NRI Income Tax in India — What NRIs Must Know About Tax on Indian Income

With a large diaspora from Kerala working in the Gulf, USA, UK, Canada and Australia, NRI income tax is a critical concern for millions of Keralites. The Indian Income Tax Act taxes NRIs differently from residents — and understanding the rules can prevent costly mistakes. Here is the complete guide to NRI income taxation in India.

What is an NRI (Non-Resident Indian)?

An individual is a Resident of India for income tax purposes if during the financial year:

• They are in India for 182 days or more in that year, OR
• They are in India for 60 days or more in that year AND 365 days or more in the preceding 4 years

If neither condition is met, you are a Non-Resident Indian (NRI) for that year. Note: the 60-day rule has a relaxed version for Indian citizens who go abroad for employment — they need 182 days instead of 60 days for the 4-year rule.

There is also a third category — Resident but Not Ordinarily Resident (RNOR) — for those returning to India after long NRI status.

What Income is Taxable for NRIs?

NRIs are taxed only on income that accrues or arises in India or is received in India. Typically taxable:

• Rental income from property situated in India
• Capital gains on sale of property or investments situated in India
• Interest income from NRO accounts (taxable); interest from NRE and FCNR accounts is exempt
• Dividends from Indian companies
• Income from business or profession set up in India
• Salary received in India (or for services rendered in India)

Foreign income earned while working abroad is NOT taxable in India for NRIs.

NRO vs NRE Accounts — Tax Implications

NRO Account (Non-Resident Ordinary): Indian rupee account for managing Indian income (rent, dividends, property sales). Interest earned on NRO accounts is taxable in India at 30% + surcharge + cess. TDS at 30% is deducted by the bank on NRO interest.

NRE Account (Non-Resident External): For parking foreign earnings remitted to India. Interest earned on NRE accounts is completely tax-free in India. Principal and interest are freely repatriable.

FCNR Account (Foreign Currency Non-Resident): Foreign currency fixed deposits. Interest is tax-free in India. Hedging risk on currency is eliminated.

TDS for NRIs

Tax is deducted at source at higher rates for NRIs:

• Rental income from property: 30% TDS
• Interest on NRO accounts: 30% TDS
• Capital gains: LTCG at 20% (with indexation); STCG at applicable slab
• TDS on property sale by NRI buyer: 20-30% (much higher than resident)

DTAA — Double Tax Avoidance Agreement

India has DTAA treaties with over 90 countries — including UAE, USA, UK, Canada, Australia and all major Gulf nations. Under DTAA, income taxed in India may be exempt or taxed at a lower rate in the country of residence, preventing double taxation. NRIs must provide a Tax Residency Certificate (TRC) and Form 10F to claim DTAA benefits.

ITR Filing for NRIs

NRIs with Indian income above the basic exemption limit (₹2.5 lakh) must file ITR in India. The applicable form depends on income type — ITR-2 is commonly used for NRIs. Form 10F and TRC are needed to claim DTAA relief. NRIs cannot file ITR-1 (Sahaj) — they must use ITR-2 or ITR-3.

Conclusion

NRI taxation in India requires careful management of residential status, account type choices and tax treaty benefits. SPOTON provides dedicated NRI income tax services — ITR filing, TDS refund, property transaction advisory and DTAA benefit claims for Kerala's global diaspora. Contact us for NRI tax planning and compliance.