Library / Income-tax Act, 2025: The Professional's Master Guide

32. Non-Resident Individuals and NRIs

This chapter looks at individuals who are non-resident or who move between India and abroad. It brings together points from residence, capital gains, TDS and treaties that matter to NRIs and their advisers.

32.1 Income of NRIs that is taxable in India

Income	Taxable?	Notes
Salary for services outside India, received outside India	No	Even if credited later to an NRE account in India
Interest on NRE account and FCNR deposits	Exempt	While the person is a person resident outside India under FEMA
Interest on NRO account	Taxable	TDS at 30% plus surcharge and cess (or treaty rate)
Rent from property in India	Taxable	Tenant must deduct TDS at 30% (not the resident rate)
Capital gains on Indian shares, funds, property	Taxable	Rates as per sections 196 to 198; TDS by buyer or fund house
Dividends from Indian companies	Taxable	TDS at 20% or treaty rate

32.2 Special regime for investment income of NRIs

An NRI (Indian citizen or PIO) may opt for a special regime (old sections 115C to 115I) for income from specified foreign exchange assets (shares of Indian companies, debentures, deposits and government securities bought in convertible foreign exchange). Under it, investment income is taxed at 20% and long-term gains at concessional rates, with no deductions, and the NRI need not file a return if the only income is such income and TDS has been deducted. Check the corresponding provision in the 2025 Act before applying it, as the regime is less commonly used after the general reduction in capital gains rates.

32.3 Buying property from an NRI

Illustration 123: TDS on purchase from an NRI

Rakesh buys a flat in Pune for Rs. 1.5 crore from Sonia, an NRI in Canada, who had bought it in 2015 for Rs. 70 lakh. Long-term capital gain (without indexation) = Rs. 80 lakh.

Rakesh must deduct TDS under section 393(2), not the 1% resident rate. If he deducts on the full price at 12.5% plus surcharge (15% for income above Rs. 1 crore) and cess, TDS = 1.5 crore x 12.5% x 1.15 x 1.04 = Rs. 22,42,500.

Sonia can apply under section 395 for a lower deduction certificate based on the gain only. Tax on Rs. 80 lakh at 12.5% plus 10% surcharge and 4% cess (14.3%) = Rs. 11,44,000. The certificate saves her from having about Rs. 11 lakh blocked until a refund is processed.

Rakesh needs a TAN, must file Form 144 and issue a TDS certificate, and must obtain Forms 145 and 146 for the remittance if Sonia repatriates the money.

32.4 Repatriation and banking

NRE and FCNR balances are freely repatriable. NRO balances can be repatriated up to USD 1 million a year, after tax, with Forms 145 and 146.
Sale proceeds of property can be repatriated subject to FEMA limits and tax clearance through these forms.
On returning to India, NRE deposits become resident deposits or RFC accounts; interest becomes taxable once the person ceases to be a person resident outside India.

32.5 Return filing by NRIs

Required if total income exceeds the basic exemption limit, or to claim refund of excess TDS, or to carry forward losses.
The resident only rebate under section 156 is not available, and the basic exemption cannot be adjusted against special rate capital gains.
Report Indian bank accounts; foreign assets need not be reported by non-residents.

Practice note

Many NRIs have excess TDS on NRO interest and rent because the payer deducts at 30% without considering the slab. Filing a return, claiming treaty benefits where applicable, and obtaining a lower deduction certificate for the next year can recover significant amounts.

32.6 Seafarers and employees working abroad

For an Indian citizen who is a crew member of a ship, days of stay in India exclude the days on an international voyage as per the Rules, which often makes such seafarers non-residents.
Salary of a non-resident seafarer for services rendered outside India on a foreign ship, credited to his NRE account in India, is not taxable in India merely because it is received in the NRE account.
An employee sent abroad on deputation by an Indian employer may remain resident if the 182-day test is met; the salary for services abroad is then taxable in India with credit for foreign tax paid.
Social security contributions abroad may be covered by social security agreements between India and the host country.

Illustration 124: Seafarer

Captain Menon, an Indian citizen, serves on a Singapore flagged ship. In Tax Year 2026-27 he spends 150 days in India and the rest on voyages. He is non-resident. His salary of Rs. 60 lakh, paid by the Singapore company for services on the ship and credited to his NRE account, is not taxable in India. His FD interest from an NRO account is taxable.

Chapter summary

• NRE and FCNR interest exempt; NRO interest, rent and gains taxable with high TDS.

• Buyers from NRIs must withhold under section 393(2); lower deduction certificates help.

• NRIs cannot use the rebate or adjust the basic exemption against special rate gains.