Key Takeaways
- Your tax liability in India depends on your residential status under Section 6 of the Income Tax Act, not on your citizenship or visa status.
- An NRI is taxed in India only on income earned or received in India: rental income, capital gains on Indian assets, interest on NRO accounts, and similar.
- Interest on NRE and FCNR accounts is exempt under Section 10(4)(ii). Interest on NRO accounts is taxable with TDS at 30% (plus surcharge and cess).
- Double Taxation Avoidance Agreements (DTAAs) with the country of residence reduce or eliminate double tax. Claim relief under Section 90 by filing Form 67 before the ITR due date.
- NRIs must file ITR-2 (or ITR-3 if business income) if total Indian-source income exceeds Rs 2,50,000, or to claim refund of TDS, or if they have capital gains, even if total income is below the threshold.
The most common confusion among NRIs is whether to file an Indian tax return at all. The short answer is: it depends on your residential status under the Income Tax Act and on what you earn or receive in India. The longer answer involves day-counting, DTAA treaties, the difference between an NRO and NRE bank account, and getting Form 67 filed in time so you do not pay tax twice on the same income.
This guide covers the essentials for NRIs filing for AY 2026-27 (FY 2025-26): how to determine residential status, what is taxable, the TDS regime on Indian income, DTAA relief, and the ITR filing process.
Looking for expert help with NRI income tax filing, residential status determination and DTAA Form 67 services? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Step One: Determine Your Residential Status
The Income Tax Act has its own definition of residency that overrides immigration or citizenship status. Section 6 lays down the test.
You are a Resident in India in a financial year if either of these is satisfied:
- You are in India for 182 days or more during the financial year, OR
- You are in India for 60 days or more in the financial year AND 365 days or more during the 4 financial years immediately preceding.
The 60-day threshold becomes 182 days for:
- Indian citizens leaving India for employment abroad during the FY.
- Indian citizens or persons of Indian origin (PIO) visiting India during the FY, provided their total Indian income (other than from foreign sources) does not exceed Rs 15,00,000.
If the Indian income exceeds Rs 15,00,000, the threshold becomes 120 days along with the 365-day rule (rather than the relaxed 182). This is the post-2020 amendment that catches high-earning visiting NRIs.
If you are not a Resident, you are a Non-Resident (NR), commonly called NRI for tax purposes.
A separate sub-classification, Resident but Not Ordinarily Resident (RNOR), applies if you are a Resident but you have been a Non-Resident in 9 out of the previous 10 years, or have stayed in India for less than 730 days in the previous 7 years. RNOR taxation is closer to NRI taxation in scope.
A Quick Day-Count Example
Anita is an Indian citizen working in the US. In FY 2025-26:
- Days in India: 95 (visit in December-January).
- Indian income (rent and interest): Rs 8,50,000.
- Total Indian stay in the previous 4 financial years (FY 2021-22 to FY 2024-25): 350 days.
Apply the test:
- Not 182 days or more in FY 2025-26: first condition fails.
- 60 days or more in FY 2025-26 (yes, 95 days) AND 365 or more in last 4 years (no, only 350): second condition fails.
Anita is a Non-Resident for FY 2025-26.
Step Two: What Is Taxable for an NRI
An NRI is taxable in India only on:
- Income received or deemed to be received in India.
- Income that accrues or arises in India.
This includes:
- Salary paid for services rendered in India (rare for typical NRIs, common for short-stay assignees).
- Rental income from property situated in India (computed under Income from House Property head, with the standard 30% deduction and Section 24(b) interest deduction).
- Capital gains on transfer of Indian assets: shares of Indian companies, mutual funds, immovable property in India.
- Interest on NRO bank accounts and Indian fixed deposits (NRE/FCNR interest is exempt; see below).
- Interest on Indian bonds and debentures (RBI bonds, NRI Bonds, etc.).
- Dividends from Indian companies.
- Pension received in India for past services rendered in India.
Foreign income (salary in the country of residence, foreign rental income, foreign interest, etc.) is not taxed in India for an NRI. RNORs also do not pay Indian tax on foreign-source income unless it is from a business controlled or set up in India.
