NRI Income Tax in India: How Non-Resident Indians Are Taxed and How to File ITR for AY 2026-27

If you're an Indian citizen working abroad or someone who has moved overseas, you probably have questions about your tax obligations back home. Do you still need to file an ITR? Is your foreign salary taxable in India? What about that rental income from your flat in Mumbai or interest from your NRE account?

NRI taxation in India follows different rules than what resident Indians deal with — and getting your residential status wrong is one of the most expensive mistakes you can make. This guide covers everything you need to know for AY 2026-27.

Who Is an NRI for Income Tax Purposes?

Your tax liability in India depends entirely on your residential status under the Income Tax Act, not your passport or citizenship. The Act classifies individuals into three categories:

1. Resident and Ordinarily Resident (ROR): Taxed on worldwide income
2. Resident but Not Ordinarily Resident (RNOR): Taxed on Indian income + income from a business controlled in India
3. Non-Resident (NR): Taxed only on income earned or received in India

How Residential Status Is Determined

You are a Resident in India for FY 2025-26 if you satisfy either of these conditions:

• You were in India for 182 days or more during FY 2025-26, OR
• You were in India for 60 days or more during FY 2025-26 AND 365 days or more during the four preceding financial years

Important exception: If you are an Indian citizen who left India for employment abroad, the 60-day threshold is replaced with 182 days. This means most NRIs working overseas need to spend 182+ days in India to become resident — a short visit home won't change your status.

If you don't meet either condition, you are a Non-Resident.

The RNOR Middle Ground

Even if you qualify as a Resident, you may still be RNOR if:

• You were an NRI in 9 out of the 10 preceding financial years, OR
• You were in India for 729 days or fewer during the 7 preceding financial years

RNOR status is a transitional benefit — it protects your foreign income from Indian tax in the years immediately after you return to India.

What Income Is Taxable for NRIs in India?

As an NRI, only your Indian-sourced income is taxable. Here's what that includes and excludes:

Taxable in India

NOT Taxable in India

Key point: Interest earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is completely tax-free in India. This exemption is one of the primary reasons NRIs maintain NRE accounts. However, NRO account interest is fully taxable.

Tax Rates for NRIs in AY 2026-27

NRIs can choose between the old and new tax regimes, just like residents. However, there are critical differences:

New Tax Regime (Default)

A standard deduction of ₹75,000 is available on salary income under the new regime.

Important: No Section 87A Rebate for NRIs on Certain Income

While resident Indians with taxable income up to ₹12 lakh effectively pay zero tax under the new regime (thanks to the Section 87A rebate), NRIs cannot claim this rebate on special rate income like short-term or long-term capital gains. On regular income (salary, interest, rent), the rebate applies if total taxable income is within the threshold.

Old Tax Regime

NRIs can opt for the old regime to claim deductions like 80C, 80D, and Section 24(b) on home loan interest. The slabs remain:

Which regime works better depends on how much Indian income you earn and what deductions you can claim. For most NRIs with primarily capital gains or interest income, the new regime often works out better. If you have a home loan on Indian property with significant interest payments, the old regime may save more — compare the two regimes in detail here.

TDS on NRI Income: Why It's Higher

Banks and institutions deducting TDS from NRI income apply higher rates than they do for residents. This is the single biggest pain point for NRIs:

Getting a Lower TDS Certificate

If the TDS being deducted exceeds your actual tax liability, you can apply for a lower TDS certificate under Section 197. You file Form 13 with the Income Tax Department, and if approved, the buyer or bank deducts TDS at a lower rate. This is especially useful when selling property — without a Section 197 certificate, the buyer must deduct TDS on the entire sale price, not just your capital gain.

Claiming TDS Refunds

If excess TDS has already been deducted, you must file an ITR to claim the refund. There is no other way to get the money back — this is why filing a return is important for NRIs even when their taxable income is below the basic exemption limit.

Double Taxation Avoidance Agreement (DTAA)

If you're paying tax on the same income in both India and your country of residence, DTAA provides relief. India has DTAA agreements with over 90 countries, including the US, UK, Canada, Australia, UAE, Singapore, and Germany.

How DTAA Relief Works

There are two methods:

1. Exemption method: The income is taxed in only one country
2. Tax credit method (more common): You pay tax in both countries, but get credit for taxes paid in one country against your liability in the other

For example, if you earn ₹5,00,000 in NRO interest and pay ₹1,50,000 as TDS in India, you can claim this as a foreign tax credit in your country of residence (if the DTAA allows it), or vice versa.

