NRI tax in India: Your questions answered

Aman Saxena

Non-Resident Indians, or NRIs for short, have a unique tax situation compared to Indian residents. Read on to learn more about the tax rules for NRIs, and the changes made in 2021 to tax policies for non-residents.

⚠️Every individual’s tax circumstance is different, so this article should not be taken as tax advice. It is best to talk to a tax professional who is familiar with NRI rules and can take a look at your specific situation.
📝 Table of contents

Is NRI income taxable in India?

Yes and no, and it depends on where the income is coming from. Earnings earned outside of India, even if it is with an Indian company, are not taxed in India if you are an NRI. Earnings within India, like rental income, are taxable. Here is a quick table to explain this for basic income sources:¹

NRI Income Source Taxable in India
Income earned in India
Income accrued in India
Income received in India
Income earned outside of India
Income earned outside of India but from a business or professional set up controlled in India
Income accrued outside of India

Here is a quick list of what is deemed taxable for NRIs for earned income in India:²

  • Salary received in India
  • Salary for services provided within India
  • Income from real estate or house properties within India
  • Capital gains on assets in India
  • Dividend paid by an Indian company.
  • Interest received from the Government of India.
  • Income from fixed deposits accrued in India
  • Income from interest accrued on a savings account in India
  • Interest on NRO accounts

Income earned outside of India and interest accrued on an NRE account or an FCNR account is not taxable in India.

ℹ️You qualify as an NRI if you are a citizen of India or a person of Indian origin, who is in India less than 182 days a year. More than 182 days a year and you are considered a resident and have to pay ordinary income taxes. ²

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What is the tax rate for NRI in India?

Your income tax rate as an NRI depends on the amount of annual income you earn in India. Here’s a quick table on the income tax rates per slab:⁴

Income earned in India Income tax rate
Less than ₹ 2,50,000 0%
₹ 2,50,000 - ₹ 5,00,000 5%
₹ 5,00,000 - ₹ 7,50,000 10%
₹ 7,50,000 - ₹ 10,00,000 15%
₹ 10,00,000 - ₹ 12,50,000 20%
₹ 12,50,000 - ₹ 15,00,000 25%
More than ₹ 15,00,000 30%

One requirement for NRIs is to get a PAN card. A PAN card is important to link up with your bank accounts for accurate tax reporting.

And it is best to switch your domestic accounts in India to NRI accounts before you leave. NRI accounts include Non-Resident External and Non-Resident Ordinary accounts that work like bank accounts or Fixed Deposits. Most popular and commercial banks in India offer NRI services.

🔖Read more: Top 10 NRI bank accounts

How much foreign income is tax-free in India?

All income that is earned abroad is not taxable in India if you qualify as a Non-Resident Indian. But income or salary earned in India, or payments for services in India are subject to Indian income tax.

The tax-free status also goes for NRE accounts where you can deposit foreign earned income. After, when you are thinking of heading back to India, the accounts are fully repatriable. NRO accounts however are for income earned in India and so are taxable by Indian income tax rates.

🔖 Read more: Tax on international money transfers with India

What are the new NRI tax rules in India?

As of 2021, the Indian government has made new rules for NRIs and a new category too. Let’s dig in.

Resident Not Ordinary Resident (RNOR) is for Indian citizens who earn more than ₹15 lakhs in India and have been in India for more than 120 days but less than 182 days the previous year. RNOR individuals will not be taxed on their foreign income but will be taxed on income accrued from a business or services provided in India.

Here is whether an RNOR, NRI and a normal resident of India are taxed by the Indian government per the new rules:⁵

Income Source NRI RNOR Resident
Income earned in India
Income accrued in India
Income received in India
Income earned outside of India
Income earned outside of India but from a business or professional set up controlled in India
Income accrued outside of India

The residential status of a taxpayer should be assessed every year. It is normal for a resident to become an NRI, and an NRI to return and become a resident again. Keep track of your changes and the number of days you are spending in India.

NRI tax exemptions and deductions

There are some exemptions and deductions that NRIs can claim, including:⁶

  • NRIs can take a deduction of 30% on a home loan in India for principal repayment.
  • NRIs are taxed at 20% on investment in assets in India

Here are a few additional deductions that NRIs can take:

  • Premiums paid on health or life insurance policies
  • Donations on social services
  • Interest on education loans
  • Children’s tuition fees
  • ELSS
  • Ulips
  • Principal repayments on home loan
  • Interest income on savings accounts can be claimed up to ₹10,000

On the other hand, certain investments are not available to NRIs. These are:

  • Senior Citizen Savings Scheme
  • National Savings Certificates
  • Post Office Deposit Scheme
  • Public Provident Fund

Sources used for this article:

  1. NRI income source tax
  2. Income tax for NRIs
  3. NRI definition
  4. Tax slab
  5. New rules
  6. Exemptions

All sources checked as of 3 February, 2022

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