 60 days in the current year plus 365 days in the preceding four years. For Indian citizens and Persons of Indian Origin (PIOs), the 60-day rule applies unless Indian income exceeds ₹15 lakh, tightening to 120 or 182 days.[1][3][7]
Key change ahead: From April 1, 2026, under the Income Tax Bill 2025, NRIs/PIOs with Indian income over ₹15 lakh will be deemed **Resident but Not Ordinarily Resident (RNOR)** if staying 120 days or more, up from 60 days. RNORs are taxed only on Indian income, similar to NRIs, but foreign income remains exempt.[3][5][7]
- Stay ≥182 days: Full Resident (global income taxed).
- 120-182 days + high Indian income (post-2026): RNOR (Indian income taxed).
- <120 days: NRI (only India-source income taxed).[3][7]
Taxable India-Source Income for NRIs
NRIs focus on **India-sourced income**, avoiding reporting foreign earnings. Common taxable heads include:[10][2]
Salary Income
Taxable if received in India or for services rendered in India, at slab rates with TDS by employer.[1][2]
Income from House Property
Rental income or notional rent from Indian property is taxable at slab rates. Claim 30% standard deduction and municipal taxes. TDS at 30% if rent exceeds ₹50,000/month.[1][2][4]
Capital Gains
Gains from sale of Indian assets: 15% short-term on equities, 20% long-term on property (with indexation).[1]
Interest and Other Income
Interest on NRO accounts: 30% TDS, taxable. NRE/FCNR accounts: Exempt. Dividends, business income from India: Taxable.[1][2][9]
Basic exemption: Up to ₹2.5 lakh (old regime) or ₹3 lakh (new regime). Slabs apply beyond, same as residents. Surcharge up to 37% for high incomes.[1][4][6]
- Foreign income: Not taxed for NRIs/RNORs.
- DTAA relief: Claim via Tax Residency Certificate and Form 10F to avoid double taxation.[9]
TDS, ITR Filing, and Compliance Essentials
**TDS** ensures tax collection at source: 30% on rent/interest (NRO), slab rates on salary, special rates on gains. File ITR for refunds.[1][2][12]
**ITR Filing**: Mandatory if Indian income > ₹2.5/3 lakh. Deadline: July 31 (extended to Sep 15 for FY 2024-25 non-audit cases). Use ITR-2/3; disclose assets >₹1 crore.[2][13]
- Track stay days meticulously, especially with 2026 changes.
- Maintain NRE/NRO accounts correctly for exemptions.
- Plan visits to stay under thresholds if high Indian income.
- Consult CA for RNOR transition or DTAA benefits.[3][10]
NRIs must prioritize compliance to avoid notices. Focus on India-source income, leverage exemptions, and prepare for residency rule updates for seamless taxation.[1][10]