What’s Taxable in India if You’re an NRI? Don’t Miss These Key Rules
What Income Is Taxable for NRIs in India?
Understanding your tax residency status, as we've detailed in our previous article, 'Understanding Your Tax Residency Status – The Foundation of NRI Taxation', is a pivotal first step for NRIs. It empowers you to identify which income is taxable in India, a crucial aspect of Indian tax laws.
For Non-Resident Indians (NRIs), Indian tax law focuses on the source of income. Only income received in India or accrued/arising in India is taxable. However, the good news is that foreign income is generally outside the purview of Indian taxation. Even better, Double Taxation Avoidance Agreements (DTAAs) may significantly reduce your tax liability if applicable, providing a ray of hope in the complex tax landscape.
In this article, we cover:
What income earned by NRIs is taxable in India
Applicable tax rules, TDS, and deductions
Real-life examples for clarity
Common mistakes NRIs make in reporting income
1. Rental Income from Property in India
If you let out a house or apartment in India:
Taxable under: "Income from House Property."
Deductions:
30% standard deduction for repairs/maintenance.
You pay municipal taxes.
Interest on home loan (up to ₹2 lakh for self-occupied property, no limit for let-out property).
TDS: Tenants must deduct 30% TDS (plus surcharge and cess) under Section 195. For rent above ₹50,000/month, Section 194-IB may apply, but NRIs are subject to 30% TDS unless a lower/nil TDS certificate is obtained under Section 197.
DTAA: Tax treaties may reduce TDS rates (e.g., 10–15%) with a Tax Residency Certificate (TRC) and Form 10F.
Reconciling TDS in Form 26AS/Annual Information Statement (AIS) is a crucial step that ensures you're on the right track with your tax obligations. This process, though it may seem daunting at first, provides a sense of reassurance and confidence in your tax filing.
Remittance: File Form 15CA/CB for repatriating rental income abroad.
Example: You earn ₹40,000/month as rent. After a 30% deduction (₹12,000), taxable rent is ₹28,000/month = ₹3,36,000 annually (before loan interest). TDS of ₹1,20,000 (30%) applies unless a lower certificate is obtained. If your DTAA allows for a 15% tax claim, claim relief via the ITR.
2. Interest Income from NRO Accounts
Taxable under: "Income from Other Sources."
Tax Rate: Taxed at slab rates (new regime: 5% for ₹3–7 lakh, 10% for ₹7–10 lakh, etc.; old regime: 5% for ₹2.5–5 lakh, 20% for ₹5–10 lakh, etc.).
TDS: 30% (plus surcharge capped at 15% and cess) under Section 195.
No Deduction: Section 80TTA (₹10,000 deduction on savings interest) is not available for NRIs.
DTAA: Tax treaties may lower TDS rates with TRC and Form 10F.
Tip: Consolidate NRO fixed deposits (FDs) and verify interest in Form 26AS/AIS.
Remittance: File Form 15CA/CB for repatriating interest income.
Example: Your NRO FD earns ₹1.5 lakh interest in FY 2024–25. Taxable at slab rates (e.g., 10% = ₹15,000 in the new regime for total income ₹7–10 lakh), with 30% TDS (₹45,000). If the DTAA rate is 15%, claim a refund via ITR.
3. Interest on NRE & FCNR Accounts – Not Taxable
Interest earned on Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts is exempt from tax in India under Section 10(4)(ii) and Section 10(15) of the Income Tax Act, provided you qualify as an NRI under FEMA.
No tax, no TDS, and no reporting in the income schedule.
Foreign Asset Reporting: Required under Schedule FA if you are a Resident and Ordinarily Resident (ROR), not just a Resident.
Example: You earn ₹3 lakh interest on your NRE deposit as an NRI—zero tax, no TDS. If you become ROR, report the account in Schedule FA.
4. Capital Gains on Indian Assets
Gains from selling Indian assets (real estate, equity shares, mutual funds, etc.) are taxable:
Short-Term Capital Gains (STCG):
Listed shares/equity mutual funds held <12 months: Taxed at 20% (Budget 2024).
Property/unlisted assets held <24 months (Budget 2024): Taxed at slab rates.
Long-Term Capital Gains (LTCG):
Listed shares/equity mutual funds (>12 months): Taxed at 12.5% on gains above ₹1.25 lakh (Budget 2024).
