NRI Income Tax: Rates, Slabs, and New Rules

If you are an NRI, then you must be wondering about the taxation in India. The taxation rules of NRIs include the regulations and provisions under which the Non-Resident Indian pays taxes on the income earned or accrued in India. These rules can be complicated for the NRIs to understand. It is complex to know what income is taxable in India and which foreign income is exempted. Also, these rules change very frequently, in a year or so, hence you should always be updated with the Income tax slabs, TDS, DTAA, and deductions and exemptions for NRIs.

In this blog, we have discussed all about the NRI taxation in India. You can get the information about at what rate the taxes are deducted, the tax slabs, how you fill the Income Tax Returns, and the latest updates regarding the NRI taxation. Filing ITRs is a crucial process, so make sure that you do it carefully by understanding it completely.

Definition of NRI for Income Tax Purposes 

For the NRIs, Income Tax in India, the tax liability is dependent on the residential status under the Foreign Exchange Management Act (FEMA) and the Income Tax Act. You can call an individual an NRI if they have stayed in India for less than 182 days in a particular financial year. The residents are those who live in India for more than 182 days or more. And, the RNOR (Resident but Not Ordinarily Resident) falls between these two categories.

Taxable Income for NRIs in India 

There are five main sources of income for NRIs as per the purpose of Income Tax: 

1. Income from Salary

Under the NRI taxation rules in India, the salary of the NRIs is taxable if the services are offered in India. It does not matter even if the payment is received in a foreign country. Also, under the Income Tax Act for the NRIs, the salary credited in your Indian bank account for the work done in India is completely taxable.

2. Income from Indian Property

For NRIs, the rental income from the Indian property is fully taxable. Under the IT Act, 1961, the total taxable income can be reduced with a standard deduction of 30%, home loan interest, and municipal taxes paid. You can claim this deduction later on under section 80C up to the limit of Rs 1.5 lakhs with respect to the total amount of repayment of the home loan. 

3. Professional or Business Income

If the company is managed or controlled from India, then its business or professional income will be taxable in India. This provision comes under section 28 of the Income Tax Act as per NRI tax rules. If the income is earned completely in a foreign country and it is not controlled from India, then it will be totally tax-exempt.

4. Capital Gains and Investment Income

The capital gains that are short-term are taxed at 15% for equities, for example, selling the shares within 12 months of holding. The long-term capital gains on property or share sales attract 12.5% tax without indexation and 20% with indexation. 

5. Interest from Bank Accounts

The NRIs earn interest on their bank accounts as per the type of account. The account type also affects the taxability and reporting requirements of the income.

• NRO Account: Under the Income Tax Act, 1961, the interest earned on the income in the NRO account is taxable.
• NRE Account: For such accounts, the interest is completely tax-free under the Income Tax Act with Section 10(4)(ii), although you must report it in the ITR.
• FCNR Account: Under section 10(15)(iv)(fa) of the Income Tax Act, 1961, the interest earned on the deposits is completely tax-free and fully repatriable for NRIs. 

Latest Update: For the current financial year (FY 2025-26), all NRIs should disclose their interests, more than Rs 50,000, earned in all Indian accounts by using the ITR-2. To ensure compliance, it is important to report accurately, as it can help claim the DTAA benefits and avoid penalties. This also helps the NRIs to repatriate their funds smoothly and manage their taxes efficiently without incurring any legal issues. 

NRI Income Tax Slab Rates

This section contains the NRI Income Tax Rates, cess, and surcharges. You can also decide between old and new tax regimes. 

NRI Income Tax Slabs (FY 2025-26) 

As per the NRI Income Tax in India, individuals can choose the way of filing the ITRs between the old and the new tax regime slab rates.

Here is the table form of the old regime tax rates: 

As per the New Tax Regime Rates:

After looking at the comparisons between the old and the new tax regime slab rates, as they both have different slab rates. The old tax regime has higher rates, but it allows deductions for NRIs, while the new tax regime has lower rates with fewer exemptions. Also, a surcharge applies to taxes at 10%-37% and there is a 4% health & education cess is applied on the total taxes plus surcharges. 

NRIs Cess and Surcharges 

As per the NRI income tax in India, a surcharge is applied on the total tax amount, not on the income. Here is the table that represents the surcharge and cess for NRI taxation in India: 

Select between Old and New Regimes

Under NRI Income Tax in India, your choice between the old and the new tax regimes depends on the available deductions. The old regime is best for the NRIs who prefer to have high deductions. They are mentioned under Chapter VI of the Income Tax Act, Section 80C of the Income Tax Act, rental income deductions, a nd home loan interests.

The new tax regime provides individuals with lower rates, but it has very less exemptions, hence it is preferred by those NRIs who have few deductions. 

Steps to File Income Tax Returns for NRIs

It is crucial for the NRIs to comply with the taxation in India, and for that, they have to file the Income Tax returns, claim refunds on the excess TDS. In short, they need to maintain a clear tax record. Here are the simple steps by which you can file your ITRs: 

1. Select the right ITR Form

• ITR 2: This form is for those NRIs who are earning rental income, salary, capital gains, or foreign income without any professional/business income.
• ITR 3: This form is for those NRIs who are running a profession or business in India. If you select the correct form for ITR filing, then it will help to save you from potential errors.

2. Collect all the Required Documents

• Your PAN Card and Aadhaar (if it is available) 
• Form 16/16A for the TDS and salary details
• The details of the NRO/NRE/FCNR account and the bank statements
• Form 10F and TRC for claiming the benefits of DTAA
• The documents for the property for claiming the deductions on your rental income
• Proof of all the deductions: Section 80C (insurance, ELSS), 80E (education loan interest), 80D (health insurance), 80G (for donations), 24 (b) (for home loan interest). 

