"NRIs don't pay tax in India." You have heard it at family dinners, read it in WhatsApp forwards, and seen it confidently repeated by YouTube influencers who have never opened the Income Tax Act. The reality is starkly different: NRIs are fully taxable on a long list of Indian-source income, and the penalties for getting it wrong — interest under Section 234A/B/C, prosecution risk, and frozen bank accounts — are real and painful.

This article gives you the complete, exhaustive list of every category of Indian income that is taxable in the hands of an NRI under the Income Tax Act, 2025 (ITA 2025), which replaced the Income Tax Act, 1961 effective 1 April 2026. No vague generalities. No "it depends" without a finish. Just the law, the numbers, and what you need to do.

What the Law Actually Says

The scope of taxable income for NRIs is governed by Section 5(2) of both ITA 1961 and ITA 2025. The rule is clear: a non-resident is taxable in India on income that is received in India, or is deemed to be received in India, or accrues or arises in India, or is deemed to accrue or arise in India.

Section 9 of ITA 2025 (same numbering as ITA 1961) defines what income is "deemed to accrue or arise in India." This is the section most NRIs have never read — and it is the section that catches them.

The critical point: unlike residents, NRIs are not taxed on their global income. But everything connected to India — every salary payment, every rupee of rent, every capital gain on Indian assets, every interest credit on Indian accounts — falls within the Indian tax net.

Here is the complete list.

Category 1: Salary Income Earned in India

If you are an NRI and you receive salary for services rendered in India, that salary is taxable in India regardless of where the payment is actually credited. This includes:

Salary for days physically worked in India during the tax year (Tax Year under ITA 2025, previously "Previous Year" under ITA 1961)
Leave encashment attributable to Indian service
Bonus or commission earned for work performed in India
Salary paid by the Indian government to an Indian citizen serving abroad (Section 9(1)(iii) of ITA 2025) — this is taxable in India even though the service is rendered outside India

The threshold here is zero. There is no minimum amount below which salary income escapes taxation. If you earned it for services in India, it is taxable.

TDS rate: Your Indian employer will deduct TDS at applicable slab rates. If you are on a short-term assignment in India, your employer should apportion salary based on days spent in India versus abroad.

Category 2: Income from House Property in India

Every NRI who owns residential or commercial property in India is taxable on that property income. This includes:

Rental income: If you have rented out your Indian property, the gross rent minus a standard deduction of 30% and municipal taxes paid is your taxable house property income.
Deemed rental income: If you own more than one property in India and any property (beyond one self-occupied unit) is left vacant, the tax department can impute a deemed rental value and tax it. Under ITA 2025, you may treat up to two properties as self-occupied (this was one under the old Act until the 2019 amendment expanded it to two).
Interest on housing loan: Deduction under Section 24(b) of ITA 1961 (now Section 19 of ITA 2025) is available up to ₹2 lakh for a self-occupied property.

TDS rate: The tenant (if resident) must deduct TDS at 30% on rent paid to an NRI if total rent exceeds ₹50,000 per month (Section 195 of ITA 1961, now Section 193 of ITA 2025). Many tenants are unaware of this obligation, which creates compliance headaches for both parties.

Category 3: Capital Gains on Indian Assets

Any capital gain arising from the transfer of a capital asset situated in India is taxable in the hands of an NRI. This covers:

Listed equity shares and equity mutual funds: Long-term capital gains (holding period over 12 months) exceeding ₹1.25 lakh are taxed at 12.5%. Short-term gains are taxed at 20%.
Unlisted shares: LTCG taxed at 12.5% (holding period over 24 months). STCG at applicable slab rates.
Immovable property: LTCG taxed at 12.5% (holding period over 24 months). No indexation benefit is available under ITA 2025 for transfers after 23 July 2024.
Debt mutual funds: Taxed at slab rates regardless of holding period (this changed from the earlier LTCG benefit following the 2023 amendment, carried into ITA 2025).
Gold, jewellery, and other assets: LTCG at 12.5% for holding period over 24 months. STCG at slab rates.

