NRI taxation: how India taxes you when you live abroad

Two questions decide everything in NRI taxation: what is your residential status under the Income-tax Act, and where does the income arise. Get those two right and the rest is mechanics. The headline rule: as a non-resident, India taxes only income that is earned or accrued in India — your salary abroad, your foreign investments, your overseas rental income are outside India's net.

Step 1 — your residential status

The primary test is the 182-day rule: stay in India for 182 days or more in a financial year and you're a resident; less, and you're a non-resident. For Indian citizens and persons of Indian origin visiting India, the secondary 60-day test is relaxed to 182 days — but with a catch added in 2020: if your Indian-source income exceeds ₹15 lakh, that leg reads as 120 days (taken with 365+ days across the preceding four years). A separate deemed-residency rule catches Indian citizens with ₹15 lakh+ of Indian income who aren't liable to tax in any country.

Between resident and non-resident sits RNOR (Resident but Not Ordinarily Resident) — typically the status of someone returning to India after years abroad (non-resident in 9 of the previous 10 years, or 729 days or fewer in India over the previous 7). RNORs are taxed broadly like non-residents on foreign income, which makes the status a multi-year transition buffer for returnees. Two housekeeping notes: tax residential status is not the same thing as FEMA status — the one that governs your NRE/NRO accounts — and the day-count tests carry over unchanged into the new Income Tax Act, 2025, which applies from FY 2026–27 (FY 2025–26 is still determined under the 1961 Act).

Step 2 — what India taxes, at what rate

For investment income the rates below apply before any treaty relief — the same numbers as our DTAA tax visualizer, where you can see how they change country by country.

The TDS-first reality

In practice, NRI taxation arrives as tax deducted at source: the AMC, bank or tenant deducts before paying you, often at rates higher than your final liability — NRO interest at 30% when a treaty caps it lower, or dividend TDS exceeding what you ultimately owe. The system squares itself through the ITR: excess deduction comes back as a refund, shortfalls (TDS is not always final tax) are settled through advance tax, which applies once your liability for the year crosses ₹10,000 — miss it and interest under Sections 234B/234C accrues.

The treaty layer

On top of the domestic rates sits the DTAA layer: treaties can cap rates (dividends, interest) or reassign the taxing right entirely (the capital-gains articles — where the units-versus-shares distinction the ITAT has recognised for mutual funds lives). None of it is automatic: every treaty position runs through the TRC and Form 10F gate, and your claims need to be consistent with what your residence country sees under CRS.

ITR essentials

Filing is required when your Indian income exceeds the basic exemption under your chosen regime — and is usually worth doing even below it, since refunds of excess TDS and treaty positions are claimed through the return. NRIs cannot use ITR-1 or ITR-4; ITR-2 is the usual form (ITR-3 with business income). The non-audit due date is 31 July following the financial year. One rate-card asymmetry worth knowing: the Section 87A rebate is available only to residents — an NRI pays from the first taxable rupee above the exemption, under either regime.