If you are a Non-Resident Indian (NRI) earning income from sources in India — be it rental income, interest on NRO accounts, capital gains from property or mutual funds, or dividends — you have specific tax obligations in India that many NRIs are unaware of until they receive a notice from the Income Tax Department.

This guide covers the NRI tax filing rules in India for FY 2025-26 (AY 2026-27) in clear, practical terms — covering residential status determination, types of income taxable in India, applicable TDS rates, and how to file an ITR as an NRI.

Step 1: Determine Your Residential Status for FY 2025-26

Your tax liability in India depends first and foremost on your residential status under the Income Tax Act 1961. This is determined for each financial year:

• Resident and Ordinarily Resident (ROR): Taxed on global income
• Resident but Not Ordinarily Resident (RNOR): Taxed on India-sourced income and income received in India
• Non-Resident (NRI): Taxed only on income earned or accrued in India

NRI Status Conditions

You are an NRI for FY 2025-26 if you spent less than 182 days in India during the year, OR less than 60 days in India during the year AND less than 365 days in India during the preceding 4 years.

Special rule for Indian citizens working abroad: If your India-sourced income exceeds ₹15 lakh, the 60-day rule is modified — you must spend less than 120 days in India to retain NRI status.

What Income is Taxable for NRIs in India?

NRIs are taxed only on income that is ‘received or accrued’ in India. This includes:

• Salary income for services rendered in India
• Rental income from property located in India
• Interest on NRO (Non-Resident Ordinary) accounts — taxed at 30% TDS
• Interest on NRE (Non-Resident External) accounts — EXEMPT from tax in India
• Capital gains on sale of property, shares, or mutual funds located in India
• Dividend income from Indian companies
• Income from business or profession set up or controlled in India

NRO vs NRE Account: Tax Difference

• NRO Account: Holds income earned in India (rent, dividends, salary). Interest is fully taxable in India at 30% + surcharge + cess. TDS is deducted by the bank.
• NRE Account: Holds foreign earnings remitted to India. Both the principal and interest are exempt from Indian tax. No TDS on interest.
• FCNR Account: Foreign Currency Non-Resident account. Interest is fully exempt from tax in India.

TDS Rates Applicable to NRIs in India

• Interest on NRO account: 30% TDS (+ applicable surcharge and 4% cess)
• Short-term capital gains (STCG) on equity shares/equity mutual funds (Section 111A): 20% TDS
• Long-term capital gains (LTCG) on equity shares/equity mutual funds above ₹1.25 lakh (Section 112A): 12.5% TDS
• LTCG on property or debt mutual funds (Section 112): 20% TDS (with indexation)
• Rental income: 30% TDS under Section 195

NRIs can apply for a Lower TDS Certificate under Section 197 from the Assessing Officer if their actual tax liability is lower than the TDS being deducted.

Do NRIs Need to File an ITR in India?

An NRI must file an ITR in India if:

• Total income from Indian sources exceeds ₹2.5 lakh in the financial year
• You want to claim a refund of excess TDS deducted
• You have capital gains from sale of property or securities in India
• You wish to carry forward capital losses to offset future gains

Even if your entire income has been subject to TDS, filing ITR is advisable to claim any TDS refund and maintain a clean compliance record.

Which ITR Form Should an NRI Use?

• ITR-2: For NRIs with income from salary, house property, capital gains, or other sources (most NRIs use this form)
• ITR-3: If you have business or professional income from India
• ITR-1 (Sahaj): NOT available to NRIs — NRIs must use ITR-2 regardless of income level

DTAA: How to Avoid Double Taxation

India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. If you have paid tax on income in your country of residence, you can claim relief in India under the applicable DTAA to avoid being taxed twice on the same income. To claim DTAA benefit:

• Obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence
• Submit Form 10F to the deductor (bank, tenant, company) along with TRC
• Claim DTAA relief while filing your ITR in India

FEMA Compliance for NRIs

Beyond income tax, NRIs must also comply with FEMA (Foreign Exchange Management Act) regulations:

• NRI accounts (NRO, NRE, FCNR) must be maintained with authorised banks
• Repatriation of funds from NRO accounts is subject to annual limits (USD 1 million per financial year) and requires Form 15CA/15CB
• Investments in Indian property, shares, or businesses are governed by FEMA regulations

Frequently Asked Questions (FAQs)

Q: If I become an NRI mid-year, what is my tax status for that year?

A: Residential status is determined for the entire financial year (April to March). If you leave India mid-year and meet the NRI criteria based on total days spent in India, your status for that entire financial year will be NRI. Income earned in India before departure is still taxable in India.

Q: Is rental income from India taxable even if I am living abroad?

A: Yes. Rental income from property located in India is always taxable in India regardless of your residential status. The tenant must deduct TDS at 30% (Section 195) if you are an NRI. You can claim a standard deduction of 30% of net annual value and deduct municipal taxes and home loan interest while computing the taxable rental income.

Q: I sold my property in India. How do I calculate capital gains tax as an NRI?

A: Capital gains on sale of property in India are taxable for NRIs. For property held for more than 2 years, Long-Term Capital Gains (LTCG) apply at 20% with indexation benefit. The buyer must deduct TDS at 20% (+ surcharge + cess) under Section 195. You can apply to the Assessing Officer for a lower TDS certificate if your actual tax liability is lower.