Most NRIs operate with one of two wrong assumptions. The first: that being an NRI means paying no tax in India. The second: that all income connected to India in any way is taxable here. Neither is accurate, and both lead to real problems — either missed filings on income that does attract tax, or unnecessary panic about income that does not. NRI taxation India follows a clean source-based principle, and once you understand that principle, most questions become easier to answer. This post sets out exactly which income falls on which side of the line.
Quick answer
For NRIs, only income that is received in India or that accrues or arises in India is taxable here. Income earned and received outside India is not taxable in India, regardless of whether the NRI has Indian citizenship or Indian assets. NRE and FCNR account interest is explicitly exempt by statute.
Before acting, check:
- Where did the income arise or accrue — India or abroad? This single question resolves most cases.
- Is the income specifically exempted by the Income Tax Act (for example, NRE account interest, FCNR deposit interest)?
- Does a DTAA between India and your country of residence reduce the rate or exempt the income in India?
NRI Taxation in India: The Core Rule
Section 5(2) of the Income Tax Act 1961 defines the scope of income taxable for a non-resident. For an NRI, only two categories of income are taxable in India:
- Income received or deemed to be received in India
- Income that accrues, arises, or is deemed to accrue or arise in India
Section 9 of the Act further lists categories of income deemed to accrue or arise in India regardless of where they are physically received — salary from the Indian government, business income from Indian operations, capital gains on Indian assets, interest on money lent that is used in India, and royalties or technical service fees from Indian sources.
The practical rule: where the income is sourced matters more than where the NRI lives. An NRI in Dubai with an NRO rental income in Mumbai owes Indian tax on the Mumbai rent. The same NRI with a Dubai salary owes nothing on that salary in India.
A note on both tax laws. The Income Tax Act 2025 carries forward the source-based scope of income for non-residents. The framework of Sections 5 and 9 of the Income Tax Act, 1961 Act — taxing income accruing or arising in India — continues under the 2025 Act. Section references in the 2025 Act should be confirmed against the current bare Act published by the Income Tax Department.
Income That Is Taxable for NRIs
Rental income from Indian property. If you own a house, flat, or commercial space in India and receive rent, that income accrues in India. It is taxable in India. TDS is deducted by the tenant at 30% of the gross rent under Section 195.
Capital gains on Indian assets. Selling a flat in India, selling Indian shares or equity mutual funds, or redeeming a debt mutual fund held with an Indian AMC — all produce capital gains that are taxable in India. For long-term capital gains on property sold after July 23, 2024, the rate is 12.5% without indexation (Finance Act 2024). For equity gains, LTCG is 12.5% above ₹1.25 lakh and STCG is 20%.
Interest on NRO accounts. The Non-Resident Ordinary (NRO) account holds income that originates in India — rent, dividends, pension. Interest earned on NRO balances is taxable in India. Banks deduct TDS at 30% on this interest.
Dividends from Indian companies. Since April 1, 2020, dividends are taxable in the hands of the shareholder. For NRIs, dividends from Indian companies are taxable in India, and TDS applies at 20% (or at the DTAA rate, if lower).
Salary for services rendered in India. If an NRI physically works in India — on assignment, for a project, on a short-term posting — the salary attributable to those India working days is taxable in India.
Income from Indian business or profession. Business income from an Indian entity, partnership, or Indian branch of a foreign business is taxable in India to the extent it arises from Indian operations.
Income That Is Not Taxable for NRIs
Interest on NRE accounts. The Non-Resident External (NRE) account holds income earned abroad — foreign salary remitted to India. Interest on NRE savings and fixed deposits is explicitly exempt under Section 10(4)(ii) of the Income Tax Act 1961.
Interest on FCNR deposits. Foreign Currency Non-Resident (FCNR) deposits are held in a foreign currency. Interest on FCNR accounts is also exempt under Section 10(4)(ii).
Foreign salary and employment income. A salary paid by a foreign employer to an NRI working abroad — whether in the UAE, UK, US, Singapore, or anywhere else — is income that arises outside India. It is not taxable in India.
Income from foreign assets. Rental income from a property in London, interest from a US bank account, dividends from foreign shares, capital gains on the sale of a foreign asset — none of these accrue or arise in India. They are not taxable in India.