3. Prepare the Online Filing

• Log in to the official portal of Income Tax. 
• Select the financial year and the ITR form that is applicable. 
• Fill in all the personal details, deductions, and income sources.
• Enter the details of TDS from the Form 26AS/AIS to make sure that your credit is claimed properly.
• Then, verify all the entries and evaluate the total amount of tax payable or refundable.

4. Submit and Verify the Return

• You can submit the return by using net banking, Aadhaar OTP, or a Digital signature. You need to keep the acknowledgement for the records.

5. Know all the Penalties and Due Dates 

• The due date for filing the return: July 31 of the assessment year.
• Penalty for late filing: Under section 234F, it is Rs 10,000 plus the interest on the due taxes under section 234A.

Latest Updates in NRI Tax Rules

For NRIs, it is important to stay updated with all the new rules and regulations of NRI taxation in India, as it is important for optimal tax planning. There are several changes happened for the FY 25-26 which affect the NRI Income Tax Return filing, reporting assets, and claiming deductions.

Rule of Asset Disclosure

All the NRIs filing ITR-2 should disclose all the assets they hold in India exceeding the amount of Rs 1 crore. It includes the property, bank deposits, mutual fund investments, and shares of stock. If there are any liabilities associated with these assets exceeding Rs 50 lakhs, then they must also report them. Always ensure compliance to avoid all penalties.

Changes in Tax Slabs and DTAA

There are some provisions of DTAA that have been updated with the partner countries, like Singapore, the UK, and the UAE. These changes can help you decrease the rate of TDS on royalties, dividends, and interests. Also, the tax slabs for the FY 2025-26 have been revised for both the old and new regimes, and this affects the total tax payable for NRIs with high income.

Practical Impact on NRIs

If you are an NRI and have assets worth Rs 1 lakh or more, then you should maintain detailed records to avoid potential penalties and notices. To claim the benefits from DTAA, you need to fill out Form 10F and require an updated TRC. If you are an NRI with a higher income, you should check the income tax slabs before filling out the ITR to select the optimal tax regime.

If you choose to stay updated and informed, then it can help you in complying with the Income Tax Rules, avoid litigation or penalties, and reduce tax liability.

Circulars of the RBI and the IT Department

According to the new RBI guidelines focus is on the compulsory reporting of the foreign income and assets by the NRIs in the Income Tax Return. The Income Tax Department has also issued circulars that clarify the TDS on NRO accounts and property sales. It also includes the procedural changes for refunds. 

TDS Rules for NRIs

Under the rules of NRI Income Tax in India, the Tax Deducted at Source (TDS) is an important mechanism to collect the tax on the income earned in India or by Indian sources. The provisions of TDS are conducted under section 195 of the Income Tax Act, 1961. The NRIs have to pay TDS on various incomes, such as rent, salary, capital gains, and interest. Also, make sure that you follow the compliance before filing the ITRs. 

Rates of TDS for Different Income Types 

With the help of TDS, it is easy to collect the tax on income earned by the NRIs, as it is deducted at the time of payment. This process makes compliance very easy and reduces the tax burden from the NRIs at year-end.

• Rent: If the rent is more than Rs 50,000 per month, then the TDS is deducted at the rate of 30%.
• Salary: Under the Income Tax Act, 1961, the TDS for the NRIs is deducted according to the income tax slab rates.
• Interest: The TDS on the interest from NRO accounts is usually 30%. The NRE and FCNR accounts are generally exempt from taxation. 
• Capital Gains: For short-term gains on equities, it is 15% and for long-term gains on property is 20%. 
• The effective deducted tax can be increased due to the Surcharges and 4% Health & Education Cess. 

Role of DTAAs

The Double Taxation Avoidance Agreement (DTAA) works under Sections 90, 90A, and 91 of the Income Tax Act, 1961. This compliance makes sure that NRIs don't have to pay double taxes on the same income, in the country of residence and in India. It also helps in decreasing the TDS on the dividends, interest, and royalties for the NRI Income Tax. 

Also, if you want to claim the benefits of DTAA, then it is compulsory for you to submit the Form 10F and a Tax Residency Certificate (TRC) to the Indian payor. Let's understand with an example: If an NRI earns the bank interest of Rs 1,00,000 in India. Then, with the help of DTAA provisions, the TDS can be reduced from 30% to 15%, which can save him Rs 15,000 in advance tax.

Steps to claim a refund on excess TDS

If, in any case, the excess TDS is deducted, then NRIs can easily claim the refunds for them. Here are the steps you can follow:

1. Check the TDS Credits: Carefully review all the entries of TDS in Form 26AS/AIS to make sure that the correct amount is deducted. 
2. File ITR in India: Report your accurate total income by including the TDS to calculate the correct tax liability.
3. Provide details of PAN-linked bank account: You should make sure that your bank account is linked with your PAN card to make the refund transfer seamless and smooth.
4. Claim your Refund: You just need to submit the ITR, and all the excess TDS amount will be added to your bank account after the processing is completed. 

Why Choose Visament?

For NRIs, it is one of the most difficult things to manage their finances and taxation in India while staying in a foreign country. There are many rules and legal compliance that one needs to follow for accurate Income Tax Filing. To avoid the hassles and stress regarding the NRI taxation, most of the NRIs prefer to seek expert guidance from professionals. You can also visit the trusted platform Visament, where you can find so many professionals for your NRI tax filing in India.

Our Specialised team has experience of many years in this field of service and a better understanding of handling taxes for NRIs. They can assist you 24/7 and provide you with the best NRI tax service. You can get all the services at very affordable prices from our platform. Follow all the compliance and file all your income tax returns from the comfort of your home. You can also apply for the various NRI services from our platform.