Being a Non-Resident Indian
(NRI) comes with the special tax implications of earning income from India. Most NRIs are still uncertain about
whether they need to pay tax on this income, which tax slab they are
eligible for, and what kind
of deductions are available to them.
This handbook demystifies NRI taxation for
the 2025–26 financial year, so it's easier for you
to be compliant and steer clear of
unwanted penalties — and make informed decisions.
Who is an NRI for Taxation?
Your Indian tax liability starts with deciding your
residential status. According to the Indian Income Tax
Act, an individual will be treated as an NRI
if he or she was in India for less than 182
days in the concerned financial year. Alternatively, if
you spent less than 60 days in India this year and
less than 365 days in the past four years
combined, then you will qualify as an NRI too.
It's wise to review your residency
status yearly since it will determine which part
of your income is taxable in India.
What is Taxable Income in India for NRIs?
Income that is earned in India or received in India alone is
taxable for NRIs. Income earned outside India is not liable to
tax in India if you hold NRI status. The major sources
of taxable income for NRIs are as follows:
Salary for services performed in India
Rental income for property held in India
Interest income on NRO accounts or fixed deposits in India
Capital gains resulting from the sale of shares, mutual funds,
or real property in India
Dividends received by Indian companies
Here's an important point: foreign income earned by
you, including salary from foreign employment or
business, is exempt from tax if you are an
NRI as per the Income Tax Act.
Income Tax Slabs for NRIs (FY 2025–26)
NRIs have the option of availing the old tax regime (with
deductions) or the new regime (with reduced rates but no
deductions). The option can
be exercised every year while submitting the
income tax return.
Old Regime (With Deductions):
Income below ?2.5 lakh: Nil
2.5 – 5 lakh: 5%
5 – 10 lakh: 20%
Above 10 lakh: 30%
Unlike resident Indians, NRIs are not eligible for the increased exemption
limits available to senior or super-senior citizens.
New Regime (Without Deductions):
Income up to 3 lakh: Nil
3 – 6 lakh: 5%
6 – 9 lakh: 10%
9 – 12 lakh: 15%
12 – 15 lakh: 20%
Above 15 lakh: 30%
You can switch between these regimes each financial year based on what offers
the best tax benefit for your income pattern.
NRIs: Deductions and Exemptions
If you opt for the old tax regime, you are eligible
to claim deductions under specific sections of the Income Tax
Act. They reduce your taxpaying income.
Eligible Deductions for NRIs:
Section 80C: 1.5 lakh for premiums paid for life
insurance, ELSS mutual fund investments, and home loan principal repayment
Section 80D: Premiums paid for health insurance policies for
self, family
Section 80E: Interest on education loan for self or dependents
Section 24(b): Interest on a house loan up to ?2 lakh for a
self-occupied property
Deductions Not Permitted:
Public Provident Fund (PPF)
National Savings Certificate (NSC)
Senior Citizens' Saving Scheme (SCSS)
Invest in Indian tax-saving products carefully, as not all of them
are for NRIs.
TDS Implications for NRIs
TDS (Tax Deducted at Source) is an important aspect of NRI
taxation, as the majority of Indian income paid to
NRIs is subject to automatic tax deduction.
General TDS Rates for NRIs:
Interest on NRO accounts: 30%
Rental income: 31.2%
Long-term capital gain (LTCG) on property: 20%
Short-term capital gain (STCG): 30%
Dividends: 20%
Sale proceeds of property: 20% (LTCG) or 30% (STCG), in addition
to surcharge and cess
Even if your actual tax liability is less than the TDS,
the tax deducted has to be adjusted by filing an ITR
to get a refund.
Do NRIs Need to File an Income Tax Return
in India?
Yes, NRIs need to file an income tax return in India if:
Total taxable Indian income is more than ?2.5 lakh in a
financial year
They have received capital gains from property or other assets in
India
They want to transfer excess TDS to future years
They wish to carry forward capital losses for future years
The ITR should be e-filed and all the required
documents — such as PAN, Form 16A (if TDS involved),
and bank statements — ready.
Recent Updates Influencing NRI
Taxation (FY 2025–26)
Some of
the changes are made that would affect NRI
taxation:
Revised tax slabs under new regime
Mandatory PAN-Aadhaar linking for NRIs with financial assets in India
Updated guidelines on determining residential status
Increased scrutiny and compliance requirements for high-value transactions
Enhanced TDS rates and documentation requirements during property sales
It is advisable to work with a qualified CA firm to ensure compliance with
these updated provisions.
Common Challenges Faced by NRIs
Many NRIs face hurdles when managing their Indian tax responsibilities. These
include:
Double taxation, particularly if tax is paid
abroad as well
Inaccurate residential status classification
Excessive payment of TDS
and ignorance regarding refund procedures
Limited availability of professional tax assistance while overseas
Trouble in claiming rightful deductions
Effective tax planning and
professional guidance can counter these challenges efficiently.
FAQs
Q1. NRIs, are they required to pay tax
on earnings made abroad?
No. Provided you are an NRI,
income received and earned abroad is
not taxable in India.
Q2. Do NRIs get deductions under Section 80C?
Yes, but only a few instruments such as ELSS,
life insurance premium,
and home loan principal are permitted.
Q3. Are NRIs required to file ITR even if TDS
is being deducted?
Yes. It is necessary to file an ITR if your
income is more than the basic exemption limit or
you wish to claim a refund.
Q4. Can NRIs opt for the new tax regime?
Yes. NRIs can opt between the old and new
regimes while filing their ITR.
Q5. How is rental income taxed for NRIs?
Rental income is taxable after a deduction of 30% as standard
deduction, and the tenant must deduct TDS before making
the payment.