NRI Taxation in India: A Complete Guide

For Indians living and working abroad, managing income and investments in India can involve several tax responsibilities. An NRI may continue to earn income from Indian sources such as rent, investments, property sales, salary, business or professional activities. Such income may be taxable in India even when the individual lives outside the country.

Understanding NRI Taxation in India is therefore important for maintaining tax compliance, avoiding unnecessary interest or penalties, and making use of eligible deductions and tax treaty benefits. Residential status, the source of income and the nature of the transaction are some of the key factors that determine an NRI's tax liability in India.

Who is a Non-Resident Indian (NRI)?

An NRI is broadly an Indian citizen or person of Indian origin who is not treated as a resident of India for income-tax purposes during a particular tax year.

Under the Income-tax Act, 2025, the basic residential-status tests have not changed. An individual is generally treated as a resident if they stay in India for 182 days or more during the relevant tax year, or if they stay for 60 days or more during that year and 365 days or more during the preceding four years, subject to special rules and exceptions.

Practical example:
Suppose Rahul works in Dubai and visits India for only 45 days during the tax year. Assuming he does not satisfy another applicable residential-status condition, he may be treated as a Non-Resident for Indian tax purposes.

Different Residential Statuses in India

For individual taxpayers, residential status can broadly be classified as:

1. Resident
An individual who satisfies the prescribed conditions for residence is treated as a Resident for Indian income-tax purposes.

2. Non-Resident (NR)
An individual who does not satisfy the conditions for being a resident is generally treated as a Non-Resident.

3. Resident but Not Ordinarily Resident (RNOR)
RNOR is a separate residential category applicable to certain individuals who qualify as residents but satisfy prescribed conditions relating to their residence in India in earlier years.

This classification is important because the scope of income taxable in India can differ between Resident, RNOR and Non-Resident taxpayers.

What Income Is Taxable for NRIs in India?

An NRI is generally taxable in India on income that is received, accrues or arises in India, or is deemed to be received or arise in India, subject to the applicable provisions.

Common sources include:

1. Salary Earned in India

Salary relating to services performed in India can be taxable in India. The actual tax treatment depends on factors such as where the services are performed and the applicable provisions.

2. Rental Income from Indian Property

Rent received from a property located in India is generally taxable in India. An NRI owning a house, apartment, office or commercial property in India should consider the applicable tax treatment and TDS requirements.

Example:
Priya lives in the UK but owns an apartment in Bengaluru that she rents for ₹50,000 per month. The annual rental income is ₹6 lakh. This Indian property income needs to be considered while determining her Indian tax liability.

3. Capital Gains from Indian Assets

Capital gains arising from the sale of Indian assets may be taxable in India. These may include gains from the sale of:

• Indian property
• Shares of Indian companies
• Securities and other investments
• Other taxable Indian assets

The applicable tax treatment can vary depending on the asset, holding period and relevant provisions.

Example:
An NRI purchased a residential property in Bengaluru and later sells it for a profit. The resulting taxable capital gain may have to be reported in India.

4. Interest from Indian Bank Accounts

Interest earned from Indian bank accounts may be taxable depending on the type of account and applicable provisions.

NRIs commonly maintain NRE, NRO and other permitted accounts, and the tax treatment of interest can differ between them.

Example:
If an NRI earns interest from an NRO account in India, that interest is generally considered while determining Indian taxable income, subject to applicable provisions.

5. Business or Professional Income Arising in India

Income from a business or profession carried out in India, or income arising from activities connected with India, may be taxable in India.

6. Other Taxable Income

Other Indian-source income may include dividends, certain investment income, royalties, fees and other receipts depending on the nature of the income and applicable provisions.

NRI Taxation Rules for Foreign Income

A Non-Resident is generally taxed in India on income that is received, accrues or arises in India, subject to the applicable provisions. Therefore, foreign income earned outside India is generally not taxable in India merely because the individual is an Indian citizen.

However, residential status is extremely important. Residents can have a much wider scope of taxation and reporting obligations than Non-Residents.

Practical example:
Suppose Ananya is an NRI living and working in Australia. She earns ₹30 lakh equivalent as salary in Australia and ₹5 lakh rental income from her property in Bengaluru. Generally, the Indian rental income is relevant for her Indian tax return, while her Australian salary would need to be examined based on her residential status and the applicable tax rules.

NRIs should also consider the tax laws of their country of residence. If the same income is taxable in both India and the foreign country, a Double Taxation Avoidance Agreement (DTAA) may provide relief subject to the applicable treaty and conditions.

