Tax laws for Non-Resident Indians (NRIs) can be a little confusing. . Whether you’re earning income abroad or in India, understanding your tax liabilities is essential. Knowing the right sections and NRI tax laws not only helps you stay compliant but can also save you from unnecessary penalties.
For NRIs, taxation isn’t just about understanding income tax; it also involves determining your residential status, the source of your income, and which sections of the Income Tax Act apply to you. Let’s break it down in a simple way so you can manage your taxes effectively, no matter where you are in the world.
How do I determine my residential status?
Your residential status is the first and most crucial factor in deciding your tax liability in India. The Income Tax Act, 1961 provides clear criteria to determine whether you are an NRI or a resident for a financial year.
What are the criteria for residential status?
According to the Income Tax Act, your status depends on the number of days you stay in India during a financial year (1 April to 31 March). You are considered a resident if you meet either of the following conditions:
- You have stayed in India for 182 days or more during the current financial year.
- You have stayed in India for 60 days or more during the current financial year and for a total of 365 days or more in the previous four financial years.
If you do not meet these conditions, you are classified as a Non-Resident Indian (NRI).
Exceptions for Indian citizens and PIOs
For Indian citizens working abroad or those who qualify as Persons of Indian Origin (PIOs), the 60-day condition changes to 182 days under specific circumstances:
- If you are an Indian citizen leaving India for employment or as a crew member of an Indian ship.
- If you are a PIO visiting India and your total income (excluding foreign income) does not exceed ₹15 lakh during the financial year.
These exceptions ensure that individuals travelling frequently or temporarily living abroad are not unfairly taxed as residents.
Why is residential status important?
Your residential status directly impacts:
- The type of income that will be taxed in India (global or Indian-sourced income).
- The applicability of various sections under the Income Tax Act.
For NRIs, only the income earned or accrued in India is taxable, whereas residents must pay tax on their global income.
Do NRIs have to file income tax returns in India?
Yes, NRIs are required to file income tax returns (ITR) in India if their total income earned or accrued in India exceeds ₹2.5 lakh in a financial year. Even though NRIs do not have to pay tax on foreign income, they must file an ITR if:
- They have taxable income in India such as rental income, interest income, capital gains, or dividends.
- Tax has been deducted at source (TDS) on their Indian income, and they wish to claim a refund.
- They want to offset capital gains or losses in the financial year.
It is important to note that filing an ITR is mandatory even if the NRI’s total income is below the taxable limit but they need to claim a tax refund.
NRIs can file their income tax returns using the Income Tax Department’s e-filing portal. The due date for filing is usually 31 July following the end of the financial year. Failing to file your returns on time can attract penalties under Section 234F.
What is Income Earned or Accrued in India?
Income earned or accrued in India refers to any income that originates from sources located in India, even if you receive the payment outside the country. For NRIs, only such income is taxable under Indian laws.
Here is a breakdown of the types of income that are considered earned or accrued in India:
| Type of Income | Description |
| Salary Income | Salary received for services rendered in India, even if paid abroad. |
| Rental Income | Income from renting out property located in India. |
| Interest Income | Interest earned on savings accounts, fixed deposits, or NRO accounts in Indian banks. |
| Capital Gains | Profits earned from the sale of property, shares, or other assets located in India. |
| Dividends | Dividends received from Indian companies. |
| Business Income | Income from businesses or professions conducted or set up in India. |
| Pension Income | Pension received for past services rendered in India. |
| Other Income | Any income such as royalty, consultancy fees, or technical fees for services provided in India. |
Why is this classification important?
Understanding the types of income earned in India helps NRIs determine their tax liability accurately and avoid mistakes when filing their returns. If you have multiple income streams, consulting a tax expert or using tools like Paisaseekho’s tax calculator can simplify the process.
NRI Tax Deductions Available
NRIs can also avail of certain deductions under the Income Tax Act to reduce their taxable income in India. Here’s a table summarising the key NRI tax deductions available:
| Section | NRI Tax Deduction Type | Details |
| Section 80C | Investments in specific instruments | Up to ₹1.5 lakh on investments like PPF, ELSS, life insurance premiums, and ULIPs. |
| Section 80D | Health insurance premiums | Deduction up to ₹25,000 (or ₹50,000 for senior citizens) for health insurance premiums. |
| Section 80E | Interest on education loans | Deduction on interest paid for a maximum of 8 years on education loans. |
| Section 80G | Donations to charitable organisations | Deduction on donations made to eligible charities (50% or 100%, depending on the charity). |
| Section 80TTA | Interest on savings accounts | Deduction up to ₹10,000 on interest earned in NRO savings accounts. |
NRI Tax Slabs for AY 2024-25
NRIs are taxed based on the same slab rates applicable to Indian residents, but they are not eligible for the basic exemption of ₹2.5 lakh if they are over 60 years (senior citizens) or 80 years (super senior citizens). Here is the income tax slab for NRIs for the Assessment Year (AY) 2023-24:
| Income Range | NRI Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Notes:
- Surcharge: If the income exceeds ₹50 lakh, a surcharge of 10% to 37% is applicable depending on income.
- Cess: A health and education cess of 4% is added to the total tax payable.
Surcharge Rates for NRIs
For NRIs with higher incomes, surcharge rates are applied as follows:
| Income Range | Surcharge Rate |
| Income exceeding ₹50 lakh | 10% |
| Income exceeding ₹1 crore | 15% |
| Income exceeding ₹2 crore | 25% |
| Income exceeding ₹5 crore | 37% |
The surcharge is calculated on the total tax payable and is in addition to the regular income tax rates.