TDS on property sale: The buyer of property from an NRI must deduct TDS at 12.5% for LTCG (previously 20%) or 30% for STCG (Section 195 of ITA 1961 / Section 193 of ITA 2025). Buyers routinely under-deduct, leading to demands on the NRI seller.

Tip: Apply for a lower TDS certificate under Section 197 (now Section 194 of ITA 2025) before the sale. This requires filing Form 13 and getting an order from the Assessing Officer specifying a reduced TDS rate based on your actual tax liability.

Category 4: Interest Income from Indian Sources

Not all interest is created equal for NRIs. Here is the precise breakdown:

NRO savings and fixed deposits: Fully taxable. TDS at 30% (plus surcharge and cess). This is the most common NRI tax trap — banks deduct 30% automatically, and many NRIs never file returns to claim refunds when their actual tax rate is lower.
NRE account interest: Exempt from tax as long as you maintain NRI status. The moment you return to India and become a resident, interest earned on the NRE account from the date of status change becomes taxable.
FCNR account interest: Exempt from tax as long as you are an NRI. Same treatment as NRE upon return.
Interest on government securities and bonds held in India: Taxable. TDS applies under Section 193 of ITA 1961 (now Section 191 of ITA 2025).
Interest on PPF: Exempt, but NRIs cannot open new PPF accounts. Existing accounts opened while resident can continue until maturity, but contributions after becoming NRI will not earn interest in some interpretations (CBDT has not fully clarified this for ITA 2025).
Interest on tax-free bonds: Exempt.

Category 5: Business Income Connected to India

If you have a business connection in India — defined broadly under Section 9(1)(i) of ITA 2025 — the income attributable to operations carried out in India is taxable here. This includes:

Income from a business controlled in or set up in India
Professional fees for services rendered in India
Income from a profession set up in India, even if you now live abroad
Commission or brokerage earned from Indian entities for services that have an Indian nexus

Rule 9 of the Income Tax Rules, 2026 now provides a structured mechanism for estimating how much of a non-resident's income is attributable to Indian operations. This is particularly relevant for NRIs who run businesses that straddle multiple countries.

Category 6: Dividend Income from Indian Companies

Dividends received from Indian companies are taxable in the hands of the NRI shareholder. Since the abolition of the Dividend Distribution Tax (DDT) from April 2020, dividends are taxed at slab rates for the NRI.

TDS rate: 20% on dividend payments to NRIs (Section 196D of ITA 1961 / corresponding section in ITA 2025), subject to DTAA benefits if a Tax Residency Certificate is provided.

Category 7: Income from Other Sources with Indian Nexus

This catch-all category includes:

Royalty income: Any royalty paid by an Indian entity or for rights used in India is deemed to accrue in India (Section 9(1)(vi) of ITA 2025). TDS at 10%.
Fees for technical services: Fees paid by an Indian entity for technical, managerial, or consultancy services are deemed Indian income (Section 9(1)(vii) of ITA 2025). TDS at 10%.
Gifts received in India: Cash gifts exceeding ₹50,000 from non-relatives are taxable. Property received without consideration or for inadequate consideration (with value exceeding ₹50,000) is also taxable.
Winnings from lottery, horse racing, or online gaming in India: Taxed at a flat 30% (lottery/horse racing) or 30% (online gaming) with TDS deducted at source.

Practical Implications for NRIs

Let us work through real numbers.

Scenario 1: NRI in Dubai with Indian rental property. You earn ₹8 lakh annual rent from a flat in Mumbai. Your tenant should deduct TDS at 30%, which is ₹2.4 lakh. After the 30% standard deduction on ₹8 lakh (net taxable: ₹5.6 lakh), your actual tax under the new regime at slab rates is approximately ₹26,000. You are owed a refund of over ₹2 lakh — but only if you file an ITR.

