## NRI Tax Filing: What Is Different?

Non-Resident Indians (NRIs) are taxed **only on income sourced in India** — unlike residents who are taxed on global income. However, several important rules differ from resident taxation.

## Determining Residential Status (Section 6)

Residential status is determined **for each financial year** based on days spent in India. An individual is a **Non-Resident** if:

- Physically present in India for fewer than **182 days** in the financial year, OR
- Present for fewer than **60 days** in the current year AND fewer than **365 days** in the preceding 4 years

**Note**: Citizens of India leaving for employment abroad, or Indian crew members of ships, are non-resident only if they are in India for fewer than 182 days (the 60-day rule does not apply to them).

**RNOR (Resident but Not Ordinarily Resident)** is an intermediate status for recently returned NRIs — they are taxed like non-residents for foreign income for 2–3 years after return.

## What Income Is Taxable for NRIs?

### Taxable in India
- Salary received or accrued in India (including income from services rendered in India)
- Rental income from Indian property
- Capital gains on Indian assets (shares, property, bonds)
- Interest on NRO accounts and fixed deposits
- Dividends from Indian companies
- Income from Indian business

### NOT Taxable in India
- Salary received abroad for services outside India
- Interest on **NRE accounts** (exempt under Section 10(4))
- Interest on **FCNR deposits** (exempt under Section 10(15))
- Maturity proceeds of NRE FDs
- Foreign income (of any kind)

## TDS on NRI Income — Higher Rates

TDS on NRI income is typically **higher than resident rates**:

| Income Type | TDS Rate for NRIs | Relevant Section |
|---|---|---|
| Bank interest (NRO) | 30% | 195 |
| Property rental | 31.2% (30% + cess) | 195 |
| Short-term capital gains (listed equity) | 15% + cess | 111A/195 |
| Long-term capital gains (equity) | 12.5% | 112A/195 |
| Property sale LTCG | 12.5% + surcharge | 112/195 |
| Property sale STCG | 30% + surcharge | 195 |

NRIs can obtain a **lower deduction certificate under Section 197** if their actual tax is lower than the TDS rate.

## DTAA (Double Taxation Avoidance Agreement) Benefits

India has DTAAs with 90+ countries. Under DTAA:
- You can avoid being taxed on the same income in both countries
- TDS can be reduced to the DTAA rate (often lower than domestic rate)
- To claim DTAA benefit: submit **Form 10F, Tax Residency Certificate (TRC)** from the country of residence, and PAN to the Indian payer before TDS is deducted

## ITR Form for NRIs

NRIs must file **ITR-2** (not ITR-1, which is restricted to residents). Schedule FA (Foreign Assets) must be filled if you hold foreign bank accounts, investments, or property even as an NRI with no Indian income obligation.

## Common NRI Filing Mistakes

1. **Not filing when TDS was deducted**: If TDS was deducted on NRO interest at 30% but actual tax is lower, you must file ITR to claim a refund
2. **Treating NRE interest as taxable**: NRE account interest is fully exempt — don't over-report
3. **Missing DTAA claim**: Many NRIs overpay Indian tax by not invoking DTAA
4. **Selling property without advance tax**: Property sale by NRI triggers large capital gains; advance tax is due before sale to avoid 234B/234C interest

*We handle NRI tax returns end-to-end — residential status determination, DTAA analysis, ITR-2 filing, and TDS refund claims. [Contact us →](https://app.harunraaj.com)*

## Frequently Asked Questions

### Does an NRI need to file ITR in India?

An NRI must file ITR in India if their total Indian-sourced income (before deductions) exceeds the basic exemption limit, or if they want to claim a TDS refund. Even if all tax has been deducted at source, filing is necessary to claim refunds or carry forward capital losses.

### Which ITR form should an NRI use?

NRIs must file ITR-2 (if no business income) or ITR-3 (with business income). ITR-1 and ITR-4 are restricted to resident individuals — NRIs cannot use them, even for simple salary or interest income.

### Is NRE account interest taxable for NRIs?

No. Interest earned on NRE (Non-Resident External) accounts and FCNR (Foreign Currency Non-Resident) deposits is fully exempt under Sections 10(4) and 10(15) of the Income Tax Act. However, NRO account interest is taxable at 30% TDS under Section 195.

### Can NRIs claim tax treaty benefits to reduce TDS?

Yes. India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. NRIs can claim lower TDS rates under the applicable DTAA by furnishing a Tax Residency Certificate (TRC) from their country of residence and a declaration in Form 10F.

### How does an NRI determine residential status for tax purposes?

Residential status is determined under Section 6 based on physical presence in India during the financial year. An individual is non-resident if present in India for fewer than 182 days, or fewer than 60 days in the current year AND fewer than 365 days in the preceding 4 years (the 60-day rule has exceptions for Indian citizens going abroad for employment).

I'm CA Harun Raaj, Visakhapatnam. If any of this affects you or your business, reach out — I'd be glad to help.

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## See Also

- [Which ITR Form Should You File? Complete Guide for AY 2025-26](https://www.harunraaj.com/blog/itr-form-selection-guide-2025-26)
- [Capital Gains Tax in India: Rates and Exemptions for AY 2025-26](https://www.harunraaj.com/blog/capital-gains-tax-2025-26)
- [Your RSUs Are Not Just Salary: The Two Separate Disclosures Required in AY 2026-27 ITR](https://www.harunraaj.com/blog/schedule-fa-rsu-foreign-assets-itr-2-ay-2026-27)

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