Understanding income tax rules for NRIs is crucial for non-resident Indians. NRIs face unique tax obligations on Indian-sourced income. What are the key income tax rules for NRIs in India, and how can you comply? Let’s break it down.
Residential Status and Taxable India Income:
One of the first things to understand in the income tax rules for NRIs in India is how residential status matters. An individual qualifies as an NRI if they stay in India for less than 182 days in a financial year, or meet other criteria under Section 6. However, if you stay more than 182 days (or 120 days in some cases), you may become a resident and therefore taxable on worldwide income.
In addition, only income earned, received or accrued in India is taxable for NRIs under the income tax rules for NRIs in India. Foreign-sourced income remains outside Indian tax (unless you become resident).
Tax Slabs and Rates for NRIs:
The next key part of the income tax rules for NRIs in India is the tax slab rates. NRIs follow the same slab rates as resident Indians under both the old tax regime and the new tax regime. For example:
- Under the old regime (FY 2025-26) income up to ₹2.5 lakh is nil; ₹2.5-5 lakh taxed at 5%; above ₹10 lakh at 30%.
- Under the new regime, income up to ₹4 lakh is exempt; ₹4-8 lakh taxed at 5%; above ₹24 lakh at 30%
- Additionally, a Health & Education Cess of 4% applies, and surcharges are levied for high incomes (for example above ₹50 lakh) as per the income tax rules for NRIs in India.
Deductions, Capital Gains and Special Rules:
Under the income tax rules for NRI, deductions are available under the old tax regime just like resident Indians. For example, under Section 80C (up to ₹1.5 lakh), Section 80D, etc. However, NRIs also face special capital gains rules. For instance, LTCG on listed equity shares above a threshold are taxed at 10% without indexation; unlisted securities may be taxed at 20% with indexation.
Also note: Some rules treat NRIs differently for deduction eligibility and TDS rates. For example, the rebate under Section 87A is not available to NRIs under either regime.
Filing, Compliance and Treaty Benefits:
Finally, the income tax rules for NRIs in India emphasise compliance and understanding of treaties. First, you must file an ITR if your income exceeds the basic exemption limit or under certain conditions even if it doesn’t. Second, India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries.
Under these agreements you may claim credit for tax paid abroad, subject to documentation. Third, make sure you maintain accurate records of Indian income, TDS deducted, treaty forms (like Form 67) and your residential status. Incorrect classification could draw penalties.
Conclusion:
Navigating the income tax rules for NRIs can be complex, but with timely knowledge and planning you can optimise your tax structure while staying compliant. Whether you are earning salary in India, earning rental income, or managing capital gains from Indian investments, being aware of the slabs, deductions, and residency tests will pay dividends. Explore more financial insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Income Tax Rules for NRIs here – https://cleartax.in/tax-for-nri