Income Tax for NRIs

Taxable and Non-Taxable Income for NRIs

Taxable Income

As an NRI, you are only liable to pay taxes on income earned or accrued in India, which includes:

• Salary income from services rendered in India
• Income from house property located in India
• Capital gains from the sale of assets situated in India
• Interest from fixed deposits or savings accounts in Indian banks

Example Scenario

If Mr. Raj sells a property in India, the capital gains from that sale will be taxable in India. However, any capital gains from a property sold in the USA will not be taxable in India.

Non-Taxable Income

Income that is generally not subject to taxation in India includes:

• Foreign income earned outside India
• Interest earned on Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts
• Gifts or inheritances received from relatives

NRI Tax Slabs

Here’s a breakdown of the income tax slabs applicable to non-resident Indians in India:

These tax slabs indicate the applicable rates based on different income ranges for NRIs. Notably, NRIs are subject to tax only on income earned in India; foreign income is typically exempt.

NRIs are not eligible for certain deductions available to resident taxpayers, such as standard deductions or deductions under Chapter VI-A.

Example Scenario

If an NRI earns ?7 lakh during the financial year 2022-23, they would fall within the ?5 lakh to ?10 lakh income range. Consequently, the applicable tax rate would be 20%, and the NRI would owe taxes based on this rate.

Given that tax laws can change, it’s advisable to consult with a tax professional or refer to the latest regulations for accurate and up-to-date information regarding NRI tax slabs in India.

Capital Gains Tax for NRIs: Short-Term vs. Long-Term

Capital gains tax applies to NRIs upon selling property or investments in India. The tax rate is contingent upon whether the gain is short-term (assets held for less than 24 months) or long-term (assets held for more than 24 months).

Short-Term Capital Gains

• Holding Period: Up to 24 months
• Tax Rate for NRIs: As per applicable income tax slabs

Example: If an NRI sells a plot of land after 18 months and earns a profit, this profit will be taxed as short-term capital gains according to their income tax slab.

Long-Term Capital Gains

• Holding Period: More than 24 months
• Tax Rate for NRIs: 20% with indexation benefits

Example: If an NRI sells a residential property after three years for a profit, this profit will be taxed at a flat rate of 20%, with indexation benefits applied to adjust for inflation.

Summary of Capital Gains for NRIs

Capital gains arise when an NRI sells an asset such as land, property, or securities at a profit. The taxation treatment hinges on the asset's holding period. Short-term capital gains are taxed according to the applicable income tax slabs, while long-term capital gains benefit from a lower tax rate and indexation.

Long-term capital gains for NRIs are also subject to a TDS (Tax Deducted at Source) of 20%. NRIs can also claim exemptions via 54EC (Capital Gain) Bonds.

Illustrative Examples

1. Short-Term Capital Gains: An NRI purchases land and sells it after 18 months for a profit of ?5 lakh. Since the holding period is under 24 months, it qualifies as short-term capital gains, taxed according to applicable income tax slabs.
2. Long-Term Capital Gains: An NRI buys a residential property and sells it after three years for a profit of ?50 lakh. With a holding period over 24 months, this profit is taxed at 20%, with the benefit of indexation.

For accurate calculations, it’s best to consult a tax professional or review the most recent regulations regarding capital gains tax for NRIs.

Filing Income Tax Returns (ITR) for NRIs

NRIs must file an income tax return in India if their taxable income in the country during the financial year exceeds the basic exemption limit of ?2.5 lakh.

Filing Deadlines

The due date for filing the return is generally July 31 of the assessment year.

Key Considerations

1. Residential Status: NRIs need to clarify their residential status as per the Income Tax Act. NRIs are typically categorized as "Non-Residents" if they do not meet the criteria for "Resident" or "Not Ordinarily Resident" status.
2. Taxable Income: NRIs must report and pay taxes on income generated within India, such as salary, rental income, business income, and capital gains from Indian assets.
3. ITR Filing: NRIs must file their income tax returns if their total income in India exceeds the basic exemption limit or if they wish to claim a refund for excess TDS. NRIs can file ITRs online or offline, depending on their preference and eligibility.

Example Scenarios for ITR Filing

1. NRI with Rental Income: An NRI owns a property in India generating a rental income of ?6 lakh in a financial year. Since this income is sourced in India, the NRI is obliged to file an income tax return regardless of their total income.
2. NRI with Salary Income and TDS: An NRI worked in India for several months, earning a salary of ?4 lakh. The employer deducted TDS from this salary. Although the total income is below the exemption limit, the NRI must file an ITR to claim a refund for the excess TDS withheld.

