🌍 Income Taxability of NRI (Non-Resident Indian) – Complete Guide (2025)
Author: CA Pankaj Agrawal, Practicing Chartered Accountant, Indore (M.P.)
Firm: M/s Pankaj Agrawal & Associates, Chartered Accountants
Last Updated: November 2025
🏦 Introduction
With globalization and increased overseas employment, many Indians now earn income abroad while maintaining financial interests in India.
Understanding how income of a Non-Resident Indian (NRI) is taxed under the Indian Income Tax Act, 1961 is crucial to ensure compliance and optimize tax liability.
This guide explains the residential status, taxability of NRI income, exemptions, and filing requirements in a simple, structured manner.
📘 Step 1: Determining Residential Status (Section 6 of the Income Tax Act)
Before computing tax, the residential status must be determined for each financial year.
A. Basic Conditions
An individual is Resident in India if he satisfies any one of the following:
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Stayed in India for 182 days or more during the financial year, or
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Stayed in India for 60 days or more in the year and 365 days or more in the preceding 4 years.
B. Exceptions for Indian Citizens / Crew Members
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For Indian citizens leaving India for employment abroad or as crew members, the 60 days condition is replaced by 182 days.
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Hence, most employees working abroad generally become Non-Residents.
C. Types of Residents
| Category | Description |
|---|---|
| Resident & Ordinarily Resident (ROR) | Resident in India for 2 out of 10 preceding years + 730 days stay in 7 years |
| Resident but Not Ordinarily Resident (RNOR) | Resident this year, but not meeting both ROR conditions |
| Non-Resident (NRI) | Does not meet any basic condition above |
📊 Step 2: Scope of Taxable Income
| Residential Status | Income Taxable in India |
|---|---|
| Resident & Ordinarily Resident (ROR) | Global income taxable in India |
| Resident but Not Ordinarily Resident (RNOR) | Income earned in India + income from business controlled in India |
| Non-Resident (NRI) | Only income earned or received in India |
💰 Step 3: Income Taxability for NRI
1. Income Earned in India – Taxable
The following incomes are taxable in India for an NRI:
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Salary received in India or for services rendered in India
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Income from house property situated in India (rent is taxable)
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Capital gains on transfer of Indian assets (shares, property, etc.)
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Interest income on NRO account, fixed deposits, debentures, etc.
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Dividend income from Indian companies
💡 Example:
If an NRI sells a flat in Indore and earns ₹50 lakh gain, it will be taxable in India under capital gains provisions.
2. Income Earned Outside India – Not Taxable
If the income is earned outside India and received outside India, it is not taxable for an NRI.
💡 Example:
An NRI working in Dubai earning salary credited to a UAE bank account – not taxable in India.
🏠 Step 4: Tax Treatment of Common NRI Income Sources
| Type of Income | Taxability in India | Tax Deducted at Source (TDS) |
|---|---|---|
| Salary for services rendered in India | Taxable | As per slab rate |
| Rent from property in India | Taxable | 30% (TDS by tenant) |
| Interest on NRO account | Taxable | 30% TDS |
| Interest on NRE/FCNR account | Exempt | Nil |
| Long-Term Capital Gains on property | Taxable @20% (with indexation) | Buyer to deduct TDS u/s 195 |
| Short-Term Capital Gains on shares | 15% or as applicable | TDS u/s 111A |
| Dividend from Indian company | Taxable @10% (if > ₹5,000) | TDS u/s 194 |
🧾 Step 5: Deductions & Exemptions Available to NRIs
Eligible Deductions under Chapter VI-A:
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Section 80C: Up to ₹1.5 lakh for investments like ELSS, LIC, PPF (only if continued from resident period), tuition fees, principal repayment.
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Section 80D: Medical insurance premium deduction up to ₹25,000.
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Section 80G: Donations to approved charitable institutions.
❌ Not Allowed: Section 80TTA (Interest on Savings Account), Section 80TTB (Senior Citizens).
🌐 Step 6: Double Taxation Avoidance Agreement (DTAA)
If an NRI’s income is taxed both in India and their country of residence, DTAA helps avoid double taxation.
Under DTAA, NRIs can:
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Claim tax credit in their resident country, or
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Opt for exemption in India depending on the treaty.
For example, India–UAE DTAA allows exemption for most overseas income of Indian expatriates.
🧮 Step 7: Filing of Income Tax Return (ITR) by NRI
NRI must file ITR in India if:
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Total income (before deductions) exceeds ₹2,50,000, or
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To claim a refund or carry forward losses.
ITR Forms:
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ITR-2: For income from salary, house property, capital gains, or other sources.
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ITR-3: For business/professional income in India.
Due Date: 31st July (non-audit cases)
⚖️ Step 8: Important Compliance Notes
✅ File Form 15CA/CB before remitting funds abroad.
✅ Maintain NRO/NRE bank accounts separately.
✅ Keep copies of DTAA documents and tax residency certificates (TRC).
✅ TDS can be claimed as credit while filing ITR.
📞 Expert Assistance for NRIs
At M/s Pankaj Agrawal & Associates, we provide end-to-end NRI taxation services including:
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Residential status determination
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Tax planning for NRI property sale
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DTAA advisory & foreign income computation
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ITR filing for NRIs and OCIs
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15CA/15CB certification for remittances
📍 88 Jawahar Nagar, Near Rajendra Nagar, Indore – 452012
📞 7999028234
📧 pankajagrawal0116@gmail.com
🔚 Conclusion
Understanding income taxability for NRIs ensures compliance and helps avoid double taxation.
Since laws and DTAA provisions change regularly, it’s prudent to consult a qualified Chartered Accountant in Indore who specializes in NRI taxation and international tax planning.
