NRI Taxation Basics in India: Residency, Taxable Income and DTAA

NRI is a tax status, not a permanent identity

Residential status is determined for each financial or tax year. The same person may be non-resident one year, RNOR the next year and ordinarily resident later.

Citizenship, visa type, OCI status, employer location and NRE account designation can be relevant facts but do not replace the statutory day-count tests.

For FY 2025-26 and AY 2026-27, the Income Tax Act, 1961 continues to govern. For income from 1 April 2026, Tax Year 2026-27 is governed by the Income Tax Act, 2025.

The basic 182-day and 60-plus-365-day tests

An individual is generally resident if present in India for at least 182 days during the tax year, or for at least 60 days during that year and at least 365 days during the preceding four years.

Special substitutions apply to Indian citizens leaving India for employment or as crew and to Indian citizens or persons of Indian origin visiting India. Therefore, the 60-day limb cannot be applied mechanically to every traveller.

Use arrival and departure evidence such as passport records, immigration history and travel tickets. Partial travel days should be counted consistently under professional guidance.

The 120-day rule for certain visitors

For an Indian citizen or person of Indian origin visiting India whose total income other than foreign-source income exceeds Rs 15 lakh, the 60-day figure in the alternate test can become 120 days, together with the 365-day look-back condition.

This does not mean every visitor staying 120 days becomes ordinarily resident. The person may become resident but not ordinarily resident when the RNOR conditions are satisfied.

The Rs 15 lakh measure focuses on income other than foreign-source income. Salary earned abroad is not simply added without examining the statutory definition.

Deemed residency for an Indian citizen

An Indian citizen with income other than foreign-source income exceeding Rs 15 lakh can be deemed resident when not liable to tax in any other country by reason of residence, domicile or a similar criterion.

The rule is aimed at specific cases and does not automatically make every person working in a zero-tax country resident. The legal question is whether the person is liable to tax in another country under the relevant criterion, not whether tax was actually paid after exemptions.

A person treated as deemed resident is generally RNOR, which affects the scope of foreign income.

RNOR explained

RNOR means resident but not ordinarily resident. The Income Tax Department confirms that the continuity tests remain: non-resident in nine out of ten preceding years, or presence in India of 729 days or less in the preceding seven years, along with special RNOR categories.

An RNOR is taxed on Indian-received and Indian-accruing income, plus certain foreign income from a business controlled in India or a profession set up in India. Other foreign income can remain outside Indian tax.

RNOR is often a transition status for returning Indians. It should be calculated, not assumed for a fixed number of years.

What income is normally taxable for an NRI?

Salary for services rendered in India can be taxable even if paid abroad. Salary for services entirely outside India and received outside India is generally outside the Indian scope for an NRI, subject to special rules.

Rent and capital gains from property located in India are normally Indian-source income. Buyers and tenants can have withholding obligations.

Interest on NRO deposits is generally taxable and subject to TDS. Qualifying NRE and FCNR interest can be exempt while the account holder satisfies the relevant FEMA and tax conditions.

Capital gains on Indian shares, mutual funds and securities are taxable under the applicable rates. Treaty relief and special non-resident provisions may alter the result.

Income from an Indian business connection, permanent establishment or profession can be taxable in India.

DTAA in simple language

A Double Taxation Avoidance Agreement allocates taxing rights and may cap the Indian rate for specified income. It does not automatically exempt all income of an NRI.

To claim treaty benefit, the taxpayer generally needs a valid Tax Residency Certificate from the other country and prescribed information, commonly associated with Form 10F, where required.

Compare the domestic-law result with the treaty result for each income type. Salary, interest, dividend, royalty, professional services and capital gains can have different treaty articles.

Foreign tax credit is usually claimed in the country of residence under its rules. Keep Indian TDS certificates, return acknowledgement and tax-payment evidence.

TDS can be higher than final liability

Indian payers often deduct tax from NRI payments under special withholding rules. Property sales, rent, bank interest and investment redemptions can produce substantial TDS.

TDS is a credit, not always the final tax. The NRI can file the applicable return to report actual income, claim cost and exemptions where permitted, apply treaty relief and request a refund of excess credit.

Do not use resident Form 15G or Form 15H for an NRI account. Those declarations are for eligible residents.

Return filing and practical records

An NRI without business or professional income commonly uses the return applicable to salary, house property, capital gains and other sources; historically this has often been ITR-2. Business or professional income can require the business return.

For Tax Year 2026-27, use the forms notified under the Income Tax Act, 2025 when filing in 2027. Current AY 2026-27 forms relate to FY 2025-26 under the old Act and should not be confused with the new tax year.

Maintain passport day counts, foreign tax residency certificate, Form 10F information, NRE or NRO certificates, Indian property statements, broker capital-gains reports and TDS credits.