NRI Tax Filing & Residency Advisory

Residential status is determined independently for each tax year under Section 6 of the Income Tax Act 2025 — this section number is unchanged from the 1961 Act. A person is Resident if: (a) present in India for at least 182 days in the tax year (Section 6(1)(a)), or (b) present for at least 60 days in the tax year and at least 365 days in the preceding 4 years (Section 6(1)(b)). The 60-day limit is extended to 182 days for Indian citizens employed abroad or serving as crew on Indian ships — Section 6(1) proviso. A Resident but Not Ordinarily Resident (RNOR) status applies if the person has been non-resident in 9 of the preceding 10 years, or present in India for not more than 729 days in the preceding 7 years — Section 6(6). NRI status: neither condition in Section 6(1) is satisfied.

An NRI is taxed in India only on income that accrues or arises in India under the source rule in Section 5 of the Income Tax Act 2025 — unchanged from the 1961 Act. Taxable Indian-source income: salary for services rendered in India; rent from Indian immovable property; capital gains on Indian assets including listed and unlisted shares, mutual funds, and property (Section 67 of the Income Tax Act 2025); interest on Indian bank deposits, debentures, and government securities; dividends from Indian companies. Not taxable in India: interest on NRE accounts (exempt under Schedule II of the Income Tax Act 2025); interest on FCNR(B) accounts (also under Schedule II); income earned and received entirely outside India. NRIs must file ITR-2 for most situations — ITR-1 (Sahaj) is available only to resident individuals.

The Income Tax Act 2025 retains the special NRI rate structure under Chapter XIII (formerly Chapter XII-A of the 1961 Act). NRIs benefit from a 20% flat rate on investment income and a 10% rate on long-term capital gains from foreign exchange assets — defined as shares in Indian companies, debentures, deposits, and government securities purchased in foreign currency. No deductions under the standard deduction chapter are allowed against income taxed at these special rates. NRIs can opt out of the special rate regime in the ITR and use normal slab rates instead if that produces a lower tax. Once the person becomes a resident in subsequent tax years, the special NRI rates cease to apply automatically.

India has DTAAs with over 95 countries. The DTAA allocates taxing rights and provides reduced withholding rates on passive income. For dividends and interest, the DTAA typically caps Indian TDS at 10-15% instead of the domestic 20%. To claim DTAA benefit in your Indian return: (a) obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence; (b) file Form 10F on the Indian income tax portal; (c) claim the DTAA rate in the ITR under Schedule TR and declare the relief under Sections 159 and 160 of the Income Tax Act 2025 (formerly Section 90 of the 1961 Act). Without a TRC, the income is taxed at the higher of the domestic rate or the DTAA rate — the TRC is mandatory, not optional.

Schedule FA (Foreign Assets) disclosure is mandatory for any person who is Resident or RNOR during the tax year and holds a foreign bank account, foreign equity or debt securities, immovable property abroad, beneficial interest in a foreign trust or entity, or any other foreign asset. NRIs who are non-resident throughout the tax year are not required to file Schedule FA — the obligation applies only to residents and RNORs. If you returned to India during the year and became a resident, all foreign assets held at any time during the year must be disclosed. Failure to disclose reportable foreign assets when resident attracts prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 — minimum penalty 10 lakh per asset plus imprisonment.