Agricultural income. Agricultural income from land situated in India is exempt under Section 10(1) of the Income Tax Act for all taxpayers, including NRIs.
Special Tax Rates That Apply to NRIs
NRIs are taxed at the same slab rates as residents under both the old and new regimes. However, certain incomes carry flat rates.
Capital gains on Indian assets. For sales on or after July 23, 2024 (Finance Act 2024): LTCG on listed equity and equity mutual funds is 12.5% above the ₹1.25 lakh annual threshold; STCG on equity is 20%. LTCG on immovable property is 12.5% without indexation. Debt fund gains are taxed at slab rates. For NRIs specifically, equity LTCG is charged under Section 115AD (the equivalent of the resident Section 112A), while property gains fall under the general capital gains provisions. Surcharge and 4% cess apply on top of these base rates.
Investment income under Chapter XII-A. NRIs who invest in specified foreign exchange assets (government bonds, listed securities purchased in foreign currency) can opt for the special provisions under Sections 115C to 115I. Under this optional regime, investment income is taxed at 20% and LTCG on those specific assets at 10%.
NRO interest. Banks deduct TDS at 30% on NRO interest. This may be reduced under an applicable DTAA — for example, the India-UAE DTAA caps interest withholding at 12.5%, provided the NRI furnishes a TRC and Form 10F.
One important restriction. NRIs are not eligible for the Section 87A rebate — the rebate available to resident individuals with income below ₹5 lakh (old regime) or ₹12 lakh (new regime). The rebate is available only to “resident” individuals. NRIs receive the basic exemption limit (₹2.5 lakh under the old regime, ₹4 lakh under the new regime for FY 2025-26) but not the rebate on top of it. A further point: unlike some residents, an NRI cannot set the basic exemption limit against special-rate capital gains, so tax can arise on those gains from the first rupee above the relevant threshold.
Dual-Act mandatory note (capital gains). Capital gains taxation of NRIs on Indian assets sits in the Income Tax Act 1961 under Sections 45, 48, 112, 111A, and — for an NRI’s listed-equity LTCG — Section 115AD (the resident-facing equivalent is Section 112A). Reinvestment exemptions are under Sections 54, 54F, and 54EC. The Income Tax Act 2025 carries these provisions forward. The Finance Act 2024 rate changes (12.5% LTCG and 20% STCG for equity, and 12.5% LTCG for property without indexation, all from July 23, 2024) apply under both frameworks for sales in the relevant period. Section references in the 2025 Act should be verified against the current bare Act.
How to Handle NRI Taxation in Practice
Once you identify that a particular income is taxable in India, the next step is to determine whether a DTAA between India and your country of residence reduces the applicable rate. India has tax treaties with over 90 countries. If a treaty applies, you claim the benefit by submitting a Tax Residency Certificate (TRC) from your country of residence and, where required, Form 10F to the payer.
If TDS has been deducted in India at a rate higher than the DTAA rate — which is common, since payers often default to the domestic rate — you file an ITR in India, report the income at the correct DTAA rate, and claim a refund of excess TDS.
Deductions and Exemptions: What NRIs Can and Cannot Claim
Under the old tax regime, NRIs can claim some but not all deductions under Chapter VI-A:
They can claim Section 80C for eligible investments such as ELSS (equity-linked savings schemes) and life insurance premiums paid in India. However, NRIs cannot invest in PPF (Public Provident Fund) — new PPF accounts are not permitted for NRIs, and existing accounts must be closed on becoming NRI.
Section 80D is available for health insurance premiums paid in India for self and family. Section 80G (donations to qualifying institutions) is also claimable.
Under the new tax regime, no deductions under Chapter VI-A are available — the same rule as for resident taxpayers. The trade-off is lower slab rates.
Section 87A rebate. This rebate — ₹12,500 for income up to ₹5 lakh under old regime, or ₹60,000 for income up to ₹12 lakh under new regime — is available only to resident individuals. NRIs are not eligible even if their Indian income falls within the threshold.
Common Misconceptions About NRI Tax in India
“I live abroad so I don’t pay tax in India.” Living abroad means your foreign income is not taxable in India. It does not mean India-sourced income escapes tax. Rent from an Indian property and NRO interest are taxable regardless of where you reside.
“I will be taxed in both countries.” Not necessarily. DTAA agreements between India and most countries where NRIs reside provide either an exemption in one country or a credit mechanism so the same income is not taxed twice.