Income Tax Slabs for NRIs in India – AY 2026–27

The tax slabs for NRI individuals depend on the applicable tax regime and nature of income.

For FY 2025–26 (AY 2026–27), non-resident individuals may generally be taxed under the old or new tax regime, subject to applicable conditions.

The new tax regime is the default regime for eligible individuals, although the old regime may be selected according to the prescribed rules.

New Tax Regime for NRIs – AY 2026–27

These rates apply to income taxable at normal slab rates. Certain capital gains and other specified income may attract separate rates.

Old Tax Regime for NRIs – AY 2026–27

For non-resident individuals, the old regime's basic exemption limit does not automatically increase based on senior citizen age.

Applicable surcharge and 4% health and education cess must also be considered.

Can NRIs Claim the Section 87A Rebate?

No. Under the Income-tax Act, 1961, the rebate under Section 87A is available only to eligible resident individuals.

Therefore, the widely discussed benefit of zero tax on eligible ordinary income up to ?12 lakh under the new regime for AY 2026–27 does not automatically apply to NRIs.

This is an important difference between NRI and resident individual taxation.

Old vs New Tax Regime for NRIs

Practical Tax Calculation Example

Suppose an NRI has ?10 lakh of Indian taxable income, all taxable at ordinary slab rates, with no applicable deductions or treaty relief.

Under the new regime for AY 2026–27:

• First ?4 lakh: Nil
• Next ?4 lakh at 5%: ?20,000
• Next ?2 lakh at 10%: ?20,000

The basic income tax is ?40,000. After 4% health and education cess, the total is ?41,600, assuming no surcharge or other adjustment.

The NRI cannot claim the resident-only Section 87A rebate to reduce this amount to zero.

Tax Slabs Under the Income-tax Act, 2025

The Income-tax Act, 2025 applies from Tax Year 2026–27 onwards.

Tax calculations for that period must follow the applicable new Act, annual Finance Act provisions and any subsequent amendments.

Taxpayers should avoid mixing AY 2026–27 provisions with Tax Year 2026–27 provisions.

Capital Gains Tax for NRIs in India

NRIs may have to pay capital gains tax when they sell Indian property, shares, mutual funds or other taxable capital assets.

The tax liability depends on the type of asset, holding period, date of transfer, applicable tax rate and availability of exemptions or treaty benefits.

NRI Tax on Sale of Property

A non-resident who sells land, a residential flat or commercial property in India may have to pay capital gains tax.

For qualifying long-term transfers on or after 23 July 2024, the general long-term capital gains tax rate on property is 12.5% without indexation, subject to applicable provisions.

The special grandfathering comparison introduced for certain resident individuals and HUFs is not a general benefit available to NRIs.

Example of NRI Property Sale

Suppose an NRI purchased an apartment for ?50 lakh and later sold it for ?85 lakh.

The capital gain is not automatically ?35 lakh for tax purposes because the computation may require consideration of acquisition cost, eligible improvement costs, transfer expenses and other applicable adjustments.

The final taxable amount must be calculated under the relevant capital gains provisions.

TDS on Property Sale by an NRI

Where a buyer purchases property from a non-resident seller, Section 195 of the Income-tax Act, 1961 may apply to the payment.

The applicable withholding rate depends on the income chargeable to tax, transaction facts and relevant statutory provisions.

The familiar 1% TDS provision for certain purchases from resident sellers should not be applied automatically to NRI property sales.

Lower TDS Certificate

In appropriate circumstances, an NRI seller may apply for a lower or nil tax deduction certificate under the relevant provisions.

This can be useful where the withholding calculated on the payment would substantially exceed the final tax liability.

Approval is subject to the Income Tax Department's examination and applicable rules.

Capital Gains on Shares and Mutual Funds

NRIs investing in Indian shares and mutual funds must consider applicable holding periods, capital gains rates and any relevant treaty provisions.

For example, certain listed equity investments may be subject to special short-term and long-term capital gains rates when the statutory conditions are satisfied.

Different rules may apply to unlisted shares, debt-oriented mutual funds and other investments.

Capital Gains Exemptions for NRIs

Eligible NRIs may claim specified capital gains exemptions, subject to the conditions of the relevant provisions.

For example, Section 54 and Section 54F of the Income-tax Act, 1961 may provide relief for qualifying reinvestments in residential property in India.

The correct exemption depends on the asset sold, eligible investment, time limits and other statutory requirements.

Documents for NRI Capital Gains Calculation

Taxation of NRE, NRO and FCNR Accounts

NRI bank accounts have different purposes and income tax treatment.

The three commonly used account categories are Non-Resident External (NRE), Non-Resident Ordinary (NRO) and Foreign Currency Non-Resident (FCNR) accounts.

