NRI Taxation and Compliance (Part 2): Income Tax in India – What Is Taxed, TDS and Treaty Relief
NRI income tax in India: what is taxable, TDS on rent, NRO interest and gains, who must file ITR, treaty relief with TRC and Form 10F, and common mistakes.
A US-based NRI earns rent from a flat in Kondapur, interest on an NRO deposit and dividends on Indian shares. Three income streams, three TDS deductions, one question: “Do I even need to file a return in India?” Usually, yes.
- Part 1: Residential status
- Part 2: Income taxation (you are here)
- Part 3: Property
- Part 4: Banking and investments
- Part 5: Returning to India
- Part 6: Investing in Indian businesses
- Part 7: Gifts, inheritance and succession
- Part 8: TDS, Section 195 and Forms 15CA/15CB
- Part 9: Return filing, refunds and notices
1. What is taxable and what is not
| Income | Taxed in India for an NRI? | Note |
|---|---|---|
| Salary for services rendered in India | Yes | Even if paid abroad |
| Salary for services abroad | No | |
| Rent from Indian property | Yes | Tenant deducts TDS |
| Interest on NRO account or Indian deposits | Yes | Bank deducts TDS |
| Interest on NRE and FCNR(B) deposits | Exempt while you remain non-resident | Exemption ends on becoming resident for FEMA (see Part 5) |
| Dividends from Indian companies | Yes | TDS applies |
| Capital gains on Indian shares, mutual funds, property | Yes | Special rates apply; see below |
| Foreign income (foreign salary, rent, investments) | No | Unless received in India |
2. TDS: why it feels like double tax
| Payment | TDS (indicative, plus surcharge and cess) | Comment |
|---|---|---|
| NRO interest | Around 30% | Treaty rate may be lower with Form 10F and TRC |
| Rent | Around 30% | Claim excess in the ITR |
| Long-term capital gains on property | Around 12.5% on the gain | Buyer deducts TDS; lower deduction certificate can reduce it |
| Short-term capital gains on property | Around 30% | |
| Dividends | Around 20% | Treaty may reduce |
Rates are indicative and depend on the income type, surcharge and the Act in force; confirm before relying. See our worked guide on NRI property sale, TDS and repatriation.
3. Do NRIs have to file an Indian return?
- Yes, if Indian income exceeds the basic exemption limit, or if you have capital gains.
- Yes in practice, to claim a refund of excess TDS or to claim treaty relief.
- ITR-2 (no business income) or ITR-3 (business or profession). Due date is generally 31 July for non-audit cases (confirm for the year).
- Rebate for low income: the Section 87A rebate is available only to residents, so NRIs with modest Indian income cannot rely on it.
ComplianceKart prepares your NRI return, reconciles TDS, claims treaty benefits and files for refunds. See our income tax return filing service.
4. Treaty relief (DTAA) in four steps
5. Remitting money out
Moving Indian income abroad needs Form 15CA and often 15CB (a CA certificate), and NRO balances can be repatriated up to USD 1 million per financial year after tax. For FEMA details, see FEMA Part 4.
6. Common mistakes
- Not filing because TDS was already cut.
- Not providing Form 10F and TRC, so the higher TDS rate stays.
- Using the wrong ITR form or claiming the resident-only rebate.
- Sending the proceeds abroad without Form 15CA/15CB.
- Mixing NRE and NRO funds when paying tax or buying assets.
- Not updating the PAN and bank with correct residential status.
Why work with ComplianceKart
ComplianceKart is a boutique practice bringing Chartered Accountants, Company Secretaries and advocates under one roof. Think of a multi-speciality hospital: the physician, the radiologist and the pharmacist read from one patient file, so you never carry reports between buildings. NRI tax questions blend income tax, FEMA and sometimes property law. One team reading the full file avoids contradictory advice.
Frequently Asked Questions
Is foreign income taxable for an NRI?
No, unless it is received in India or accrues in India.
Is NRE interest taxable?
No, while you are a non-resident. It becomes taxable once you become a resident under FEMA and the account is redesignated.
Can an NRI claim the Section 87A rebate?
No. The rebate is for resident individuals.
Which ITR form should an NRI use?
ITR-2 for capital gains and other non-business income; ITR-3 if there is business or professional income.
How can I reduce TDS on NRO interest?
Provide a Tax Residency Certificate and Form 10F to claim treaty rates where applicable.
Sources
- Income-tax Act, 2025 (tax year 2026-27 onwards) and Income-tax Act, 1961 (earlier years): provisions on scope of income, TDS on non-residents, DTAA
- Income Tax Department e-filing help pages for non-residents
- RBI Master Directions on remittance of assets (NRO USD 1 million limit)
Ready to act? Start with our income tax return filing service, check pricing, or contact us.
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Educational article, last updated 11 November 2026. General information, not advice on a specific case. Laws and due dates change; confirm on the date you act. Items marked (confirm) came from secondary sources and need checking against the official text.
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