Property/debt funds (>24 months): Choose between 12.5% without indexation or 20% with indexation (Budget 2024).
TDS: 20% for LTCG, 30% for STCG on property sales under Section 195. Buyers deduct TDS unless a lower certificate is obtained under Section 197.
DTAA: May reduce tax liability on capital gains.
Remittance: File Form 15CA/CB for repatriating capital gains.
Example: You sell an apartment in Pune for ₹80 lakh (bought in 2013 for ₹30 lakh). Indexed cost using CII (2013–14: 220; 2024–25: 363) = ₹30 lakh × (363/220) ≈ ₹49.5 lakh. LTCG = ₹30.5 lakh. Tax at 12.5% = ₹3.81 lakh (no indexation) or 20% = ₹6.1 lakh (with indexation). TDS of ₹16 lakh (20%) applies unless a lower certificate is obtained.
5. Dividend Income from Indian Companies
Taxable under: "Income from Other Sources" at slab rates.
TDS: 20% (plus surcharge capped at 15% and cess) under Section 195.
DTAA: May reduce tax rate with TRC and Form 10F.
No Exemption: Unlike residents, no threshold exemption applies.
Remittance: File Form 15CA/CB for repatriating dividends.
Example: You receive ₹90,000 as dividends from Indian stocks/mutual funds. Taxable at slab rates (e.g., 10% = ₹9,000 in the new regime), with ₹18,000 TDS (20%). If DTAA allows 10% tax, claim relief via ITR.
6. Business or Freelance Income from India
Income from business or services (e.g., consulting for Indian clients) is taxable if sourced in India:
Taxable under: "Profits and Gains of Business or Profession" at slab rates.
Deductions: Claim business expenses (e.g., operational costs) if documented.
TDS: 10% for professional/technical services (Section 194J) or 20–30% for other payments (Section 195), unless lower via Section 197 certificate.
DTAA: May reduce tax liability.
Remittance: File Form 15CA/CB for repatriating income.
Example: You earn ₹6 lakh/year offering digital marketing services to Indian startups. After ₹1 lakh expenses, taxable income is ₹5 lakh at slab rates (e.g., 5% = ₹25,000 in the new regime). TDS (e.g., 10% = ₹60,000 under 194J) applies unless DTAA lowers it.
Common NRI Mistakes to Avoid
Not reporting small rental or capital gains.
Assuming NRE/NRO accounts are entirely tax-free.
Ignoring 26AS/AIS mismatches.
Not applying for lower/nil TDS certificates under Section 197.
Misreporting residential status (NRI vs. ROR vs. RNOR).
Not filing ITR when TDS/TCS exceeds tax liability or for high-value transactions (>₹50 lakh in savings).
Missing Liberalized Remittance Scheme (LRS) TCS compliance (>₹7 lakh, 20% TCS per Budget 2024).
Failing to report foreign assets/income under Schedule FA if ROR.
Overlooking Form 15CA/CB for repatriating taxable income abroad.
Final Thoughts
As an NRI, living abroad doesn't exempt you from Indian taxes on Indian-sourced income (e.g., rent, NRO interest, dividends, capital gains, business income). Key considerations:
ITR Filing: Mandatory if taxable income exceeds ₹2.5 lahks (old regime) or ₹3 lahks (new regime, default per Budget 2024), or if TDS/TCS >₹25,000, or for high-value transactions (e.g., >₹50 lakh in savings accounts). Use ITR-2/ITR-3, not ITR-1.
Tax Regime: New regime (no deductions like 80C; slab rates: 5% for ₹3–7 lakh, 10% for ₹7–10 lakh, etc.) is the default; opt for the old regime for deductions (e.g., 80C up to ₹1.5 lakh).
Deemed Residency: Indian citizens with Indian income >₹15 lahks, not taxed elsewhere, may be deemed residents (Section 6(1A)), taxing global income unless RNOR status applies.
Income Tax Bill 2025: From April 1, 2026, NRIs staying 120+ days with Indian income >₹15 lakh may be deemed residents, impacting global income taxation.
At Angel Services, we guide NRIs through tax filing, from computing income and applying DTAA relief to reviewing Form 26AS/AIS and ensuring correct ITR filing.
Our mission: To empower every Global Indian with clarity, confidence, and complete control over their Indian tax obligations.