Lesser-Known Tax Benefits for NRIs Investing in Mutual Funds

Most NRIs assume that capital gains on Indian investments will always be taxed in India, with TDS deducted at source and, at best, a foreign tax credit in their country of residence. Two provisions can deliver a far better outcome for eligible investors.

1. Oman Residents: 100% Exemption on Mutual Fund Gains Under the India- Oman DTAA

Ordinarily, when an NRI redeems Indian mutual fund units, the capital gain is taxed in India and TDS is deducted on redemption. A tax treaty usually does not remove the Indian tax; it only prevents double taxation by allowing a credit in the country of residence.

The India-Oman Double Taxation Avoidance Agreement (India-Oman DTAA) works differently for mutual funds. The treaty allows India to tax gains from immovable property and shares of Indian companies, but mutual fund units are not shares. Gains on mutual fund redemptions therefore fall under the residual gains clause in Article 15(6), which makes such gains taxable only in the country of residence, i.e. Oman. As Oman does not levy personal income tax, an eligible Oman resident can claim a 100% exemption in India on capital gains from mutual fund redemptions.

Tax tribunals have accepted this reasoning under similarly worded treaties, holding that units issued by a mutual fund trust under SEBI regulations are not "shares" of a company. The Mumbai ITAT applied it to the India-Singapore DTAA in Anushka Sanjay Shah v. ITO (2025), and the Cochin ITAT to the India-UAE DTAA in K.E. Faizal (2019).

To claim the exemption, an Oman resident should have:

• A valid Tax Residency Certificate (TRC) issued by the Oman tax authorities for the relevant period
• Form 10F filed electronically on the Income Tax e-filing portal
• Genuine residence in Oman, as arrangements set up mainly to obtain treaty benefits may be denied relief
• An Indian income-tax return claiming the treaty exemption, which is also how any TDS deducted on redemption is refunded

Practical example:
Suresh works in Muscat and holds a valid Omani TRC. He redeems equity mutual fund units in India and earns a capital gain of ₹8 lakh. By filing Form 10F and claiming Article 15(6) of the India-Oman DTAA in his Indian return, he can treat the gain as exempt in India and claim a refund of the TDS deducted.

The Income Tax Department continues to contest such claims in some cases, so documentation should be complete and the position reviewed before filing.

2. GIFT City Mutual Funds: Tax-Exempt Gains for NRIs

NRIs can also invest in mutual funds and other fund schemes set up in the International Financial Services Centre (IFSC) at GIFT City, Gujarat. These funds are regulated by the International Financial Services Centres Authority (IFSCA), are denominated in foreign currency such as US dollars, and can be accessed without routing money through NRE or NRO accounts.

The key attraction is tax. Under Section 10(4D) of the Income-tax Act, 1961 (and the corresponding provision of the Income-tax Act, 2025), capital gains earned by a non- resident on the transfer of units of specified IFSC funds, including retail schemes and ETFs, are exempt in India irrespective of the holding period. As the gain is exempt, no TDS is deducted on redemption, and an NRI whose only Indian income is from such funds may not need to file an Indian income-tax return.

Unlike the DTAA route, this exemption comes from Indian domestic law, so it is available to NRIs in any country and does not depend on a TRC or Form 10F. The gain may, however, still be taxable in the NRI's country of residence. NRIs in no-tax jurisdictions such as the UAE or Oman can effectively earn these gains tax-free, while those in the US, UK or other taxing countries should consider their home- country rules.

Practical example:
Meera lives in Dubai and invests USD 20,000 in an IFSC retail equity fund at GIFT City. After three years she redeems her units at a gain of USD 6,000. The gain is exempt in India, no TDS is deducted, and since the UAE does not tax personal capital gains, she keeps the full gain.

Not every GIFT City fund qualifies, so investors should confirm with the fund house that the scheme is a specified fund eligible for the exemption.

Income Tax Slabs Applicable to NRIs

For the current 2026 tax framework, the new tax regime provides the following slab rates for individuals:

Taxable Income	Income Tax Rate
Up to ₹4 Lakh	Nil
₹4 Lakh – ₹8 Lakh	5%
₹8 Lakh – ₹12 Lakh	10%
₹12 Lakh – ₹16 Lakh	15%
₹16 Lakh – ₹20 Lakh	20%
₹20 Lakh – ₹24 Lakh	25%
Above ₹24 Lakh	30%

The Income Tax Department's guidance lists these new-regime slabs for individuals, including Non-Residents. Certain types of income, such as specified capital gains, may be subject to separate tax provisions rather than simply applying the slab rate.

