Understanding NRI Taxation: Key Rules and Insights for 2025

Navigating taxation as a Non-Resident Indian (NRI) can be complex, especially with evolving financial rules and compliance requirements. Whether you’re an NRI earning income in India, investing in Indian assets, or planning a return, understanding how Indian tax laws apply to your situation is essential. Here’s a concise overview of NRI taxation in 2025 to help you stay informed and compliant.

Who Qualifies as an NRI for Tax Purposes?

In India, the NRI Taxation status of an individual is determined by their residential status under the Income Tax Act. An individual is considered an NRI if:

• They reside outside India for 182 days or more during a financial year, or
• They have stayed in India for less than 60 days in a year and less than 365 days in the preceding four years.

It’s important to note that specific conditions apply for Indian citizens working abroad or visiting India, which can influence the number of days counted.

Taxable Income for NRIs in India

As an NRI, your global income is not taxed in India. Only income earned or accrued in India is taxable. Here are some common examples of taxable income in India for NRIs:

1. Income from Salary (if services are rendered in India)
2. Rental Income from property located in India
3. Capital Gains from sale of property, shares, or mutual funds in India
4. Interest Income from savings accounts, fixed deposits, and NRO accounts
5. Dividends from Indian companies

Interest earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is exempt from tax, while interest on NRO (Non-Resident Ordinary) accounts is fully taxable.

Key Tax Rules and Rates for NRIs

1. Income Tax Slabs: NRIs are taxed as per the same slab rates as resident Indians. However, NRIs are not eligible for the basic exemption of ₹2.5 lakh under the new tax regime if they opt for it. Under the old regime, they can claim the basic exemption.
2. TDS (Tax Deducted at Source): For NRIs, TDS is applicable at higher rates. For example:
   • 30% TDS on interest from NRO accounts
   • 20% TDS on rental income
   • 20% plus surcharge and cess on capital gains (for certain investments)
3. Special Tax Rates:
   • Long-term capital gains (LTCG) on listed equity shares and equity mutual funds are taxed at 10% beyond ₹1 lakh.
   • LTCG on debt mutual funds and property is taxed at 20% after indexation.
4. Deductions and Exemptions: NRIs can claim deductions under Section 80C for specific investments like:
   • Life insurance premiumsELSS (Equity Linked Saving Scheme)Tuition feesPrincipal repayment of home loan
   However, not all deductions available to residents apply to NRIs. For example, NRIs cannot claim deductions under Sections 80DD, 80DDB, or 80U.

Double Taxation Avoidance Agreement (DTAA)

To avoid being taxed twice (in India and your country of residence), India has signed DTAA with over 90 countries, including the USA, UK, Canada, Australia, and UAE.

Under DTAA, you can:

• Claim tax credit in your country of residence for tax paid in India
• Pay tax in only one country for certain income types (depending on the treaty)

You need to furnish a Tax Residency Certificate (TRC) from your country of residence to claim DTAA benefits.

Repatriation and Tax Implications

NRIs can repatriate funds from their NRE and FCNR accounts freely. However, for funds in NRO accounts, repatriation is allowed up to USD 1 million per financial year (with proper documentation and tax clearance).

If you are selling property or making large investments, it’s crucial to plan repatriation in advance to avoid tax or regulatory issues.

Recent Changes and Compliance Tips

• The Indian government is increasingly focusing on high-value transactions, so ensure that your financial records are clear and up to date.
• Always file ITR (Income Tax Return) in India if you have taxable income, even if TDS has been deducted.
• Use Form 26AS or the Annual Information Statement (AIS) to check your tax credits and ensure transparency.

Can NRIs Claim Deductions?

Yes, but with limitations. NRIs can claim certain deductions under Section 80C, such as:

• Life insurance premiums (for self, spouse, or children)
• Tuition fees of children
• ELSS mutual fund investments
• Home loan principal repayment

Other deductions allowed include:

• Section 80D – Health insurance premiums
• Section 80E – Education loan interest

However, NRIs cannot claim deductions under some sections available to residents, such as 80GG (house rent paid) or 80U (disability).

DTAA Benefits: Avoiding Double Taxation

India has signed Double Taxation Avoidance Agreements (DTAA) with more than 90 countries, including the US, UK, UAE, and Canada. DTAA provides relief by:

• Allowing tax credits for taxes paid in India against tax liability in your country of residence
• Specifying the country that has the taxing rights for different income types
• Preventing the same income from being taxed twice

To claim DTAA benefits, NRIs must provide a valid Tax Residency Certificate (TRC) from their country of residence.

DTAA Benefits: Avoiding Double Taxation

India has signed Double Taxation Avoidance Agreements (DTAA) with more than 90 countries, including the US, UK, UAE, and Canada. DTAA provides relief by:

• Allowing tax credits for taxes paid in India against tax liability in your country of residence
• Specifying the country that has the taxing rights for different income types
• Preventing the same income from being taxed twice

To claim DTAA benefits, NRIs must provide a valid Tax Residency Certificate (TRC) from their country of residence.

Stay Compliant, Stay Secure

With increasing scrutiny from tax authorities and more data-sharing agreements between countries, NRIs must be vigilant about compliance. Keep track of your Indian income, ensure timely ITR filing, and consult with a qualified tax professional for transactions involving large sums, inheritance, or real estate.

NRI taxation doesn’t need to be complicated – the key is staying informed and planning smartly.

For tailored assistance in NRI tax filing, planning, and repatriation, get in touch with Dinesh Aarjav & Associates, your trusted partner for NRI taxation services.

Conclusion

NRI taxation in India requires careful planning and compliance to avoid penalties and ensure optimal tax efficiency. From understanding applicable income types to leveraging DTAA benefits and keeping up with TDS rates, NRIs need to stay updated with the latest tax rules. For those dealing with complex scenarios such as property sales, inheritance, or returning permanently to India, consulting a tax advisor with NRI expertise can be extremely beneficial.