Introduction

If you live abroad and have income, investments, or property in India  or if you are planning to return navigating Indian tax law can feel overwhelming. The rules governing Non-Resident Indians (NRIs) are spread across the Income Tax Act, 1961, FEMA 1999, and a web of bilateral tax treaties known as DTAAs.

This 2026 guide brings it all together. Whether you are working in the Gulf, holding a green card in the US, managing rental property back home, or planning your return after decades abroad, this is the definitive resource you need.

1. Who Is an NRI? Two Definitions You Must Know

The critical first point: NRI has different meanings under FEMA and the Income Tax Act. Confusing the two is the single most common mistake and it can be costly.

Under the Income Tax Act, 1961

Your tax liability in India is determined by your residential status under the Income Tax Act. An individual is an NRI for income tax purposes if:

• They are in India for fewer than 182 days during the relevant financial year (April 1 – March 31), OR
• They are in India for fewer than 60 days in the current year AND fewer than 365 days in total across the preceding 4 years.

Under FEMA, 1999

FEMA governs capital account transactions- opening bank accounts, repatriating funds, buying property, making investments. Under FEMA, a person becomes an NRI when they have gone outside India or stayed abroad for an uncertain duration or for purposes of employment, business, or vocation. FEMA status changes almost immediately upon departure.

2. Determining Your Residential Status

The Income Tax Act recognises three residential statuses for individuals:

Once you establish your residential status, it applies to the entire financial year, there is no pro-rata treatment within a year.

3. RNOR Status: The Returning NRI's Tax Shield

RNOR status is often called the 're-entry gift' in tax planning circles and for good reason. If you have been an NRI for a substantial period, you typically qualify for RNOR status for 2–3 financial years after returning to India permanently.

Who Qualifies as RNOR?

You are RNOR if you meet the basic residency test (182+ days in India) but satisfy either of these conditions:

• You were an NRI in 9 out of the 10 preceding financial years, OR
• You were in India for 729 days or fewer across the preceding 7 financial years.

Why RNOR Matters

As an RNOR, foreign income is NOT taxable in India, similar to NRI status, even though you are now physically a resident. This means:

• Salary earned from a foreign employer for services rendered abroad is not taxable
• Foreign bank interest, dividends, capital gains remain outside the Indian tax net
• Only income received in India, or income from an Indian business/profession you control, is taxable

4. What Income Is Taxable for an NRI?

NRIs are taxed in India on income that is:

• Received or deemed to be received in India- e.g., salary credited to an Indian bank account
• Accruing or arising in India- e.g., rental income from Indian property, interest on NRO accounts
• Deemed to accrue or arise in India- certain specific incomes under Section 9 of the IT Act

Section 9: Deemed Income Accruing in India

This is the key section NRIs must understand. The following are deemed to accrue in India regardless of where payment is received:

• Income from a business controlled in or a profession set up in India
• Salary paid by the Government of India for services rendered outside India
• Dividends paid by an Indian company
• Interest paid by a resident (in most cases)
• Royalties and fees for technical services from a resident, or from the Government

5. Foreign Income: When Is It Taxed in India?

However, two exceptions are worth noting:

Exception 1: NRI Returning to India Mid-Year

If you return to India and cross the 182-day threshold during the year, your status becomes Resident for that full year. Your global income for the entire year becomes taxable, not just income from the date of arrival. This can create significant unexpected tax liability. Careful year-end planning before returning is essential.

Exception 2: Income Controlled from India

If a foreign business is controlled and managed wholly from India, meaning key decisions, directorships, and operations are conducted from India, the income may be deemed Indian income. This is especially relevant for NRIs running offshore structures while physically present in India.

6. DTAA: Double Tax Avoidance Agreements

India has entered into DTAAs with over 90 countries. These treaties override domestic tax law and can significantly reduce your tax burden, but you must actively claim their benefits.

What DTAA Does

• Prevents double taxation-  the same income cannot be taxed by both countries in full
• Lowers TDS/withholding rates- on interest, dividends, royalties, and more
• Provides exemption from Indian tax for certain categories of income
• Offers credit mechanism-  tax paid in one country is creditable against liability in the other

Key DTAA Provisions- Selected Countries

* Capital gains on shares acquired on or after April 1, 2017 are taxable in India regardless of DTAA. Rates are indicative; exact rates depend on treaty provisions and nature of income.

How to Claim DTAA Benefits

To claim reduced TDS rates under DTAA, you must furnish the following to the Indian payer before TDS is deducted:

1. Tax Residency Certificate (TRC) issued by the tax authority of your country of residence, valid for the relevant year
2. Form 10F, a self-declaration form filed on the Income Tax Portal (mandatory since 2023)
3. PAN Card or Form 60 in certain cases
4. Self-declaration stating you are the beneficial owner and the income is not attributable to a permanent establishment in India

7. TDS Rates Applicable to NRIs: FY 2025-26

Tax Deducted at Source (TDS) for NRIs is governed primarily by Section 195 of the Income Tax Act. The rates are higher than those for residents, reflecting the absence of a tax return filing requirement in many cases.

Note: Surcharge of 10%-15% applies depending on income, plus 4% Health & Education Cess. Effective TDS on NRO interest can reach 34.32% to 35.88%. DTAA can bring this down meaningfully.

