Confused about NRI taxes in India? This complete 2025 guide breaks down income tax rules, TDS on NRO accounts, capital gains, DTAA benefits, and more—explained in simple terms for global NRIs.
As an NRI (Non-Resident Indian), understanding your tax obligations in India can be complex—but it doesn’t have to be. Whether you’re based in the US, UAE, UK, Canada, or Singapore, your financial ties to India come with specific tax rules. With the 2025 financial year now underway, it’s the right time to get clarity on income tax rules, TDS rates, capital gains, and how to benefit from Double Taxation Avoidance Agreements (DTAA). In this blog, we’ll cover everything you need to know to stay tax-compliant and maximize your post-tax returns.
Table of Contents
Who Qualifies as an NRI for Tax Purposes in India?
According to the Income Tax Act, your tax residency status is determined by your physical presence in India. You are considered an NRI if:
- You were in India for less than 182 days in the previous financial year
OR - You were in India for less than 60 days during the financial year and less than 365 days during the preceding four financial years
This status determines whether your global income is taxable in India or not. NRIs are taxed only on income that is earned or received in India.
What Income is Taxable for NRIs in India?
Only income that is either earned in India or received in India is subject to tax in India. This includes:
- Salary received in India
- Rental income from Indian properties
- Capital gains on sale of Indian assets (shares, property, mutual funds)
- Interest earned from NRO accounts or Indian FDs
- Dividends from Indian companies
Income earned outside India is not taxable for NRIs under Indian tax law.
Taxation of NRE vs NRO Accounts
Choosing the right bank account structure can help you minimize taxes:
NRE Account (Non-Resident External)
- Interest earned is tax-free in India
- Funds are fully repatriable
- Ideal for depositing foreign earnings in INR
NRO Account (Non-Resident Ordinary)
- Holds Indian-source income like rent or dividends
- Interest is fully taxable at 30% + surcharge
- Subject to TDS
- Repatriation is limited to $1 million per financial year
Tip: Use your NRE account for tax-free growth and restrict NRO usage to income received in India.
Taxation on Different Types of NRI Income
1. Salary Income
- Salary earned abroad is not taxable in India
- Salary paid by an Indian company or for services rendered in India is taxable
2. Rental Income from Indian Properties
- Fully taxable in India
- 30% standard deduction for maintenance
- Additional deductions allowed for property tax and home loan interest
3. Interest Income
- NRE and FCNR deposits: Interest is tax-free
- NRO deposits: Interest is fully taxable and subject to 30% TDS
4. Capital Gains
- Short-Term Capital Gains (STCG)
- Equity shares/mutual funds held less than 12 months: taxed at 15%
- Property and other assets held less than 36 months: taxed as per slab
- Long-Term Capital Gains (LTCG)
- Equity shares: gains above ₹1 lakh taxed at 10%
- Property and other long-term assets: taxed at 20% with indexation
TDS applies to these transactions, especially on real estate sales by NRIs.
5. Dividends from Indian Companies
- Taxable at 20% TDS for NRIs
- You may claim refunds or reduced TDS rates through DTAA provisions
Understanding DTAA: Double Tax Avoidance Agreement
India has DTAA agreements with over 90 countries including the US, UK, UAE, Canada, and Australia. DTAA offers three major benefits:
- Avoids double taxation on the same income
- Allows claiming tax credit in your resident country for tax paid in India
- Offers reduced TDS rates on dividends, interest, and royalty income
To avail DTAA benefits, submit the following:
- Tax Residency Certificate (TRC) from your resident country
- PAN card
- Self-declaration in the prescribed DTAA format
Example: Instead of paying 30% TDS on NRO interest, under DTAA you may be eligible to pay just 10–15%.
TDS Rates Applicable to NRIs
TDS (Tax Deducted at Source) is a key concern for NRIs because it reduces your immediate cash flows:
- NRO account interest: 30%
- Rent payments received by NRI landlords: 30%
- Property sales: TDS between 20–30% depending on capital gains and sale value
Important Tip: The actual tax liability may be lower than the deducted TDS. Filing an Income Tax Return (ITR) is the best way to claim refunds.
When Should NRIs File Income Tax Returns in India?
You must file an ITR in India if:
- Your total taxable income in India exceeds ₹2.5 lakhs in a financial year
- You wish to claim a refund of TDS
- You sold property or earned capital gains
- You want to carry forward capital losses
- You wish to claim DTAA benefits
ITR-2 or ITR-3 is typically used by NRIs based on their income type.
Tax Planning Tips for NRIs in 2025
- Maximize NRE FDs for tax-free returns and repatriation flexibility
- Transfer surplus NRO funds to NRE wherever eligible
- Leverage DTAA provisions by submitting TRC and required forms
- Time your capital asset sales to qualify for lower LTCG tax
- Apply for a Lower/Nil TDS Certificate (Form 13) to avoid high upfront tax deduction on property sales or high-income events
Special Scenarios NRIs Must Know
Returning NRIs
When returning to India permanently, your global income becomes taxable after a grace period (typically 2 years). Use an RFC (Resident Foreign Currency) account to park foreign income and reduce immediate tax impact.
Selling Indian Property
NRIs face high TDS rates when selling real estate. Apply for a Lower TDS Certificate from the Income Tax Department to ensure only the actual tax due is deducted upfront.
Inheritance and Gifts
India does not levy inheritance tax. However, gifts exceeding ₹50,000 from non-relatives are taxable. Gifts from immediate family members are fully exempt regardless of value.
Conclusion
NRI taxation in India may seem complex at first glance, but once you understand the basic rules, you can easily stay compliant and optimize your returns. Whether you’re earning rent from property, investing in mutual funds, or planning to repatriate funds, the right strategies will help you minimize tax liability and protect your wealth.
With the right planning, NRIs can:
- Lower TDS impact
- Benefit from DTAA treaties
- Reclaim excess tax through ITR filing
- Grow wealth tax-efficiently within Indian regulations
As the 2025 financial year progresses, take time to align your Indian accounts, income, and investments with applicable tax rules. Consult a qualified tax advisor with NRI experience to help you make smarter financial decisions across borders.