NRE, NRO, FCNR Bank Accounts: The Tax Treatment
Three account types matter for NRI taxation:
| Account | Currency | Source of Funds | Interest Taxability |
|---|---|---|---|
| NRE (Non-Resident External) | INR | Foreign earnings | Exempt under Section 10(4)(ii); freely repatriable |
| NRO (Non-Resident Ordinary) | INR | Indian earnings (rent, dividends, etc.) and foreign | Taxable in India; TDS at 30% (plus surcharge/cess) |
| FCNR (Foreign Currency Non-Resident) | Foreign currency | Foreign earnings | Exempt under Section 10(4)(ii); repatriable |
For an NRI, the working rule is: keep Indian-source rupee income in NRO, foreign-source income in NRE / FCNR. Bank TDS on NRO interest is steep (30%); but if your DTAA treaty rate is lower (commonly 10% to 15%), you can claim a refund through ITR.
TDS on NRI Income
The TDS rates for NRIs are higher than for residents because the bank or payer cannot easily verify the NRI's tax position.
| Income | TDS Rate (Plus Applicable Surcharge and 4% Cess) |
|---|---|
| Interest on NRO account / FD | 30% under Section 195 |
| Rent paid to NRI by tenant | 30% under Section 195 (tenant must obtain TAN) |
| Sale of immovable property | 20% on long-term capital gains, 30% on short-term, on the sale value unless lower deduction certificate obtained |
| Sale of shares (long-term, under Section 112A) | 12.5% on gain above Rs 1.25 lakh |
| Dividend from Indian company | 20% under Section 195 |
The cleanest way to reduce excess TDS on a property sale or large transaction is to apply for a Lower Deduction Certificate (Form 13) from the Assessing Officer before the transaction. This authorises the buyer or payer to deduct TDS at the actual tax rate after computing gain or applicable DTAA rate.
DTAA: Avoiding Double Taxation
India has DTAA treaties with around 90 countries, including the US, UK, UAE, Singapore, Australia, Canada, and Saudi Arabia. The treaty allows you to either:
- Pay tax only in one country (exemption method), or
- Get credit for tax paid abroad against Indian tax (credit method).
For most income types (interest, royalty, technical fees, capital gains), the treaty allows India to tax at a rate often lower than the domestic 30%. For example, the India-US DTAA typically caps interest tax in India at 15%.
How to Claim DTAA Relief
- Obtain a Tax Residency Certificate (TRC) from the country of residence. This is a one-page document confirming you are a tax resident.
- Submit Form 10F to the Indian payer or in your ITR. Form 10F is now mandatorily filed online on incometax.gov.in.
- File Form 67 before the ITR due date if you are claiming foreign tax credit (FTC) for tax paid abroad.
- Quote the relevant article of the DTAA in the ITR Schedule TR (Tax Relief).
Form 67 is the form most often missed. The Income Tax Act allows FTC under Rule 128, but only if Form 67 is filed on or before the ITR due date. Recent ITAT rulings have softened this slightly (treating it as procedural), but the safe practice is to file Form 67 on time.
Looking for expert help with DTAA Form 67, Tax Residency Certificate and NRI ITR-2 filing? The team at Tax Garden helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Which ITR Form an NRI Files
| Income Profile | ITR Form |
|---|---|
| NRI with salary, rent, capital gains, interest (no business income) | ITR-2 |
| NRI with business or professional income in India | ITR-3 |
| NRI with only presumptive business income under Section 44AD/44AE | Not eligible; NRI cannot use ITR-4 |
ITR-1 (Sahaj) is not available to NRIs. The most common form is ITR-2.
Filing Threshold and Refund Cases
NRIs must file an Indian ITR if any of the following:
- Total Indian-source income (before exemptions) exceeds Rs 2,50,000.
- TDS has been deducted and you want to claim a refund.
- You have capital gains in India, even if total income is below the threshold (the basic exemption limit for residents is not available to NRIs against capital gains under Sections 111A and 112).
- You are claiming a benefit under the DTAA.
For most NRIs whose only Indian income is interest on NRO and rental from a flat, filing the ITR is the only way to recover excess TDS, since the bank deducts at 30% but the actual tax may be lower.
Sale of Property by an NRI
The sale of immovable property by an NRI is the most procedurally complex transaction. The key steps:
- Calculate capital gain. Long-term (held more than 24 months) is taxed at 12.5% under the post-July 2024 regime, generally without indexation; short-term is taxed at slab rates.
