NRI Taxation in India — Complete 2026 Guide

NRI (Non-Resident Indian) tax residency determination under Income Tax Act Section 6: Resident: present in India for 182+ days in the financial year. OR present 60+ days in the current year AND 365+ days in the preceding 4 years. NRI: does not meet resident criteria. For Indian citizens working abroad (or crew on Indian ships): threshold is 182 days (not 60+365). For individuals visiting India (but living abroad): if Indian citizen, only the 182-day test applies — makes it easier to maintain NRI status. RNOR (Resident but Not Ordinarily Resident): resident by day-count but either was NRI for 9 of last 10 years or was in India for 729 days or less in last 7 years. RNOR is foreign income exempt for 2-3 years. ROR (Resident and Ordinarily Resident): resident and does not qualify for RNOR — worldwide income taxable. Tax year: Indian financial year runs April 1 to March 31. Day count for residency is within this period. Practical tracking: NRIs who visit India should track days precisely — crossing 182 days triggers resident status with full India tax consequences.

NRE vs NRO account tax treatment: NRE (Non-Resident External) account: completely tax-exempt on interest income in India — no income tax on NRE FD or savings interest. No TDS deducted by bank. No need to declare in Indian ITR (unless ROR status). This is the primary tax advantage of NRE accounts vs NRO. NRO (Non-Resident Ordinary) account: interest fully taxable in India. TDS deducted at 30% by bank (Section 195). At ITR filing: NRI declares NRO interest, computes actual tax (often lower than 30% TDS), claims refund of excess. FCNR (Foreign Currency Non-Resident) deposit: similar to NRE — completely tax-exempt in India while NRI status holds. Interest exempt from Indian tax regardless of deposit amount or duration. Tax on Indian investments held via NRO: dividends from Indian stocks, mutual fund distributions, rental income collected in NRO account — all taxable in India at applicable rates. The NRE exemption: applies only while you are NRI. When status changes to RNOR or ROR: NRE account converts to RFC (Resident Foreign Currency) or regular savings — interest becomes taxable from that point.

TDS rates for NRI income payments in India (FY 2025-26): NRO savings account interest: 30%. NRO FD interest: 30%. Rent received by NRI from Indian property: 31.2% (30% + 4% cess) deducted by tenant under Section 195. Dividend from Indian company: 20% TDS (higher than 10% for residents). Capital gains from listed stocks/equity MF: STCG 20%, LTCG 10% (old) or as applicable — buyer must comply. Property sale proceeds (NRI seller): 20% on full consideration (LTCG property). Professional fees paid to NRI: 10% TDS (Section 195). Why TDS rates are high: TDS for NRIs is deliberately conservative because ITD cannot easily audit non-resident taxpayers. The high TDS ensures tax collection; NRI can then file ITR to claim the actual lower tax liability and get refund. Most NRIs benefit from filing ITR to reclaim excess TDS. Lower TDS certificate (Section 197): NRI can apply for certificate allowing payer to deduct lower TDS. Must apply with Assessing Officer showing calculation of actual India tax liability.

NRI investment taxation in India: Equity mutual funds and stocks: LTCG (held 12+ months): 12.5% above Rs1.25L/year. STCG (held under 12 months): 20%. Same as resident rates. NRI must use PIS (Portfolio Investment Scheme) account at bank for equity investments — FEMA requirement. TDS: broker deducts TDS automatically on gains at applicable rates. Debt mutual funds: gains taxed at slab rate (regardless of holding period post-April 2023 amendment). TDS: 30% at redemption. File ITR to claim refund at actual slab rate. NRO FD: 30% TDS, taxable as other income. Government bonds (G-Sec, T-Bills via RBI Retail Direct): interest taxable at slab rate in India. NRIs can invest via RBI Retail Direct. Sovereign Gold Bonds: NRIs can hold SGBs acquired while resident. Interest: 2.5% taxable. Capital gains at maturity (8 years): exempt for resident Indians but for NRIs, this exemption may not apply — check current CBDT clarification. The short version for NRI investors: equity investments are taxed at reasonable rates (12.5-20%); debt investments face 30% TDS with refund via ITR; all India-sourced gains must be declared in Indian ITR.

FEMA rules for NRI investments: Permitted investments (no RBI approval): equity shares in listed Indian companies via PIS account, equity MF units, NPS, NRE and NRO FDs, government securities (G-Sec, T-Bills) via RBI Retail Direct, Sovereign Gold Bonds (while resident status — can hold as NRI). Restricted or requiring RBI approval: agricultural land (purchase, as established), certain unlisted company shares (case-by-case), direct real estate in agricultural zones. PIS (Portfolio Investment Scheme) requirement: NRIs buying or selling listed Indian equities must route transactions through a PIS account at a designated bank (Axis, HDFC, SBI, ICICI all offer PIS). Each NRI can have only ONE PIS account across all banks at any time. Non-PIS equity transactions are FEMA violations. Repatriation of investment proceeds: from NRE account investments: fully repatriable. From NRO account investments: capped at USD 1M per year with CA certification (Form 15CA/15CB). FEMA compliance for NRI investments is strict — penalties for violations can be up to 3x the transaction amount. Use a bank that has a strong NRI services division to ensure FEMA-compliant investment structuring.