The final tax liability can also be affected by applicable surcharge, cess, rebates and special-rate income.

Special NRI Taxation Provisions in India for 2026

One of the important developments in 2026 is the implementation of the Income-tax Act, 2025. The new law applies from 1 April 2026 and uses the term "Tax Year", replacing the earlier terminology of "previous year" and "assessment year" for the new framework.

For NRIs, it is therefore important to determine the correct residential status and apply the provisions relevant to the particular tax year.

What Are the NRI Tax Return Filing Rules in India?

When Must NRIs File Income Tax Returns?

An NRI may need to file an income-tax return when their taxable income meets the applicable filing requirements or where filing is otherwise mandatory under the tax law.

For example, an NRI earning taxable rental income and capital gains from Indian assets may need to file an Indian income-tax return even though they live outside India.

Certain special provisions can provide exemptions from filing in specific situations, but these conditions need to be examined carefully.

What Documents Are Required for NRI Tax Filing?

Common documents required may include:

• PAN
• Passport
• Details of dates of entry and exit from India
• Bank statements
• Form 16A/TDS certificates
• Form 26AS and Annual Information Statement (AIS)
• Rental income and property documents
• Capital gains statements
• Details of foreign income and taxes paid, where applicable
• Previous income-tax returns

The exact documents depend on the individual's income sources and circumstances.

Online Filing Process for NRIs

NRIs can file their income-tax returns online through the Income Tax Department's e- filing system.

The appropriate ITR form depends on the individual's income sources. For example, ITR-2 is applicable to eligible individuals, including Non-Residents, who do not have income chargeable under the head "Profits and Gains of Business or Profession." ITR-3 applies where business or professional income is involved.

Simple filing process

1. Obtain and maintain a valid PAN.
2. Register or log in to the Income Tax e-filing portal.
3. Review AIS and Form 26AS.
4. Collect income and TDS documents.
5. Determine residential status.
6. Select the appropriate ITR form.
7. Report Indian income and applicable foreign information.
8. Calculate tax liability and pay any balance tax, if applicable.
9. Submit and verify the return electronically.

Tips for Better Tax Planning for NRIs

NRIs can follow these practical steps to manage their Indian tax obligations effectively:

1. Determine Residential Status Correctly
Keep a record of the dates of arrival and departure from India. Residential status should be checked for every tax year.

2. Maintain Separate Records for Different Income Sources
Keep rental income, interest, salary, capital gains and business income separately documented.

3. Check TDS
Review TDS deductions and reconcile them with Form 26AS and AIS before filing the return.

4. Understand DTAA Benefits
If the same income may be taxable in India and another country, check the applicable DTAA before filing the return. Residents of countries such as Oman, whose treaty contains a favourable residual gains clause, may be able to claim capital gains on Indian mutual funds as exempt in India.

5. Plan Capital Gains in Advance
Before selling Indian property, shares or other investments, NRIs should understand the applicable capital-gains provisions and TDS requirements.

6. Compare Regular Indian Funds with GIFT City Funds
Before making new investments, compare the post-tax return of regular Indian mutual funds with IFSC funds at GIFT City, where gains are exempt in India and no TDS is deducted.

7. Seek Professional Guidance for Complex Cases
NRIs with multiple properties, foreign investments, business income or income taxable in multiple countries may benefit from professional assistance.

Conclusion

NRI Taxation in India involves more than simply calculating tax on Indian income. Residential status, income source, TDS, capital gains, rental income, investments and international tax rules can all affect an NRI's tax liability.

For NRIs investing in mutual funds, the India-Oman DTAA and GIFT City funds show that the right structure can reduce Indian tax on capital gains to nil, provided the conditions are met and proper documentation is maintained.

The implementation of the Income-tax Act, 2025 from 1 April 2026 also makes it important for NRIs to understand the provisions applicable to the relevant tax year. Maintaining accurate records and filing the appropriate return on time can help NRIs remain compliant and make use of applicable tax benefits.

If you are looking for an NRI Tax Consultant in Bangalore, professional assistance can help with residential-status determination, tax computation, TDS, rental income, capital gains, DTAA-related matters and NRI Tax Filing in India.

H A B and Co can assist NRIs with their tax and compliance requirements through professional NRI Tax Services in Bangalore.