NRI Income Tax Return Filing in India – Complete Guide

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by

Himanshu
in

When you become a Non-Resident Indian (NRI), your tax rules in India change. Many NRIs assume they don’t need to file returns in India, but that’s not always true. Let’s simplify it.

1️⃣ Who is an NRI for Tax Purposes?

As per the Income Tax Act, 1961, your residential status is determined every year based on the number of days you stay in India.

You are an NRI if:

  • You stay in India less than 182 days during the relevant financial year, or
  • You stay in India less than 60 days in that year and less than 365 days in the previous 4 years.

👉 Residential status is important because taxability depends on it.

2️⃣ What Income is Taxable for NRIs in India?

Unlike residents (who are taxed on global income), NRIs are taxed only on income that is received or accrued in India.

Taxable Income for NRIs in India:

  • Salary income (if services are rendered in India).
  • Rental income from property in India.
  • Interest income from NRO accounts, fixed deposits, savings accounts.
  • Capital gains from sale of property, shares, or other investments in India.
  • Other income arising in India (royalty, professional fees, etc.).

👉 Income earned abroad (salary/business/investments outside India) is not taxable in India for NRIs.

3️⃣ When Should an NRI File ITR in India?

An NRI must file ITR in India if:

  1. Total taxable income in India > ₹2.5 lakh (before deductions).
  2. You want to claim a refund (e.g., TDS deducted is higher than your actual tax liability).
  3. You want to carry forward capital losses.
  4. You have long-term capital gains (LTCG) taxable at special rates even if income < ₹2.5 lakh.

4️⃣ Which ITR Form Should NRIs Use?

  • ITR-2 → Most NRIs use this (salary, house property, capital gains, other income).
  • ITR-3 → If you have business/professional income in India.
  • ITR-1 (Sahaj) → ❌ Not allowed for NRIs.

5️⃣ Tax Rates for NRIs

👉 Same slab rates as residents for most income.

  • Salary / Rental / Interest (NRO) – Taxed at slab rates (0–30%).
  • Capital Gains:
    • Short-term (<24 months property / <36 months debt funds) → slab rate.
    • Long-term property → 20% with indexation.
    • Listed equity shares (with STT) → STCG @15%, LTCG @10% (above ₹1 lakh).
  • Special Investments (Sec 115E for NRI investors) – Certain incomes taxed at 20%.

6️⃣ TDS Rules for NRIs

  • Almost all NRI incomes in India are subject to TDS (Tax Deducted at Source).
  • For example:
    • Sale of property → Buyer must deduct 20%+ TDS on LTCG or 30%+ on STCG.
    • Bank interest (NRO) → 30% TDS.
    • Rent payments → Tenant must deduct TDS before paying NRI landlord.

👉 Even if TDS is deducted, you may need to file ITR to claim refund if actual tax liability is lower.

7️⃣ DTAA (Double Taxation Avoidance Agreement) Benefits

If you paid tax on the same income abroad (e.g., rental income taxed in India and in your country of residence), you can claim relief under DTAA.

  • Form 67 must be filed online before the end of the relevant Assessment Year to claim Foreign Tax Credit (FTC).

8️⃣ Steps to File ITR as NRI

  1. Collect documents:
    • Form 16 (if salaried in India), Form 26AS, AIS (Annual Information Statement), bank interest certificates, capital gain statements.
  2. Determine taxable income: Only income earned or received in India.
  3. Choose correct ITR form (mostly ITR-2).
  4. Report income under proper heads (Salary, House Property, Capital Gains, Other Sources).
  5. Claim deductions (80C, 80D, 80G, etc.) if eligible.
  6. Pay balance tax (if any) through challan ITNS 280.
  7. File ITR online on incometax.gov.in.
  8. Verify return via Aadhaar OTP, net banking, or by sending ITR-V to CPC Bangalore.

9️⃣ Deductions & Exemptions for NRIs

  • Available: 80C (LIC, ELSS, ULIPs, home loan principal), 80D (health insurance), 80G (donations), Section 24 (home loan interest).
  • Not Available: 80TTB (senior citizen savings interest), certain small savings schemes (PPF, NSC, Post Office deposits).

🔟 Example

Mr. Raj, an NRI in Dubai, earns:

  • ₹4,80,000 rent from a flat in India (TDS deducted 30%).
  • ₹1,20,000 interest from NRO FD (TDS deducted 30%).

Taxability in India:

  • Gross income = ₹6,00,000.
  • Less: 30% standard deduction on rent (₹1,44,000).
  • Net taxable = ₹4,56,000 + ₹1,20,000 = ₹5,76,000.
  • Tax as per slab = ~₹33,700 (plus cess).
  • Since bank already deducted ~₹1,80,000 TDS, Raj will file ITR and claim refund of excess TDS.

✅ Key Takeaways

  • NRIs are taxed only on income earned/received in India.
  • Filing is mandatory if income > ₹2.5 lakh or refund is to be claimed.
  • ITR-2 is the most common form for NRIs.
  • DTAA + Form 67 helps avoid double taxation.
  • Always disclose NRO/NRE accounts, property, and investments accurately.

⚠️ Disclaimer

This guide is for educational purposes only. NRI taxation depends on your residency status, income type, DTAA rules, and country of residence. Always consult a qualified tax advisor or chartered accountant before filing your ITR in India.