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NRI Taxation 101: Capital Gains, Interest, Rental Income & More

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NRI Taxation 101: Capital Gains, Interest, Rental Income & More

For Non-Resident Indians (NRIs), understanding how Indian taxes apply to your income can feel confusing. With money coming from property, shares, interest, or rent, it’s crucial to know what’s taxable—and how you can stay compliant while saving money.

Here’s a clear guide to NRI taxation, using real-life scenarios and simple tips to help you take control.

What Income Is Taxable for NRIs in India?

As an NRI, only your income earned or received in India is taxable in India. Your foreign income is not taxed in India—unless you return and become a resident again.

Let’s break down the most common income sources for NRIs and how they are taxed.

Capital Gains: Sale of Property or Investments

Short-Term vs Long-Term Capital Gains

  • STCG (Short-Term Capital Gains): Sale of property held less than 2 years or stocks/mutual funds sold within 1 year
  • LTCG (Long-Term Capital Gains): Sale after 2 years for property or 1 year for stocks/mutual funds

Tax Rates for NRIs

  • STCG on listed securities: 15%
  • LTCG on listed securities: 10% (only if gains exceed ₹1 lakh)
  • LTCG on property: 20% with indexation benefits

Example: Suresh sold his Mumbai flat after 3 years. He paid 20% LTCG tax but saved more by investing in REC bonds under Section 54EC.

Tip: Use Form 15CA/CB if you’re repatriating sale proceeds. Always verify TDS—it’s usually 20%+ on property for NRIs.

Interest Income: NRE, NRO & FCNR Accounts

  • NRE and FCNR account interest: Fully tax-free while you maintain NRI status
  • NRO account interest: Taxable at 30% + surcharge and cess

Example: Rina earns ₹3 lakh on her NRO FD. Her bank deducts 31.2% TDS. Since her income is below ₹2.5 lakh, she can file ITR to get a refund.

Tip: File ITR to claim refund or submit Form 13 to request lower or zero TDS deduction.

Rental Income from Indian Property

If you own property in India and rent it out, the rental income is fully taxable.

You can claim:

  • 30% standard deduction for repairs and maintenance
  • Property tax actually paid
  • Interest on a home loan (if applicable)

Example: Amit lets out his Delhi flat for ₹50,000/month. After a 30% deduction and ₹10,000 paid in property tax, his taxable rental income reduces significantly.

Tip: Appoint a reliable resident manager or legal representative to handle tenant matters and documents.

Dividends from Indian Companies

  • Taxable at applicable slab rates for NRIs
  • TDS of 20% is applied at source
  • DTAA (if available) can reduce this burden

Example: Neha, an NRI in Singapore, receives ₹1 lakh in dividends. Her broker deducts ₹20,000 TDS. She files a tax return in Singapore and claims credit via DTAA.

Tip: Always provide TRC (Tax Residency Certificate) and Form 10F to claim DTAA benefits.

Other Taxable Income Sources for NRIs

  • Pensions from Indian employers/government
  • Freelance or consulting fees from Indian clients
  • Royalties or technical fees from Indian businesses

These incomes are taxable in India if the source is Indian.

What Is TDS for NRIs?

TDS (Tax Deducted at Source) is automatically applied to most NRI incomes:

  • 30% on NRO interest
  • 20% on sale of property
  • 20% on dividends

Check your Form 26AS regularly to confirm TDS and claim refunds by filing an ITR.

Tip: Don’t ignore Form 26AS—it’s your master tax statement for Indian income and TDS.

Double Taxation Avoidance Agreement (DTAA)

DTAA prevents you from being taxed twice on the same income in India and your country of residence.

There are two types:

  • Exemption method: Taxed in one country only
  • Credit method: Taxed in India, then claim credit in your resident country

Example: Priya, an NRI in the US, paid tax on dividends in India. She claimed credit in her US tax return using the DTAA.

Tip: Always retain TRC and Form 10F to avoid disputes and ensure smooth DTAA processing.

Common Mistakes NRIs Should Avoid

  • Not filing ITR despite taxable income
  • Ignoring TDS deducted on NRO or rental income
  • Using the wrong ITR form (most NRIs must use ITR-2)
  • Not updating NRI/resident status with banks and mutual funds

Tip: Your residential status affects everything—revisit it yearly based on number of days spent in India.

Pro Tips to Stay Tax-Compliant and Efficient

  • Hire a tax advisor who understands NRI taxation rules
  • File returns even if income is under ₹2.5 lakh (especially for refunds)
  • Keep digital copies of Form 26AS, property records, and TDS slips
  • Review income sources each year—taxability may change if you return or earn new types of income

Frequently Asked Questions (FAQs)

Q1: Is rental income earned by NRIs taxable in India?
Yes, rental income from Indian property is taxable. Tenants must deduct 30% TDS before remitting rent to the NRI.

Q2: How are capital gains from property taxed for NRIs?

Short-term gains are taxed at slab rates; long-term gains are taxed at 20% with indexation.

Q3: Do NRIs pay tax on NRE/NRO interest income?
NRE/FCNR interest is tax-free; NRO interest is fully taxable with 30% TDS.

Q4: What is DTAA, and how does it benefit NRIs?
DTAA avoids double taxation and allows reduced TDS rates if claimed properly.

Q5: Do NRIs need to file ITR in India?
Yes, if total income exceeds ₹2.5 lakh or they wish to claim refunds or exemptions.

Final Thoughts

Taxes can feel complex when your life spans two countries—but with smart planning and the right help, they become manageable.

By understanding which incomes are taxed, using legal exemptions, and filing timely returns, NRIs can reduce their tax outgo and enjoy peace of mind.

Tip: Always consult a trusted Indian CA or advisor for personalized strategies. What works for one NRI may not suit another.

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