“I don’t need to file an ITR if TDS was deducted.” TDS is only a withholding mechanism — it is not a substitute for filing. If you have taxable income in India above the basic exemption limit, you must file an ITR. Filing is also the only way to claim a refund if excess TDS was deducted.
“All my Indian income is taxed at 30%.” No. Capital gains on equity shares and mutual funds have separate rates (12.5% LTCG, 20% STCG post July 2024). Property capital gains are at 12.5% LTCG. NRE and FCNR interest is exempt entirely.
📋 Documents to Keep Ready
- PAN card — required for all Indian income, investments, and TDS credit
- Proof of NRI status — valid passport, current overseas visa or residence permit, or foreign bank statement showing overseas residence
- Tax Residency Certificate (TRC) from country of residence — required to claim DTAA benefits
- Form 10F — self-declaration required alongside the TRC by most Indian payers
- Form 16A from each Indian payer (bank for NRO interest, tenant for rent, buyer for property sale) — records TDS deducted
- Annual Information Statement (AIS) from the Income Tax portal — lists all income and TDS reported against your PAN in India; download it before filing to catch any discrepancies
- Investment records for Indian assets — purchase price, dates, and sale consideration for capital gains computation
Final Takeaway
NRI taxation India works on a single principle: income sourced in India is taxed in India; income sourced abroad is not, regardless of where the NRI’s money ultimately flows. Within India-sourced income, the NRE and FCNR interest exemption is a significant carve-out. The rate on different types of income — capital gains, rent, dividends, NRO interest — varies considerably, and getting the rate wrong (or assuming a uniform rate applies) produces either excess TDS or underpayment. Understanding your income sources is the starting point. Everything else — DTAA relief, deductions, ITR filing — follows from correctly classifying what you earn.
Have questions about your specific NRI taxation India situation, or want help determining which income is taxable, what rate applies, or how to claim DTAA relief? eTaxMate can assess your income sources, compute your Indian tax liability, and handle your ITR filing.
This blog post is for general information only and does not constitute professional advice. Tax laws are subject to change and their application depends on individual facts and circumstances. Readers should consult a qualified professional before taking any action based on this content. eTaxMate accepts no liability for any action taken based on the information in this post.
Frequently Asked Questions
1. Is all income taxable for NRIs in India?
No. Only income that accrues or is received in India is taxable for NRIs. Foreign salary, foreign bank interest, overseas rental income, and gains from selling foreign assets are not taxable in India. Income from Indian property, NRO accounts, dividends from Indian companies, and capital gains on Indian assets are taxable in India.
2. Is NRE account interest taxable in India?
No. Interest on NRE (Non-Resident External) savings accounts and fixed deposits is explicitly exempt under Section 10(4)(ii) of the Income Tax Act 1961. Similarly, interest on FCNR (Foreign Currency Non-Resident) deposits is also exempt. This exemption applies regardless of the amount.
3. Can NRIs claim the Section 87A rebate?
No. The Section 87A tax rebate is available only to resident individuals. NRIs are not eligible, even if their total Indian income falls within the threshold (Rs 5 lakh under old regime, Rs 12 lakh under new regime). NRIs do receive the basic exemption limit but not the additional rebate.
4. What is the capital gains tax rate for NRIs selling property in India?
For property sold on or after July 23, 2024, long-term capital gains (property held over 24 months) are taxed at 12.5% without indexation, plus applicable surcharge and 4% cess. Short-term gains (held 24 months or less) are taxed at slab rates. These rates follow the Finance Act 2024 changes and apply to NRI sellers, with TDS deducted upfront on the full sale consideration.
5. Do NRIs need to file an income tax return in India?
Yes, if their total taxable income in India exceeds the basic exemption limit (Rs 2.5 lakh under old regime, Rs 4 lakh under new regime). Filing is also required to claim refunds of excess TDS deducted by banks, tenants, or buyers, or to claim DTAA benefits on income where tax was withheld at the higher domestic rate.
6. Can NRIs be taxed on the same income in both India and their country of residence?
Generally, no. India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. Under a DTAA, income is either exempt in one country or the taxpayer can claim a credit in their country of residence for tax paid in India. To use the DTAA, the NRI must provide a Tax Residency Certificate from their country of residence to the Indian payer.