8. NRI Bank Accounts: NRE vs NRO vs FCNR(B)

9. Capital Gains Tax on Property & Investments

Sale of Immovable Property

When an NRI sells property in India, the buyer is required to deduct TDS at 12.5% on Long-Term Capital Gains (property held more than 24 months) or at applicable rates on short-term gains. Key points:

• The buyer must deduct TDS and obtain Form 16A from the Income Tax Portal
• NRIs can apply for a lower or nil TDS certificate (Form 13) from the Assessing Officer if their actual tax liability is lower- e.g., after exemptions under Sections 54, 54EC, 54F
• Indexation benefit has been removed for property acquired on or after April 1, 2001 (post-Budget 2024 changes); LTCG applies at 12.5% without indexation
• Repatriation of sale proceeds from NRO account is subject to a cap of USD 1 million per financial year

Section 54: Reinvestment Exemption

NRIs can claim capital gains exemption under Section 54 (purchase of another residential house in India), Section 54EC (investment in NHAI/REC bonds up to Rs.50 lakh within 6 months), and Section 54F (investment of full sale consideration in a new residential house). These exemptions apply equally to NRIs.

Equity & Mutual Funds

Post-Budget 2024 changes, LTCG on equity and equity-oriented mutual funds above Rs.1.25 lakh per year is taxed at 12.5% (no indexation). STCG is taxed at 20%. NRIs are also subject to Securities Transaction Tax (STT) at the same rates as residents when trading on Indian exchanges.

10. ITR Filing for NRIs: Do You Need to File?

Many NRIs assume that since TDS has been deducted, they don't need to file an ITR. This is incorrect in several scenarios.

When Filing Is Mandatory for NRIs

• Total Indian income before deductions exceeds the basic exemption limit (Rs.3 lakh under old regime, Rs.4 lakh under new regime for AY 2026-27)
• You have capital gains on sale of property or investments, even if TDS was deducted in full
• You want to claim a refund of excess TDS deducted
• You want to carry forward capital losses
• You are a beneficial owner or signing authority of a foreign asset (if Indian resident in earlier year)

Which ITR Form?

NRIs with capital gains must use ITR-2. NRIs with business/professional income in India use ITR-3. ITR-1 (Sahaj) is NOT available for NRIs.

Due Dates for AY 2026-27 (FY 2025-26)

• July 31, 2026-  general due date for individuals not requiring audit
• October 31, 2026-  for those requiring audit
• December 31, 2026- last date for belated or revised returns

11. NRI Tax Compliance Checklist 2026

12. Frequently Asked Questions

Q1. Can an NRI claim the basic tax exemption limit in India?

NRIs cannot claim the slab benefit under the old tax regime for most passive incomes (interest, capital gains). However, under the new tax regime (115BAC), NRIs can avail the Rs.4 lakh basic exemption and the Rs.75,000 standard deduction if they have salary income from India. The applicability depends on the nature of income, consult a tax advisor for your specific situation.

Q2. I live in the UAE. Can I avoid all Indian tax on my NRO interest?

Not entirely, but the India-UAE DTAA reduces TDS on interest to 12.5% (versus 30% under domestic law). Since UAE has no income tax, there is no credit mechanism- the 12.5% Indian TDS is the final tax. You must furnish a TRC from the UAE Federal Tax Authority and file Form 10F on the Indian IT Portal before the bank deducts TDS to avail this reduced rate.

Q3. My parents in India receive a gift from me abroad. Is it taxable?

Gifts received by a resident from an NRI who is a relative (as defined under Section 56(2), includes parents, siblings, spouse, children, etc.) are fully exempt from tax in India, regardless of amount. Gifts from non-relatives are taxable in the hands of the recipient if the aggregate value exceeds Rs.50,000 in a financial year. The gift must be documented with a gift deed to avoid scrutiny.

Q4. What happens to my PPF account when I become an NRI?

NRIs cannot open a new PPF account. However, if you opened a PPF account as a resident and subsequently became an NRI, the account can be continued until maturity on a non-repatriable basis. After maturity, the account cannot be extended, and the balance can only be repatriated through an NRO account. Interest earned on existing PPF accounts remains exempt from tax even for NRIs.

Q5. How is rental income from Indian property taxed for NRIs?

Rental income from Indian property is fully taxable for NRIs as 'Income from House Property.' The tenant (if a resident) must deduct TDS at 30% under Section 195. However, the NRI can claim deductions: standard deduction of 30% of net annual value, actual municipal taxes paid, and home loan interest (Section 24b). If the net taxable income after deductions is lower than TDS deducted, the NRI should file an ITR to claim a refund.

Q6. Do NRIs need to pay Advance Tax in India?

Yes. NRIs are required to pay advance tax if their total Indian tax liability (after TDS credit) is Rs.10,000 or more in a financial year. The due dates are: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15. Failure to pay advance tax attracts interest under Sections 234B and 234C.
 

Need Expert NRI Tax Guidance?

Nine O Six Advisory specializes in NRI taxation, DTAA planning, international tax compliance, and return-to-India planning. Our experts have handled complex cross-border tax matters across 20+ countries.
📧 support@nineosix.com
📞 +91 91722 70005 / +91 91722 70006
🌐 www.nineosix.com/contact-us