CA B K Goyal & Co LLP
Chartered Accountants

Mobile: 9971782649
Email: support@cabkgoyal.com

Income Tax for NRI : ITR, Exemption, Tax Liability, & more

The income tax regulations that apply to non-resident Indians differ from the laws and rules that apply to resident Indians. Non-resident Indians are required to pay taxes on all income and capital gains earned in India. The income tax for NRI differs from that for resident Indians. It is crucial to know that NRIs are required to pay taxes on capital gains or income earned in India.

Non-resident Indians (NRIs) have to pay proper tax as per the Income Tax Act. However, the income tax slabs and rates for NRIs are different from the resident Indians. The slabs for them are chiefly based on their taxable income and not on other things.

Taxation in India is crucial to the economy of the nation. Taxes are levied on services and products being availed by the citizens of India in different ways. Taxes are meant to improve the services and products that are used by consumers.

Income Tax, service tax, property tax and tax deducted at source are some of the commonly known forms of taxation and will be familiar terms for most of the people residing in India. For non-resident Indians though, the only aspect of tax that needs to be borne in mind is income tax.

Non-resident Indians need to pay appropriate taxes as and when they fall under the jurisdiction of the Income Tax Act of 1961. The details of what the taxes for an NRI are and how they should be dealt with, fall under the category of NRI taxation.

NRI taxation covers aspects of income tax, wealth tax and property tax, among others but the focal point of taxation lies on income tax.

 
Income Tax For NRI

Who is Non-Resident Indian?

NRI definition as per Income Tax Act, a Non-resident Indian (NRI) is someone who isn’t physically present in India enough to be considered a resident for tax purposes. This is determined by an individual stay in India during a financial year (182 days or more makes him a resident) or over the past four years (60 days or more in a year and 365 days or more total). There’s an exception for Indian citizens who/PIOs abroad who are only residents if they stay in India for 182 days or more in a year.

How to Determine Residential Status?

So, as defined above, “a non-resident is a person who is not resident in India,” therefore, we need to understand who is considered a Resident in India.

You are considered a “Resident in India” for a financial year

  • If you were in India for a period of 182 days or more during the Financial year OR
  • If you have stayed in India for 60 days in the financial year, and for a total of 365 days in the preceding 4 years.

Exceptions to Residential Status

An individual who is a citizen of India and leaves India as a member of the crew of an Indian ship or for employment during the financial year will be considered a resident of India only if they stay in the country for 182 days or more.

For an Indian citizen or person of Indian origin staying outside India but visiting India during the relevant previous year, they will be treated as a resident if their total income (excluding foreign income) exceeds Rs. 15 lakhs. In such cases, they will qualify as a resident if:

  • They stay in India for 182 days or more during the relevant year, or
  • They have stayed in India for at least 365 days in the previous 4 years and at least 120 days in the relevant previous year.

Therefore, you are a Non-Resident if you do not fulfill any of the above conditions.

Resident but Not Ordinarily Resident (RNOR)

Individuals are considered RNOR upon meeting the following conditions –

  • If you have been a non-resident in India for 9 years out of 10 years preceding the previous year.
  • If you have stayed in India for 729 days or less in the 7 years preceding the previous year.

Any Indian citizen or PIO visiting India can be called an RNOR as per the conditions –

  • Total income apart from foreign income is more than 15 lakh.
  • The individual has stayed in India for more than 120 days but less than 182 days in the previous year.
  • An individual has stayed in India for 365 days or more in the 4 years preceding the previous year.

Is My Income Earned Abroad Taxable?

An NRI’s income taxes in India will depend upon his residential status for the year as per the income tax rules mentioned above.

If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is taxable in India.

  • Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on a savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI.
  • Income which is earned outside India is not taxable in India.
  • Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO accounts is taxable in the hands of an NRI.

Do NRI Have to File Income Tax Returns in India?

Non-Resident Indians (NRIs) should make sure to file their income tax returns in India if they have earned income within the country during a particular financial year. The income taxes payable by NRIs in India are determined based on their residential status for the year under the Indian Income Tax Act, 1961. If an NRI’s status is deemed ‘resident,’ then their global income becomes subject to taxation in India.

NRIs have to pay tax on income that accrues or arises in India. NRIs also need to pay tax on income that is deemed to accrue or arise in India. Money received or deemed to be received in India is taxable. It’s essential for NRIs to comply with tax regulations in India, and seeking assistance from tax experts can certainly simplify the process.

NRIs are taxed on specific incomes earned in India:

  • Salary earned in India
  • Any income received in India
  • Revenue from the sale or rent of property in India
  • Income earned outside India but received in India

B K Goyal & Co LLP tax expert can simplify the tax filing process for NRIs and ensure compliance with relevant regulations. Whether it’s understanding your tax obligations, maximizing deductions, or resolving tax-related queries, professional assistance can be invaluable.