Understanding these differences is important because interest income may be exempt or taxable depending on the account type and applicable conditions.

NRE Account Taxation

An NRE account is generally used by eligible non-residents to maintain funds in Indian rupees.

Interest on a qualifying NRE account is generally exempt from Indian income tax when the statutory conditions are satisfied.

However, the exemption may be affected when the account holder's residency or eligibility changes.

NRO Account Taxation

An NRO account is commonly used to manage income arising in India, such as rent, interest and other permissible receipts.

Interest earned on an NRO account is generally taxable in India.

Banks may deduct TDS at the applicable rate, subject to treaty benefits and other relevant provisions.

FCNR Account Taxation

An FCNR account allows eligible non-residents to maintain qualifying deposits in designated foreign currencies.

Interest on eligible FCNR deposits may be exempt from Indian income tax under the applicable conditions.

NRE vs NRO vs FCNR Tax Comparison

Are Foreign Remittances Taxable?

Transferring one's own money from an overseas bank account to an Indian account does not automatically create taxable income.

Taxation depends on the underlying nature, source and timing of the income or funds.

For example, transferring previously accumulated foreign savings to India is different from receiving income that is first taxable in India.

What Happens to NRI Accounts After Returning to India?

A person returning to India for permanent settlement should review the applicable FEMA banking rules and inform the bank about the change in residential status.

NRE and NRO accounts may need redesignation or other permitted changes, while eligible foreign currency balances may be handled through the applicable banking facilities.

Income tax residential status and FEMA residential status are determined under different laws and should not be treated as identical.

NRI Taxation Services by Compliance Calendar LLP

Compliance Calendar LLP provides professional assistance with NRI taxation in India for individuals living abroad, returning NRIs, overseas professionals, property owners and investors.

Our services focus on residential status analysis, Indian income tax calculation, DTAA documentation, capital gains computation, ITR filing and related tax compliance.

We help taxpayers understand which income is taxable in India, what information must be reported and how applicable tax benefits can be claimed legally.

NRI Residential Status Assessment

Determining residential status is one of the most important steps in NRI taxation.

We assist individuals with reviewing travel history, days spent in India, overseas employment circumstances and applicable statutory conditions.

This helps identify whether the taxpayer may qualify as Non-Resident, RNOR or Resident and Ordinarily Resident.

NRI Income Tax Computation

NRIs may earn income from property, bank accounts, investments and business activities in India.

We assist with reviewing these income sources and calculating the applicable liability under the relevant tax provisions.

The computation may include ordinary slab-rate income, special-rate income, eligible deductions and applicable tax credits.

NRI Income Tax Return Filing

Compliance Calendar LLP assists eligible NRIs with the preparation and filing of income tax returns in India.

This includes selecting the relevant ITR form, organising income records, reviewing TDS information and completing applicable filing requirements.

DTAA and Tax Treaty Assistance

Individuals earning income connected with India and another country may need to examine treaty provisions.

We assist with reviewing treaty eligibility, relevant documentation, TRC requirements and applicable tax relief claims.

NRI Capital Gains Tax Assistance

Selling property or investments in India can create significant tax obligations for NRIs.

We assist with capital gains computation, transaction documentation, exemption analysis and review of relevant withholding requirements.

NRI Property Sale and TDS Support

NRIs selling Indian property may need assistance with the applicable TDS provisions.

We help review sale documents, tax calculations and relevant compliance procedures, including coordination of eligible lower tax deduction applications.

Taxation of NRIs Returning to India

Returning NRIs may need to evaluate their residential status, foreign income, overseas assets and Indian investments.

Compliance Calendar LLP assists with reviewing the tax implications of returning to India and identifying relevant reporting obligations.

NRE, NRO and FCNR Tax Review

NRI bank accounts have different tax treatments.

We assist taxpayers with understanding the income tax implications of interest earned on eligible NRE, NRO and FCNR accounts.

NRI Income Tax Refund Assistance

Where excess tax has been deducted, an NRI may be entitled to an income tax refund.

We assist with reviewing tax credits, preparing relevant computations and completing eligible refund-related compliance procedures.

Income Tax Notice and Compliance Assistance

NRIs may receive income tax notices for property transactions, investment income, TDS differences or return-related matters.

We assist with notice review, document preparation and coordination of the appropriate response or professional representation.

Why Choose Compliance Calendar LLP?

Compliance Calendar LLP focuses on clear communication, organised documentation and practical compliance support. We help NRIs understand Indian tax requirements without unnecessary technical complexity, while coordinating matters requiring specialised tax or legal interpretation with appropriately qualified professionals.