Income Tax for NRI - Residential Status, Taxable Income & Rules
Filing income tax return is not just a legal responsibility, but it is also your contribution to the development of the country. If you are a non-resident Indian (NRI) and have any income in India, it becomes important for you to understand Indian tax laws. Whether you live abroad for employment, studies or any other reason, if your income is earned or received in India, then you may have to pay tax on it under the Income Tax Act 1961.
In this article, you will be able to know who is an NRI, how residential status is determined, which income is taxable, and what tax benefits or exemptions you can avail.
Who is a Non-Resident Indian (NRI)?
An NRI or Non Resident Indian is a person who is an Indian citizen or whose roots are connected to India, but he has been living outside India for a long time such as for job, studies, business or any other reason. However, just living abroad does not make one an NRI from the tax point of view. For this, your residential status is decided for every financial year.
According to the Indian Income Tax Act, if a person has stayed in India for 182 days or more in a financial year, or 60 days or more in that year and 365 days or more in total in the last four years, then he is considered an Indian resident. But if you are working outside India or are a crew member of an Indian ship, then only the condition of 182 days applies. If these conditions are not met, then that person will be considered an NRI i.e. non-resident.
What Income is Taxable for NRIs in India?
If you are an NRI, you are only required to pay tax on income that is earned in India or received in India. Income earned abroad is not taxable in India, provided you fall under the NRI category.
The most common taxable income for NRIs includes salary. If you have worked in India or your salary is directly deposited into an Indian bank account, then this income will be taxable in India. Even if your company is based abroad, if the work is done in India or the money is received in India, then tax is payable.
If you have a property in India and you are receiving rent from it, then that income is also taxable. But you can avail certain tax benefits, such as a standard deduction of thirty percent, property tax deduction, and exemption of interest paid on home loan. Apart from this, the principal repayment of home loan is also exempted under section 80C.
If you make a profit by selling a property, mutual fund or share in India, you are liable to pay capital gains tax on it. This gain can be short-term or long-term, depending on how long you held the asset. Long-term gains above Rs 1 lakh from listed shares and mutual funds are taxed at ten percent (without indexation benefits), while short-term gains are taxed at fifteen percent.
Many NRIs also earn interest on bank deposits. If this interest is on NRE or FCNR accounts, and your NRI status is maintained, it is exempt from tax. But if you are earning interest from an NRO account, it is fully taxable.
Special Tax Treatment for Certain Investments
If an NRI earns income in foreign currency from certain Indian assets, he may get special tax exemptions on that income. These assets include Indian companies (whether private or public), government securities, debentures of listed companies and deposits made in Indian banks or public companies. Income from such assets is usually taxed at a lower rate. But keep in mind, you do not get any tax exemption under Chapter VI-A (like Section 80C, 80D etc.) on such income.
Conclusion
Tax rules for NRIs are slightly different but not overly complex. The key is to determine your residential status every financial year and understand which Indian income sources are taxable. While certain earnings like NRE account interest and foreign income are exempt, rental income, capital gains, and salary received in India may invite tax liability. Proper planning, record-keeping, and timely filing of ITR (if required) can help you avoid penalties and ensure compliance with Indian tax laws.
FAQ's About Non-Resident Indian
1. Is income earned abroad by an NRI taxable in India?
No, income earned and received outside India is not taxable for NRIs under Indian tax law.
2. Can NRIs claim deductions under Section 80C?
Yes, NRIs can claim deductions under Section 80C (like life insurance, PPF, tuition fees, etc.), but only on eligible investments made in India.
3. Do NRIs get the basic exemption limit of ₹2.5 lakh?
Under the new regime, yes. Under the old regime, it may not always apply—especially in cases of certain types of income like capital gains.
4. Can NRIs invest in Indian mutual funds?
Yes, NRIs can invest in Indian mutual funds. The returns (dividends or capital gains) are taxable depending on the type of fund and the duration of holding. TDS is also applicable on capital gains.
5. Can NRIs claim a refund if excess TDS is deducted?
Yes, NRIs can claim a refund of excess TDS deducted by filing an income tax return (ITR) in India for the relevant financial year.