What is Income Earned or Accrued in India?

India follows the “source rule” basis of taxation, i.e., all the income that accrues or arises from or through a source in India is taxable in India. Therefore, identifying the source of Income is of utmost importance.

If it is established that the income has its source in India, whether direct or indirect, such income would become taxable in India. A list of such incomes are:-

  • Any salary received in India,
  • Any salary received for services rendered in India,
  • Rental income (if any) received from a property situated in India,
  • Capital gain (if any) arising on account of transfer of property or asset in India
  • Any income from deposits in India, such as interest on fixed deposits
  • Any interest received on the savings bank account, etc.

How are NRI taxed?

Residents must pay taxes on income earned in both India and abroad, whereas NRIs are not required to pay tax on foreign income. It is important to understand your residency status, taxable income, available deductions and exemptions, as well as determining the appropriate Income Tax Return (ITR) forms.

NRIs will have to pay taxes on any income that is earned, received, or deemed to accrue in India. Taxable income for NRIs includes the following:

  • Salary received or for services provided in India.
  • Income generated from residential property in India, whether it is rented out or vacant.
  • Capital gains from the sale of property or assets located in India.
  • Income from deposits such as fixed deposits or interest earned on bank savings accounts in India.
  • Interest earned on NRO (non-resident ordinary) accounts will be taxed, whereas the interest on NRE (non-resident external) and FCNR (foreign currency non-resident) accounts will be exempt from taxation.

If the annual income exceeds the basic exemption limit of Rs. 2.5/3.0 lakh, it’s mandatory to file tax returns, whether you’re an NRI (Non-Resident Indian) or a resident. Typically, the deadline for filing returns is July 31 of the relevant assessment year.

Income from salary-  Income from salary will be considered to arise in India if your services are rendered in India.

So even though you may be an NRI, if your salary is paid towards services you provide in India, it shall be taxed in India immaterial of the place where you are receiving the income.

Suppose your employer is the Government of India and you are a citizen of India. In that case, if your service is rendered outside India, your income from salary shall be taxable in India.

Note that the income of Diplomats and Ambassadors are exempt from tax. For instance, Ajay was working in China on a project from an Indian company for 3 years. Ajay needed the salary in India to take care of his family’s needs and make payments towards a housing loan. However, since the salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China. 

Income from house property- Income from a property that is situated in India is taxable in the hands of an NRI.

The calculation of such income shall be in the same manner as applicable to a resident. This property may be rented out or lying vacant. An NRI can claim a standard deduction of 30%, deduct property taxes, and benefit from an interest deduction from a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on purchasing a property can also be claimed under Section 80C.

Income from house property is taxed at slab rates as applicable.

For instance, Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is located in India, shall be taxable in India. 

Rental payments to an NRI- A tenant who pays rent to an NRI owner must remember to deduct TDS at 30% while paying rent.

The income can be received to an account in India or the NRI’s account in the country they are currently residing in.

For instance, Maria pays a monthly rent of Rs 30,000 to her NRI landlord. She must deduct 30% TDS or Rs 9,000 before transferring the money to the landlord’s account. 
Maria must also get a Form 15CA prepared and submit it online to the income tax department. A person making a remittance (a payment) to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Income Tax Act, any DTAA (Double Tax Avoidance Agreement) applicable, and other details of nature and purpose of the remittance.

Form 15CB is not required when:

  • Remittance does not exceed Rs 5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.
  • If lower TDS has to be deducted and a certificate is received under Section 197, lower TDS has to be deducted by order of the AO.
  • Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, 

In all other cases, if there is a remittance outside India, the person asking for the remittance should take a CA’s certificate in Form 15CB. After receiving the certificate, submit Form 15CA to the government online. 

Income from other sources- Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR accounts is tax-free. Interest on NRO accounts is fully taxable. 

Income from business and profession- Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI. 

Income from capital gains – Any capital gain on transfer of capital asset which is situated in India shall be taxable in India.

Capital gains on investments in Indian shares, securities shall also be taxable in India. If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you can claim capital gains exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC. 

Special provision related to investment income- When NRIs invest in certain Indian assets, they are taxed at 20% on the income earned. If the special investment income is the only income the NRI has during the financial year and TDS has been deducted, then such an NRI is not required to file an income tax return. 

What are the investments that qualify for special treatment?

Income derived from the following Indian assets acquired in foreign currency:

  1. Shares in a public or private Indian company
  2. Debentures issued by a publicly-listed Indian company (not private)
  3. Deposits with banks and public companies
  4. Any security of the Central Government
  5. Other assets of the central government as specified for this purpose in the official gazette.

