Introduction
India remains a preferred destination for overseas Indians seeking to participate in its financial markets. For Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), understanding taxation is essential for compliance. This guide outlines key tax provisions under the Income Tax Act, 1961 and relevant amendments.
Residential Status and Tax Implications
Tax liability in India depends on residential status under Section 6 of the Income-tax Act:
- Resident (ROR): Global income taxable in India.
- Resident but Not Ordinarily Resident (RNOR): Only Indian income taxable + certain controlled foreign income.
- Non-Resident (NRI): Only income earned or accrued in India taxable.
Tests for Residency:
- Present in India ≥182 days in the financial year; OR
- Present in India ≥60 days in the year AND ≥365 days in the preceding 4 years.
Special relaxations for citizens/PIOs:
- If visiting India: the 60-day condition becomes 182 days (or 120 days if Indian income > ₹15 lakh).
- Deemed Residency (s.6(1A)): Indian citizens with Indian income > ₹15 lakh and not liable to tax in another country are treated as residents (but RNOR).
Taxation of NRI Income
- Taxable in India: Salary for services rendered in India, rent from Indian property, business/professional income in India, capital gains on Indian assets, NRO account interest.
- Not taxable in India: Foreign income if residential status is NRI/RNOR.
Tax Deducted at Source (TDS)
- Section 195: TDS applies to most payments to NRIs (interest, rent, capital gains, etc.) with no threshold.
- Rate = Finance Act rate (including surcharge/cess) or DTAA rate, whichever is lower.
- NRIs may apply to the Assessing Officer for nil/lower TDS certificate.
Capital Gains Tax (Post–23 July 2024 Rules)
India’s Finance (No.2) Act, 2024 overhauled capital gains. For transfers on/after 23 July 2024, use the following:
| Asset Type | STCG Period | STCG Rate | LTCG Period | LTCG Rate |
| Listed Equity Shares / Equity-oriented Mutual Funds | ≤ 12 months | 20% + cess | > 12 months | 12.5% + cess (gains > ₹1.25 lakh per FY) |
| Debt Funds, Bonds, Non-equity Mutual Funds, FoFs | ≤ 24 months | Slab rate | > 24 months | 12.5% + cess (no indexation) |
| Immovable Property (land/building) | ≤ 24 months | Slab rate | > 24 months | 12.5% + cess (no indexation) OR 20% with indexation (choice available) |
Before 23 July 2024: apply old regime (equity LTCG @10% over ₹1 lakh, STCG @15%, debt funds bought before Apr-23 with 20% + indexation, etc.).
Exemptions still available (Sections 54, 54EC, 54F).
Double Taxation Avoidance Agreement (DTAA)
India has signed 90+ DTAAs. NRIs can claim relief either through:
- Exemption method (taxed in only one country), or
- Tax credit method (foreign tax credit).
Requires Tax Residency Certificate (TRC) + Form 10F.
Exemptions and Deductions for NRIs
- Available under old regime:
- Section 80C: Life insurance, ELSS, ULIPs, home loan principal.
- Section 80D: Health insurance.
- Section 80E: Education loan interest.
- Section 80G: Donations.
- 80TTA: Up to ₹10,000 deduction on NRO savings account interest (not FDs; NRE/FCNR interest already exempt).
- New regime: Most deductions unavailable.
Conclusion
For NRIs, Indian taxation hinges on residential status, the nature of income, and the holding period of investments. With the July 2024 reforms, capital gains rules have been simplified but require careful tracking of transaction dates. Using the right NRE/NRO/FCNR accounts, staying mindful of TDS, and leveraging DTAA benefits are key to smooth compliance. A clear understanding of these rules helps NRIs optimise investments while remaining tax-efficient and fully compliant.
Disclaimer This document is for informational purposes only and does not constitute tax advice or investment guidance. NRIs are advised to consult qualified tax professionals for specific guidance. Tax provisions are as per the Income Tax Act, 1961 and subject to amendments.
Source
https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-0