Living abroad does not automatically mean you are free from tax obligations in India. If you earn rental income from an Indian property or receive interest from an Indian bank account, you may still have to pay tax in India. Understanding the rules around NRI tax filing in India can help you identify which income needs to be reported and avoid compliance issues.
How does income tax work for NRIs?
The first thing to understand is that your residential status determines how your income is taxed in India. Being an Indian citizen or holding an Indian passport does not automatically make you a resident for tax purposes.
Under Indian tax law, a person classified as a non-resident is generally taxed only on income that is received or deemed to be received in India, or that accrues, arises or is deemed to accrue or arise in India.
The Income-tax Act, 2025 applies to tax years beginning on or after 1 April 2026. Residential status is determined separately for each tax year, primarily using the number of days spent in India and other applicable conditions.
What income is taxable in India for NRIs?
If you qualify as a non-resident for Indian tax purposes, the following types of income may be taxable in India.
1. Salary earned in India
If you work in India during a visit and receive a salary for services performed here, that income may be taxable in India. This applies even if your employer pays the salary into a foreign bank account.
However, salary earned for work performed outside India is generally not taxable in India merely because you are an Indian citizen. The place where the services are performed and where the income is first received matter when determining taxability.
2. Rental income from Indian property
If you own a house or commercial property in India and rent it out, the rental income is generally taxable in India, even if the rent is transferred to your overseas bank account.
You can claim eligible deductions while calculating taxable house property income. These may include the applicable standard deduction and eligible interest on a housing loan, subject to the relevant tax provisions.
3. Interest from Indian bank accounts
Interest earned on Indian bank deposits may also be taxable for NRIs. However, the treatment depends on the type of account.
- NRE accounts: Interest is generally exempt from Indian income tax while the account holder qualifies for the applicable exemption
- NRO accounts: Interest is generally taxable in India, with tax deducted at source (TDS) as applicable
NRIs should check their account status and applicable tax rules rather than assuming that all interest earned in India is treated the same way.
4. Capital gains from investments and property
If you sell an asset located in India, the resulting capital gains may be taxable here. This includes gains from selling property, shares or mutual fund investments, depending on the applicable rules.
The tax treatment depends on the type of asset and how long you held it before selling. TDS may also apply to certain transactions involving NRIs.
5. Business and professional income
Income from a business or profession carried out in India may be taxable here. For example, if you operate a business in India or provide professional services through an Indian setup, the income may fall within India's tax jurisdiction.
The exact treatment depends on where the business activities take place and how the income is connected to India.
6. Dividends and other investment income
Dividends received from Indian companies are generally taxable in India for NRIs. Other income from Indian investments may also attract tax depending on its nature and the relevant provisions.
Applicable TDS and tax treaty benefits should be considered when calculating the final liability.
Is income earned abroad taxable in India?
Generally, income earned and first received outside India is not taxable in India if you qualify as a non-resident for the relevant tax year.
For example, if you work in Singapore and receive your salary directly into a Singapore bank account for services performed there, that salary is generally outside the scope of Indian taxation while you remain a non-resident.
Transferring money from that overseas account to your Indian bank account does not, by itself, make the original foreign income taxable. However, income connected to an Indian source or first received in India may be treated differently.
Can NRIs avoid paying tax twice on the same income?
An income may sometimes be taxable in both India and the country where you live. This is where a Double Taxation Avoidance Agreement (DTAA) becomes relevant.
India has tax treaties with several countries to provide relief from double taxation. Depending on the applicable agreement, you may be eligible for an exemption, a reduced tax rate or a foreign tax credit.
To claim the available benefit, you may need documents such as a Tax Residency Certificate (TRC) and other prescribed declarations.
When should an NRI consult a tax professional?
Your tax obligations can change depending on your residential status and the type of income you receive. If you own property in India or have investments here, reviewing your tax position before filing can prevent mistakes.
You can explore our tax and compliance services to learn more about the support available.
Why work with a professional?
As your business grows, knowing when to seek professional financial support can help you stay organised, manage compliance requirements and make more informed decisions. Working with experienced professionals can provide the support needed to handle changing financial responsibilities effectively.
At P.K. Lakhani & Co., we help businesses with:
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Conclusion
Not all income earned by an NRI is taxable in India. Indian-source income, such as rent from property or interest from certain bank accounts, may attract tax, while income earned and received abroad is generally outside the scope of Indian taxation for non-residents.
Understanding your residential status and the source of your income is essential for managing your tax obligations. If you are unsure what needs to be reported, professional guidance can make NRI tax filing in India easier to manage.
Frequently asked questions
1. Do NRIs have to pay income tax in India?
NRIs generally pay tax on income received, accrued or deemed to accrue or arise in India. Their foreign income is generally not taxable if it is earned and first received outside India.
2. Is foreign salary taxable in India for NRIs?
Salary for services performed outside India and first received abroad is generally not taxable in India if the individual qualifies as a non-resident.
3. Is rental income taxable in India for NRIs?
Yes. Rental income from property located in India is generally taxable, even if the rent is received in an overseas bank account.
4. Is interest from an NRE account taxable in India?
Interest on an eligible NRE account is generally exempt from Indian income tax while the account holder meets the applicable conditions.
5. Do NRIs have to pay tax on money transferred to India?
No. Transferring money that was already earned and received abroad does not automatically make it taxable in India. The original source and receipt of the income matter.
6. Can NRIs claim relief from double taxation?
Yes. NRIs may be eligible for relief under an applicable Double Taxation Avoidance Agreement, subject to its conditions and the required documentation.
Disclaimer: The information provided in this article is for general guidance and educational purposes only. Tax treatment depends on residential status, the source and nature of income, and applicable tax laws or treaties. Consult a qualified tax professional for advice based on your circumstances.
Published by: P.K. Lakhani & Co., Chartered Accountants
Tags: NRI tax filing, NRI income tax, income tax in India, NRI tax compliance, DTAA, NRI taxation, tax filing in India