No deduction under Section 80 is allowed while calculating investment income. 

Special provision related to long-term capital gains

For long-term capital gains made from the sale or transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80.

But you can avail an exemption on the profit under Section 115F when the profit is reinvested back into:

  1. Shares of an Indian company
  2. Debentures of an Indian public company
  3. Deposits with banks and Indian public companies
  4. Central Government securities
  5. NSC VI and VII issues

In this case, capital gains are exempt proportionately if the cost of the new asset is less than the net consideration.

Remember, if the new asset purchased is transferred or sold within 3 years, then the profit exempted will be added to the income in the year of sale/transfer.

The above benefits may be available to NRI even when they become a resident – until such an asset is converted to money and upon submission of a declaration by the NRI to apply the special provisions to the assessing officer.

The NRI may choose to opt out of these special provisions, and in that case, the income (investment income and LTCG) will be charged to tax under the regular provisions of the Income Tax Act. 

Tax deductions available for NRI

Deductions AllowedDeductions Not Allowed

Sec 80C

  • LIC premium
  • Tuition Fees
  • Principal repayment of home loans
  • Unit Linked Insurance Plan (ULIP)
  • Equity Linked Tax Saving Scheme (ELSS)

Sec 80C

  • Investment in Public Provident fund (PPF) (Not allowed to open a new PPF account. However, a PPF account opened while you are a resident is allowed to be maintained.)
  • Investment in National Saving Certificate (NSC)
  • Post Office 5year Deposit scheme
  • Senior citizen savings scheme
Sec 80D
Medical Insurance
Sec 80CCG
Investment in Rajiv Gandhi Equity Saving Scheme (RGESS)
Sec 80E
Interest paid on Education loan
Sec 80DD
Deduction for maintenance including medical treatment of dependant handicapped as defined under section
Sec 80G
Payments made in the form of eligible Donations
Sec 80DDB
Deduction for medical treatment of dependant handicapped (as certified by a prescribed specialist)
Sec 80TTADeduction allowed to a taxpayer who suffers from a disability
80CCD(2)Deduction towards contribution made by an employer to the Pension Scheme of Central Government (Deduction limit of 14% of salary )
Section 80CCH
Deduction in respect of contribution to Agnipath Scheme
An individual enrolled in the Agnipath Scheme can claim a deduction for the full amount paid into the Agniveer Corpus Fund from November 1, 2022. Similarly, any contribution by the Central Government to the Agniveer’s account is also eligible for a full deduction in the computation of total income. This reduces the taxable income of the assessee.

Deduction under Section 80C:

The maximum deduction allowed under the section is Rs.1,50,000. The deductions allowed to NRIs under the section are –

Life Insurance Premium Payments-

The deduction is available where the policy has been purchased in NRI’s name or in the name of his/her spouse or any child’s name (regardless of their dependencies and age). The premium must be less than 10% of the sum assured.

Tuition Fee Payment-

NRI can claim a deduction of tuition fees paid to any school, college, or any university situated in India for the purpose of the full-time education of their children.

Principal repayment of home loans-

Like Residents, NRIs can also claim a deduction for principal repayment of house property loans borrowed for the purposes of constructing or purchasing a residential house property. Other expenses such as stamp duty charges, registration fees, and others incurred for the purposes of acquiring such property also qualify for deduction under the section.

Unit Linked Insurance Plan (ULIP)-

Investment in ULIPs is also allowed as a deduction to NRI’. Investment in ULIPs offers twin benefits of insurance and investment under a single integrated plan. The lock-in period is 5 years. Premium paid towards own, spouse, and children are eligible for deduction.

Equity Linked Tax Saving Scheme (ELSS)-

ELSS investments qualify for tax deductions under Section 80C of the Income Tax Act, allowing investors to claim deductions of up to Rs 1.5 lakh in a financial year. This makes ELSS a popular choice for individuals looking to save on taxes while investing in equities. ELSS funds come with a mandatory lock-in period of three years.

Deduction under Section 80D:

NRIs can claim a deduction for premiums paid for health insurance for themselves and their family or parents in India.

The three possible situations and tax benefits for each are shown below:

Policy taken forDeduction AllowedTotal Tax Benefit
Self, spouse & children;
Parents below 60 years
Rs.25,000
Rs.25,000
Rs.50,000
Self, spouse & children below 60;
Parents above 60
Rs.25,000
Rs.25,000
Rs.75,000
Self, spouse above 60 & children;
Parents above 60
Rs.50,000
Rs.50,000
Rs.1,00,000

Deduction under Section 80E:

Section 80E allows NRIs to claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI’s spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. No deduction is allowed on the principal repayment of the loan.

