Introduction:
In today’s globalized world, it’s common for individuals to live in one country and earn income from multiple others. If you’re an NRI (Non-Resident Indian) offering services or earning income across borders—whether through employment, freelancing, investments, or businesses—you may wonder: How taxability for NRIs are affected?
The answer lies in understanding the scope of total income as per Indian tax laws, which depends largely on your residential status and the source of income. Not all income earned by an NRI is taxable in India. While some income is completely outside the Indian tax net, other categories may still be taxed based on where the income arises or is received.
In this blog, we’ll explore the basic framework of what is the taxability for NRIs under Indian law. We’ll look into how the Income Tax Act defines taxable income for non-residents, and outline the kinds of income that India has a right to tax—even if you live abroad.
Who is an NRI?
An individual is considered a Non-Resident Indian (NRI) if they do not meet the minimum stay requirements in India during a financial year, as defined under the Income Tax Act.
👉 We’ve explained this in detail in our dedicated blog on “Residential Status – From NRIs Perspective.”
Scope of Total Income – Taxability in India for NRIs
When it comes to taxability of NRIs, they are taxed only on income that has a clear connection to India. The Income Tax Act defines this under the scope of total income for NRIs. Simply put:
👉 Only the following four categories of income are taxable in India for NRIs:
- Income Received in India
- Income Deemed to be Received in India
- Income Accruing or Arising in India
- Income Deemed to Accrue or Arise in India
📌 These four—and only these—forms basis of taxability for NRIs.
So, if your income doesn’t fall under any of these, it’s not taxable in India. That’s why it’s important to understand what each of these terms means, which we’ll now break down with simple explanations and examples.
1. Income Received in India:
When income is received in India, it becomes taxable in India regardless of your residential status or where the income was earned or accrued.
This means that even if you are an NRI and earned income outside India, the moment that income is received or credited to an Indian account, it becomes taxable in India.
✅ Examples of Income Received in India:
- Salary paid for overseas services but credited to your Indian bank account.
- Freelance payments from foreign clients deposited directly in India.
- Dividends received from Indian companies credited in India.
Notes:
(i). Income Received Outside India and Then Remitted to India:
“Income received outside and then remitted to India is considered as received outside India.”
✅ Meaning:
If a non-resident earns income abroad and receives it abroad, even if he later transfers (remits) it to an Indian account, it is not treated as received in India.
Only the first point of receipt matters — where the money was first received, not where it’s later transferred.
(ii). Credit to Bank Account in India = Income Received in India:
“If the income earned outside India is directly credited to the bank account of a non-resident in India, it is considered as received in India and taxable.”
✅ Meaning:
Even though the income is earned outside, if it is credited directly to an Indian account, it is considered received in India — and is thus taxable in India, particularly for residents.
🔔 Exception discussed next…
(iii). Exception for Non-Resident Seafarers:
“Salary accrued to a non-resident seafarer… shall not be included… merely because the salary has been credited to NRE account…”
✅ Meaning:
If a non-resident Indian seafarer earns salary for working on a ship outside India (foreign going ship), and that salary is:
- Credited to an NRE (Non-Resident External) account in India
Then:
- It will NOT be treated as income received in India
- Therefore, it won’t be taxed in India just because it came into an Indian bank.
🚢 This clause protects genuine non-resident seafarers from being unfairly taxed.
2. Income Deemed to be Received in India:
In some cases, even if the income is not actually received, the law treats it as if it has been received in India. This is called “deemed to be received” income under Section 7 of the Income Tax Act.
Such income is also taxable in India, irrespective of the residential status of the person.
✅ Examples of Income Deemed to be Received:
- Employer’s contribution to a recognized provident fund (RPF) beyond the exempt limit.
- Interest credited on RPF in excess of prescribed limits.
- Contributions to the National Pension Scheme (NPS) made by an employer.
🔹 Clarification: Book Entries ≠ Receipt in India
- If foreign income is recorded in books prepared in India, that does not mean it has been received in India.
- So, book entry ≠ deemed receipt.
3. Income accrue/ arise in India:
This refers to income that is earned or originates in India, even if it is not received in India.
For NRIs, if the source of income is in India, and it is earned from any activity or asset located in India, it will be taxable in India—even if it’s paid outside India.
✅ Examples of Income Accruing in India:
- Rent from property located in India, even if received in a foreign bank account.
- Interest income from Indian bank fixed deposits or NRO accounts.
- Business income earned through any business carried on in India.
- Salary for services rendered in India, even if paid outside India.
4. Income Deemed to Accrue or Arise in India:
There are certain types of income that may not directly originate in India, but the law treats them as arising in India under Section 9 of the Income Tax Act. These are called “deemed to accrue or arise in India.”
This includes fees, royalties, capital gains, and interest paid by Indian entities to NRIs or foreign companies.
✅ Examples of Income Deemed to Accrue in India:
- Interest paid by an Indian company to a non-resident.
- Royalty or technical fees paid by an Indian business to a foreign consultant.
- Capital gains on the sale of shares of an Indian company by an NRI.
- Salary paid for services rendered in India, even if the contract is with a foreign employer.
Note: The concept of income deemed to accrue or arise in India under Section 9 is a broad and detailed topic. We will be covering each item under this section—like interest, royalty, technical fees, and capital gains—in separate blogs for better clarity and understanding.
📌 In simple terms:
If the income is linked to an asset, activity, or payer in India, and the law says it is “deemed” to arise in India, then it is taxable in India—even for NRIs.
Conclusion:
For NRIs, Indian tax laws are clear on one thing: only income that has a connection with India—whether received, accrued, or deemed—is taxable in India. Your foreign income stays outside the Indian tax net, as long as it doesn’t fall under these specific categories.
Understanding the scope of total income is the first step toward knowing taxability for NRIs and staying compliant and avoiding unnecessary tax liabilities. As we move forward, we’ll break down each type of income (like salary, rent, capital gains, interest, etc.) in detail through dedicated blog posts.
📞 Need Help with NRI Tax Filing or Advisory?
If you’re unsure about what income you need to report in India or want expert help with tax planning, feel free to reach out to us.
✅ Email: help@etaxmate.in, Phone: +91 7389176127
🌐 Website: etaxmate.in
Let’s make your compliance stress-free, wherever in the world you are!