Tax Residency Certificate (TRC)

To claim DTAA benefits, you need a Tax Residency Certificate from the country where you are a tax resident. In India, you also need to file Form 10F providing details like your address, tax identification number in the other country, and the period of residency. Without these documents, DTAA benefits can be denied.

Which ITR Form Should NRIs Use?

NRIs cannot use ITR-1 (Sahaj). The applicable forms are:

Since most NRIs have a combination of rental income, capital gains from property or investments, and NRO interest, ITR-2 is the correct form in most cases. If you're unsure which form applies to you, check our ITR-1 vs ITR-2 comparison guide.

Step-by-Step: Filing ITR as an NRI

1. Determine Your Residential Status

Count your days in India for FY 2025-26 carefully. Include the day of arrival but exclude the day of departure. Your passport stamps are the primary evidence — maintain a log if you travel frequently.

2. Gather Your Documents

• Form 26AS / AIS / TIS: Download from the income tax portal. These show all TDS deducted against your PAN — verify every entry
• NRO account statements: For interest income
• Property sale documents: Sale deed, purchase deed, improvement cost receipts
• Rental agreements and bank statements: For rental income
• Brokerage statements: Capital gains from stocks and mutual funds
• Tax Residency Certificate: If claiming DTAA relief
• Form 16: If you received any salary in India

3. Calculate Your Income and Tax

Compute income under each head — salary (if any), house property, capital gains, and other sources. Apply applicable deductions if opting for the old regime. Calculate tax liability, apply DTAA relief if applicable, and compare against TDS already deducted.

4. File the Return

File ITR-2 on the income tax e-filing portal (eportal.incometax.gov.in). NRIs can verify their return using:

• Aadhaar OTP (if Aadhaar is linked to Indian mobile number)
• Net banking (if you still have an active Indian bank account)
• Digital Signature Certificate (DSC)
• Sending signed ITR-V to CPC Bangalore by post (within 30 days)

The deadline for filing ITR for AY 2026-27 is July 31, 2026 (unless extended).

Common Mistakes NRIs Should Avoid

Not filing because "I don't owe tax." Even if TDS covers your entire liability, you may be due a refund — and you can only claim it by filing. Plus, having filed returns strengthens your financial record for future property transactions or loan applications in India.

Forgetting to convert NRE to NRO on becoming resident. If you return to India and become a resident, your NRE account interest is no longer tax-exempt. Many returning NRIs miss this and face notices for unreported interest income.

Ignoring rental income. If you own property in India that generates rent, the tenant (or their representative) should deduct TDS at 30% before paying you. In practice, many tenants don't deduct TDS, but the income is still taxable. Report it regardless.

Not claiming DTAA relief. Many NRIs pay double tax simply because they don't file Form 10F and obtain a TRC. The paperwork takes effort, but the savings can be substantial — particularly on NRO interest and capital gains.

Misreporting residential status. Selecting "Resident" instead of "Non-Resident" on your ITR changes your entire tax computation. Get this right first — everything else follows from it.

Practical Example: NRI Tax Calculation

Scenario: Rahul is an Indian citizen working in Dubai. He spent 30 days in India during FY 2025-26. He has:

• NRO FD interest: ₹3,50,000
• Rental income from Pune flat: ₹4,80,000 (net of 30% standard deduction = ₹3,36,000)
• NRE account interest: ₹2,00,000 (tax-exempt)

Residential status: Non-Resident (spent fewer than 182 days in India)

Taxable income under new regime:

• NRO interest: ₹3,50,000
• Net rental income: ₹3,36,000
• Total: ₹6,86,000

Tax under new regime:

• Up to ₹4,00,000: Nil
• ₹4,00,001 to ₹6,86,000 = ₹2,86,000 × 5% = ₹14,300
• Cess (4%): ₹572
• Total tax: ₹14,872

TDS already deducted: ₹1,05,000 (30% on NRO interest) + TDS on rent Rahul will get a significant refund by filing his ITR — without filing, that excess TDS stays with the government.

The Bottom Line

NRI taxation isn't complicated once you understand the core principle: India only taxes your Indian income. The real challenges are the high TDS rates (which often overshoot your actual liability), navigating DTAA paperwork, and correctly determining your residential status.

If you have Indian income — whether it's NRO interest, rent, or capital gains — file your ITR. Even when you don't owe additional tax, filing is the only way to claim refunds on excess TDS and maintain a clean compliance record. 49Tax can help you determine the right ITR form and compute your Indian tax liability accurately, making the filing process straightforward even from abroad.