Deduction under Section 80G:

If eligible donations have been made as per section 80G of the income tax act, the deduction is allowed to NRIs.

Deductions not allowed to NRIs

Some investments under Section 80C:

  • NRIs are not allowed to open new PPF accounts. However, PPF accounts that are opened while they are a resident are allowed to be maintained
  • Investments in National Savings Certificates (NSCs)
  • Post office 5-year deposit scheme
  • Senior Citizen Savings Scheme (SCSS)

NRI income tax slab rates 2024-25

Hence, for Non-Residents, whether aged
Below 60 Years
Above 60 – 80 Years, and
Above 80 Years
All are taxed uniformly.

The tax slab rates for Non-resident Individuals are:

Old Tax RegimeNew Tax Regime u/s 115BAC
Income Tax SlabIncome Tax RateIncome Tax SlabIncome Tax Rate
Up to ₹ 2,50,000NilUp to ₹ 3,00,000Nil
₹ 2,50,001 – ₹ 5,00,0005% above ₹ 2,50,000₹ 3,00,001 – ₹ 7,00,0005% above ₹ 3,00,000
₹ 5,00,001 – ₹ 10,00,000₹ 12,500 + 20% above ₹ 5,00,000₹ 7,00,001 – ₹ 10,00,000₹ 20,000 + 10% above ₹ 7,00,000
Above ₹ 10,00,000₹ 1,12,500 + 30% above ₹ 10,00,000₹ 10,00,001 – ₹ 12,00,000₹ 50,000 + 15% above ₹ 10,00,000
  ₹ 12,00,001 – ₹ 15,00,000₹ 80,000 + 20% above ₹ 12,00,000
  ₹ Above 15,00,00₹ 1,40,000 + 30 % above ₹ 15,00,000
 

Revised Income Tax Slabs for the New Tax Regime

Range of Income (Rs.)Tax Rate
Up to 3,00,000NIL
3,00,000-7,00,0005%
7,00,000-10,00,00010%
10,00,000-12,00,00015%
12,00,000-15,00,00020%
Above 15,00,00030%

Surcharge Rates for NRI’s

  • Surcharge Rate is 10% of income tax payable on total income exceeding Rs 50 lakhs but up to Rs 1crore.
  • The surcharge Rate is 15% of income tax payable on total income exceeding Rs 1crore but up to Rs 2crore.
  • The surcharge Rate is 25% of income tax payable on total income exceeding Rs 2crore but up to Rs 5crore.
  • The surcharge Rate is 37% of income tax payable on total income exceeding Rs 5crore.
  • The surcharge is subject to marginal relief and is applicable to the income of an NRI as well.

FAQS

Which ITR form is applicable to the NRI assessee?

“Till AY 2017-18 Non-Resident Individual (NRI) Assessee could file ITR 1 for their income earned or accrued in India. From the FY 2018-19 and 2019-20, amendments has been made in the eligibility to file form ITR 1. Now, ITR 1 can only be filed by Resident Individuals and is not available for non-ordinary residents.

This means a non-resident Individual (NRI) has the option to file either of these two ITR forms ITR 2 or ITR 3

ITR 2 can be filed in case the NRI has income other than income from Business and profession. Such other income can include income from rent received in India, interest income received, capital gains arising from share trading or sale of property located in India, etc.

ITR 3 is required to be filed in case NRI is receiving any income in India from Business or Professional activity being carried out in India.

Documents required for filing ITR in India for NRIs?
  • PAN Card
  • Passport (for citizenship verification)
  • Form 16 (if employed in India)
  • Bank Account Details
  • Property Documents (if owning in India)
  • Rent Receipts (if renting out property)
  • Investment Statements
  • Foreign Income Details

Popular Category

Categories

CA B K Goyal & Co LLP Chartered Accountants

Individuals

Income Tax e Filing
Tax Planning
Investment
Tax Planning
Investment
Services
Mutual Funds

Income Tax Filing

Income Tax
Section 80 Deduction
Income Tax for NRI

GST

GST
GST Login
New GST Returns
e-invoicing
Input Tax Credit

Enterprises

GST
E-waybill
TDS
eWay bill Registration

Company

Audits

Company Audit
Income Tax Audit
Internal Audit
GST Audit
ESG
BRSR
Sustainability Report

SMEs

GST
Services for Businesses
GST Registration
Incorporation
GST Filing

BKG Services

Tax filing for professionals
Tax filing for traders
Trademark Registration
Company Registration
TDS returns
MSME Registration

HSN Lookup

HSN Code Finder
Cement HSN Code
Transport HSN Code
Plastic HSN Code
Cloth GST Rate
Books GST Rate

RESOURCES AND GUIDES

GST Resources

ITR Resources

Mutual Fund Resources

Business Resources

TOOLS