Scenario 2: NRI in the US selling ancestral property. You sell a property inherited in 2015 for ₹1.5 crore. The indexed cost (or fair market value as of 2001, whichever is higher) is ₹60 lakh. Under ITA 2025, LTCG is ₹90 lakh, taxed at 12.5% = ₹11.25 lakh. The buyer must deduct TDS at 12.5% of the sale consideration (₹18.75 lakh). You can claim a refund of the excess by filing your ITR.

Scenario 3: NRI with ₹15 lakh in NRO fixed deposits. At 7% interest, you earn ₹1.05 lakh. The bank deducts TDS at 30% = ₹31,500. Your actual tax under the new regime (assuming no other Indian income) is nil (below ₹4 lakh basic exemption). You get a full refund by filing — but most NRIs never file and lose the entire amount.

Step-by-Step: What to Do

Audit your Indian income sources. List every Indian bank account (NRO, NRE, FCNR), every property, every investment (mutual funds, shares, demat account), every loan given to Indian relatives. Any income from these is potentially taxable.
Check your Form 26AS (now Form 168 under ITA 2025). Log in to the income tax e-filing portal and download your Form 168. It shows all TDS deducted against your PAN. If someone has deducted TDS on a payment to you, you have Indian taxable income — whether you knew it or not.
File your ITR every year. Even if you believe your income is below the basic exemption limit, file your return if TDS has been deducted. Filing is the only way to claim refunds. Use ITR-2 (the appropriate form for NRIs with Indian income from salary, property, capital gains, and other sources). The due date is 31 July of the assessment year.
Apply for lower TDS certificates where applicable. If you are selling property or receiving large payments subject to TDS at 30%, apply for a certificate under Section 197 (now Section 194 of ITA 2025) to reduce the TDS to your actual liability. This prevents your money from being locked up with the government for months.
Claim DTAA benefits proactively. If your country of residence has a Double Taxation Avoidance Agreement with India, you may be entitled to reduced TDS rates. Obtain a Tax Residency Certificate from your country of residence and submit Form 10F on the Indian tax portal before the payment is made.
Maintain NRI status documentation. Keep your passport stamps, visa copies, and employment contracts organised. If the tax department questions your NRI status, the burden of proof is on you to demonstrate that you were non-resident during the relevant tax year.

FAQ

Q1: I am an NRI and all my income is abroad. Do I need to file an ITR in India?
No, if you have zero Indian income and no TDS has been deducted on any payment linked to your PAN, you have no filing obligation. But if you have any Indian bank account earning interest, any Indian property, or any Indian investment — you almost certainly have Indian income that triggers a filing obligation.

Q2: My NRE account earns ₹3 lakh interest. Is this taxable?
No. NRE account interest is fully exempt from Indian tax under Section 10(4)(ii) of ITA 1961 (carried forward into ITA 2025) as long as you remain an NRI. The moment you return to India and become a resident, the exemption ceases from the date of status change. You then have a limited window to convert the NRE account to a resident account or RFC account.

Q3: I sold Indian mutual funds and the AMC deducted TDS. Can I get a refund?
Yes. If TDS deducted exceeds your actual tax liability (for example, if your total Indian income falls below the basic exemption of ₹4 lakh under the new regime), you are entitled to a refund. File ITR-2, report the capital gains, claim the TDS credit from Form 168, and the refund will be processed to your Indian bank account.

Q4: Does a DTAA mean I pay zero tax in India on my Indian income?
No. A DTAA prevents double taxation — it does not eliminate taxation. If you earn rental income in India, India retains the right to tax it. Your country of residence then gives you credit for the Indian tax paid (or exempts that income, depending on the treaty method). You still pay tax in India first; the DTAA ensures you are not taxed twice on the same income.

Take Action Now

The myth that NRIs are exempt from Indian tax is not just wrong — it is expensive. Every year, thousands of NRIs lose legitimate refunds because they never file returns, or face penalty notices because they ignored income that was always taxable.

For your specific situation, book a consultation at harunraaj.com. We will map every Indian income source, ensure compliance with ITA 2025, and recover any refunds you are owed.

Need help with this?

Our team handles the paperwork. You focus on your business.

Get Started →Talk to a CA