Benefits of Basic Exemption Limit for NRIs
The basic exemption limit for NRIs is ₹2.5 lakh, regardless of age. Unlike Indian residents, NRIs cannot benefit from higher exemption limits that apply to senior citizens (aged 60 and above) or super senior citizens (aged 80 and above).
Key Points to Note:
- NRIs can claim the basic exemption limit of ₹2.5 lakh.
- Any income earned beyond this limit is taxed according to the applicable slab rates.
- If total income in India does not exceed ₹2.5 lakh, no tax is payable.
Which ITR Form is Applicable to the NRI Tax Assessee?
NRIs must use the appropriate Income Tax Return (ITR) form based on their income type. The forms applicable to NRIs are as follows:
| ITR Form | Applicable To |
| ITR-1 | NRIs with income up to ₹50 lakh from salary, one house property, and other sources (not business income). |
| ITR-2 | NRIs with income from salary, more than one house property, capital gains, or foreign income. |
| ITR-3 | NRIs with income from business, profession, or partnership firms in India. |
Using the correct form ensures smooth processing of your returns and avoids unnecessary scrutiny or delays from the Income Tax Department.
When do NRIs have to File Tax Returns in India?
NRIs must file their tax returns in India under the following conditions:
- If their total taxable income in India exceeds the basic exemption limit of ₹2.5 lakh in a financial year.
- If they have earned capital gains from the sale of property, shares, or other assets in India.
- If TDS (Tax Deducted at Source) has been deducted on their Indian income and they wish to claim a refund.
- If they want to carry forward any losses to offset against future income.
The deadline to file ITR for NRIs is 31 July of the assessment year unless extended by the Income Tax Department. It is advisable to file returns well in advance to avoid penalties and ensure timely processing of refunds, if applicable.
NRI Tax Implications: Remittances, Gifts, Inheritance, and Foreign Assets
Tax implications for NRIs are not limited to income earned but extend to remittances, gifts, inheritance, and foreign assets. Here’s an overview:
| Category | Tax Implications |
| Remittances | Remittances to India are not taxable. However, income generated from the remitted funds in India is taxable. |
| Gifts | Gifts from relatives are not taxable. Gifts exceeding ₹50,000 from non-relatives are taxable as income. |
| Inheritance | Inherited property or assets are not taxed in India. However, any income earned from inherited assets is taxable. |
| Foreign Assets | NRIs must disclose foreign assets under the Black Money Act to avoid penalties. |
Understanding these aspects ensures compliance with Indian tax laws and avoids unnecessary penalties.
Double Taxation Avoidance Agreement (DTAA): A Lifeline for NRIs
The Double Taxation Avoidance Agreement (DTAA) is a treaty India has signed with several countries to help NRIs avoid paying tax on the same income twice—once in India and again in their country of residence.
Key Benefits of DTAA:
- Tax Credit: NRIs can claim a tax credit in their resident country for taxes paid in India.
- Tax Exemption: Certain types of income, like interest or dividends, may be exempt under DTAA.
- Reduced Tax Rates: The DTAA specifies reduced tax rates for income types such as interest, royalties, and dividends.
NRIs can benefit from DTAA by submitting a Tax Residency Certificate (TRC) from their country of residence along with Form 10F while filing their returns in India.
Platforms like Paisaseekho can help NRIs understand DTAA provisions better and simplify tax compliance across countries.
Conclusion
Understanding taxation laws for NRIs in India can seem complex, but breaking it down into categories like residential status, income types, and available deductions simplifies the process. NRIs must stay informed about their tax liabilities, use applicable deductions, and leverage DTAA benefits to avoid double taxation. Filing returns on time and disclosing assets accurately can help NRIs remain compliant while optimising tax savings.
For an easy-to-understand tax guide and expert resources, platforms like Paisaseekho can help NRIs understand taxation laws efficiently.
FAQs
1. What is the basic exemption limit for NRIs in India?
The basic exemption limit as per NRI tax laws is ₹2.5 lakh, irrespective of age. NRIs are taxed on income earned or accrued in India beyond this threshold.
2. Do NRIs have to pay tax on remittances sent to India?
No, remittances sent to India by NRIs are not taxable. However, any income earned on the remitted funds, such as interest or investments, is taxable.
3. Which ITR form should NRIs use to file income tax returns?
NRIs should use:
- ITR-1: For income up to ₹50 lakh from salary, one house property, and other sources.
- ITR-2: For income from salary, multiple house properties, capital gains, or foreign income.
- ITR-3: For income from business or profession.
4. Are gifts received by NRIs taxable in India?
Gifts from relatives are exempt from tax. However, gifts exceeding ₹50,000 from non-relatives are considered taxable income for NRIs.
5. How can NRIs avoid double taxation on their income?
NRIs can avoid double taxation through the Double Taxation Avoidance Agreement (DTAA). By claiming tax credits or exemptions under DTAA, NRIs can prevent paying tax on the same income twice.
6. Do NRIs need to pay tax on inherited property in India?
No, inherited property or assets are not taxed in India. However, any income earned from the inherited property, such as rental income, is taxable.
7. Is interest earned on NRE and NRO accounts taxable?
- NRE accounts: Interest earned is tax-free.
- NRO accounts: Interest earned is taxable and subject to TDS.
8. When is the deadline for NRIs to file income tax returns in India?
The deadline for NRIs to file income tax returns is 31 July of the assessment year. Filing after this date can attract penalties under Section 234F.
9. Are NRIs eligible for deductions under Section 80C?
Yes, NRIs can claim deductions up to ₹1.5 lakh under Section 80C for investments like life insurance, ELSS, PPF, and ULIPs.
10. What happens if an NRI fails to disclose foreign assets in India?
Failure to disclose foreign assets under the Black Money Act can attract hefty penalties and prosecution. NRIs must report their foreign holdings to remain compliant.