- TDS by buyer. The buyer must deduct TDS at 20% (LTCG) or 30% (STCG) on the sale value, not the gain. For a Rs 1 crore sale, that is Rs 20 lakh of TDS that the buyer must deposit through Form 27Q.
- Lower Deduction Certificate (Form 13). Apply to the Assessing Officer to authorise TDS at the actual tax rate (computed on the gain). This avoids tying up cash in TDS.
- Capital gains exemption. Sections 54, 54F and 54EC are available to NRIs subject to the same conditions as residents. See our capital gains exemption guide.
- Repatriation. Sale proceeds can be repatriated up to USD 1 million per FY through the NRO account, subject to filing Forms 15CA and 15CB (the latter from a CA).
- ITR filing. File ITR-2, claim refund of excess TDS, report the sale in Schedule CG.
Common Mistakes NRIs Make
- Not filing ITR despite having Indian income. Even if TDS has been fully deducted, ITR is needed to claim refund of excess TDS or DTAA-based reduction.
- Treating NRE interest as taxable. It is exempt under Section 10(4)(ii). No tax to pay and no need to report it as taxable income.
- Skipping Form 67. Foreign tax credit claims are denied if Form 67 is not filed by the ITR due date.
- Filing ITR-1 by mistake. ITR-1 is not for NRIs. Use ITR-2 or ITR-3.
- Not getting a Tax Residency Certificate. DTAA benefits require a TRC from the country of residence. Apply early; some countries take weeks.
- Forgetting Form 27Q on rent. Tenants paying rent above Rs 50,000 a month to an NRI landlord must deduct TDS at 30% under Section 195 and obtain a TAN. The landlord cannot use Section 194IB (which applies only to resident landlords).
Where Tax Garden Helps
NRI taxation looks straightforward in summary but has more procedural traps than any other category of filer. Tax Garden's tax compliance services handle NRI ITRs end to end: residential status determination, NRO/NRE reconciliation, DTAA relief via Form 67, ITR-2 filing, capital gains computation on property sales, and Lower Deduction Certificate applications. Our team has filed NRI returns for residents of the US, UAE, UK, Singapore and Australia.
For related reading, see our capital gains exemption guide and the old vs new regime comparison.
Frequently Asked Questions
Is income earned abroad taxable in India for an NRI?
No. An NRI is taxed in India only on income that accrues or arises in India, or that is received in India. Foreign salary, foreign interest and foreign rental income earned while you are a Non-Resident are not taxable in India.
Is interest on NRE or NRO account taxable?
Interest on NRE and FCNR accounts is exempt under Section 10(4)(ii). Interest on NRO accounts is taxable in India, with TDS deducted at 30% by the bank. The DTAA may allow a lower effective rate, claimable via ITR refund.
What is Form 67 and why does it matter?
Form 67 is a statement of foreign tax paid, required to claim Foreign Tax Credit under Rule 128 of the Income Tax Rules. It must be filed online on incometax.gov.in on or before the ITR due date. Without Form 67, the FTC claim can be denied.
Do NRIs get the Rs 2.5 lakh basic exemption limit?
Yes for income other than capital gains. For capital gains taxed under Section 111A (short-term on listed equity) and Section 112 / 112A (long-term), NRIs cannot adjust the basic exemption limit; the gain is taxed in full at the applicable rate.
When does an NRI need to file ITR in India?
If Indian-source income exceeds Rs 2,50,000 in the financial year, or to claim refund of TDS, or if there are capital gains in India, or to claim DTAA benefits. NRIs file ITR-2 (or ITR-3 if there is business income), not ITR-1.
What is the TDS rate on rent paid to an NRI landlord?
30% under Section 195 (plus applicable surcharge and 4% cess), regardless of the rent amount. The tenant must obtain a TAN and file quarterly Form 27Q. Section 194IB, which applies to resident landlords, is not available for NRI rent.
Sources
This guide is verified against Section 6, Section 9, Section 10(4)(ii), Sections 90/90A/91, Section 195 and Rule 128 of the Income Tax Act 1961 and Income Tax Rules 1962, the FEMA framework for NRI bank accounts published by the Reserve Bank of India, and the model DTAA articles. Practitioner cross-checks from ClearTax, Tax2Win, IndiaFilings and CAClubIndia were reviewed. Always validate the current TDS rate and DTAA rate against the relevant treaty article and the latest CBDT notifications before filing.