Taxation of NRIs
A Non-Resident Indian is defined as an individual — a citizen of India or a person of Indian origin — who is not a resident. A person is of Indian origin if they, or either parent or grandparent, was born in undivided India. Indian income tax law gives NRIs and PIOs special reliefs, concessional rates, and simplified assessment procedures, in part to attract investment from the diaspora.
Chapter XII-A (Sections 115C-115I) of the Income-tax Act, 1961 contains special provisions for certain NRI incomes — for example, Section 115AC on bonds/shares purchased in foreign currency, and Section 115A on dividends, interest on foreign-currency debt, and mutual fund income for non-residents and foreign companies.
A New Law from 1 April 2026: The Income-tax Act, 2025
The Income-tax Act, 1961 — under which all the section numbers below currently sit — has been repealed and replaced by the Income-tax Act, 2025, effective for tax years beginning on or after 1 April 2026. Income earned up to 31 March 2026 continues to be governed entirely by the 1961 Act; income from 1 April 2026 onward falls under the new Act.
- The new Act consolidates the erstwhile 800-plus sections into 536 sections across 23 chapters, replacing the old “Previous Year”/”Assessment Year” split with a single, unified Tax Year.
- This is a renumbering and simplification exercise, not a substantive rewrite of NRI tax policy — the core residency test and the special NRI concessional regime (erstwhile Chapter XII-A) continue in substance, just under new section numbers.
- TDS on payments to non-residents, previously Section 195, now sits under Section 393(2) of the 2025 Act; the lower/nil-TDS certificate application, previously Form 13, is now Form 128.
- Residential status for any tax year beginning before 1 April 2026 continues to be governed by Section 6 of the old 1961 Act, even if assessed after that date — the dividing line is the tax year in question, not when the case is decided.
Resident, Non-Resident, and RNOR
Residents satisfy either: 182 days or more in India in the year, or 60 days in the year plus 365 days across the preceding 4 years. Exceptions exist for persons of Indian origin, NRIs, and Indian citizens leaving for employment/crew duty or visiting India — for them, only the 182-day test applies unless their Indian income (excluding foreign income) exceeds ₹15 lakh in the year, in which case the 60-day threshold is replaced by 120 days (in force since 2020, continuing under the new Act).
Non-Residents are simply those who don’t meet the resident test.
Resident but Not Ordinarily Resident (RNOR) applies if the person was non-resident for 9 of the preceding 10 years, or was in India for 729 days or fewer across the preceding 7 years.
There is also a deemed residency rule (currently Section 6(1A), carried forward as Section 6(7) under the new Act) for Indian citizens earning ₹15 lakh or more from Indian sources who aren’t liable to tax anywhere else — commonly relevant to those in zero-personal-tax jurisdictions like the UAE. Such a person can be a deemed resident without spending a day in India, but is classified RNOR, so genuinely foreign-sourced income generally still stays outside the Indian tax net.
Taxable Income of NRIs
An NRI is taxed in India only on income earned here — received or deemed to accrue in India. This includes income from an Indian business connection, property situated in India, salaries for services rendered in India, dividends from Indian companies (even if paid abroad), and certain interest/royalty payments. Narrow carve-outs exist, e.g. income from a foreign news agency’s India-based news-gathering, or from cinematography-film shooting confined to India, for qualifying non-resident individuals, firms, or companies.
Capital Gains for NRIs Selling Indian Property
Since the Finance (No. 2) Act, 2024 (effective 23 July 2024), capital gains on the sale of Indian property by an NRI follow the same rate structure as resident taxpayers: long-term capital gains (property held over 24 months) are taxed at 12.5% without indexation, while listed equity shares/equity mutual fund units held over 12 months are taxed at 12.5% above the ₹1.25 lakh exemption threshold (Section 112A), with short-term gains on such securities taxed at 20% (Section 111A). Buyers must deduct TDS (now under Section 393(2) of the 2025 Act) before paying an NRI seller; sellers can apply in advance for a lower/nil-TDS certificate where their actual liability is lower than the standard withholding rate.
Exemptions and Concessions
All income is taxable unless specifically exempted under Section 10 (renumbered, in substance unchanged, under the 2025 Act). Notably, interest on NRE and FCNR accounts remains tax-free for as long as the account holder retains NRI (or RNOR) status.