NRI Taxation in India: Income Tax, TDS, ITR Filing & DTAA Benefits
Non-Resident Indians (NRIs) face one of the most complex tax situations in Indian finance — income earned in India is taxable, residency status determines tax liability, TDS rates are higher than for residents, and Double Taxation Avoidance Agreements (DTAA) can reduce the burden significantly. This is a comprehensive guide built for NRIs navigating Indian tax obligations.
Step 1: Determine Your Residential Status
Everything in NRI taxation flows from your residential status for that financial year. Under the Income Tax Act (Section 6), you are a Resident if you meet either:
- You were in India for 182 days or more during the financial year, OR
- You were in India for 60 days or more in the financial year AND 365 days or more in the 4 preceding years
If neither condition is met, you are a Non-Resident (NR). There is also a middle category — Resident but Not Ordinarily Resident (RNOR) — for those returning to India after a long absence, who get transitional tax treatment.
What Income Is Taxable for NRIs in India?
NRIs are taxed only on income that is received or deemed to accrue in India. Global income (income from your country of residence) is NOT taxable in India for NRIs.
| Income Type | Taxable in India for NRI? | Notes |
|---|---|---|
| Salary earned in India | Yes | Services performed in India; even if paid abroad |
| Salary earned abroad | No | Services performed outside India |
| Rental income from Indian property | Yes | Always taxable; TDS at 30% by tenant |
| Interest on NRO account | Yes | TDS at 30% + surcharge + cess |
| Interest on NRE/FCNR account | No | Completely exempt from Indian tax |
| Capital gains on Indian stocks/MF | Yes | STCG 20%, LTCG 12.5%; TDS at applicable rates |
| Capital gains on Indian property | Yes | TDS at 20-30% on sale; buyer must deduct |
| Dividend from Indian companies | Yes | TDS at 20% (may reduce via DTAA) |
| Business income from India operations | Yes | At slab rates; audit requirements apply |
| Foreign income (salary, business abroad) | No | Not taxable in India for NRIs |
TDS Rates on NRI Income: Higher Than Residents
TDS rates for NRIs are typically higher than for residents, and often apply without the standard thresholds:
| Income Type | TDS Rate (NRI) | Resident Rate |
|---|---|---|
| NRO interest | 30% + surcharge + cess | 10% (above ₹40,000) |
| Rental income | 30% + surcharge + cess | No TDS (tenant may deduct under 194I) |
| LTCG on listed equity | 12.5% | 12.5% |
| STCG on listed equity | 20% | 20% |
| LTCG on property | 20% + surcharge + cess | 20% |
| STCG on property | 30% + surcharge + cess | Slab rate |
| Dividend | 20% + surcharge + cess | 10% |
| Other income (professional, etc.) | 30% + surcharge + cess | Slab rate |
The surcharge and cess add meaningfully: at 30% base rate, with 10% surcharge (for income ₹50L–₹1Cr) and 4% cess, the effective TDS rate is 33.99%.
DTAA: Your Most Powerful Tax Saving Tool
India has Double Taxation Avoidance Agreements (DTAAs) with 90+ countries. DTAAs can significantly reduce withholding tax rates on NRI income:
| Country | DTAA Rate on Interest | DTAA Rate on Dividends | Benefit vs Standard 30%/20% |
|---|---|---|---|
| USA | 15% | 15% or 25% | Significant saving on interest |
| UK | 15% | 15% | Yes |
| UAE | 12.5% | Exempt | Very significant |
| Singapore | 15% | 15% | Yes |
| Canada | 15% | 15% or 25% | Yes |
| Australia | 15% | 15% | Yes |
| Germany | 10% | 10% | Significant |
To claim DTAA benefit, you must provide: Tax Residency Certificate (TRC) from your country of residence, self-declaration Form 10F, and PAN (or Form 60 if PAN not available). The payer (bank, company) deducts TDS at the lower DTAA rate after receiving these documents.
NRO vs NRE vs FCNR: The Account Structure
- NRO (Non-Resident Ordinary) account: For income earned in India (rent, dividends, etc.). Rupee account. Interest is taxable in India. Repatriation capped at USD 1 million per year (after tax clearance).
- NRE (Non-Resident External) account: For parking foreign income remitted to India. Rupee account. Interest is fully exempt from Indian tax. Fully repatriable without limit.
- FCNR (Foreign Currency Non-Resident) account: Foreign currency fixed deposit. No exchange rate risk for the depositor. Interest exempt from Indian tax. Fully repatriable.
Key FEMA rule: once you return to India and become a Resident, NRE and FCNR accounts must be converted to Resident accounts within a specified period — failing which, the interest may lose its exemption status.
Must NRIs File ITR in India?
NRIs must file an ITR if their Indian income (before TDS) exceeds the basic exemption limit (₹2.5 lakh under old regime; effectively ₹3 lakh under new regime). Even if TDS has been deducted at source, filing the ITR enables:
- Claiming refund if TDS exceeded actual tax liability
- Offsetting capital losses against capital gains
- Claiming DTAA benefits not already applied at source
- Visa and financial document requirements for some countries
NRIs typically use ITR-2 (for income from salary, property, and capital gains) or ITR-3 (if business income also exists). See our ITR form guide.
Selling Indian Property as NRI: Key Steps
- Buyer must deduct TDS at 20% (LTCG) or 30% (STCG) on the sale consideration — not on the gain. This is different from residents where TDS is on the gain only.
- NRI can apply to Assessing Officer for a lower TDS certificate (Form 13) before the sale, if actual tax is lower than the default TDS rate.
- File ITR in India to claim refund of excess TDS deducted.
- Reinvest LTCG in Indian residential property (Section 54) or NHAI/REC bonds (Section 54EC) to claim capital gains exemption — same rules as residents apply.
- Repatriation of net sale proceeds: allowed up to USD 1 million per year from NRO account after filing tax returns and obtaining CA certificate (Form 15CB) and Form 15CA.