NRI Taxation in India FY 2026-27: NRE/NRO/FCNR, DTAA Benefits, TDS Rates Explained

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In short: Your tax in India depends on your residential status, not citizenship. NRIs (Non-Residents) are taxed in India only on India-source income — salary earned in India, rental from Indian property, capital gains on Indian assets, interest on NRO/regular savings. NRE and FCNR account interest is fully tax-free for NRIs. NRO account interest faces 30% TDS. Foreign-source income (salary in Dubai, US 401k, UK property rent) is generally not taxable in India. DTAA agreements with 90+ countries prevent double taxation — you typically pay tax in one country and claim Foreign Tax Credit (FTC) via Form 67 in the other. This guide covers the residential-status rules, account-by-account taxation, key DTAA mechanics, and the common NRI mistakes.

Residential Status — Two Tests

You qualify as a Resident in India for a financial year if you meet either condition:

• You were in India for 182 days or more during the financial year, OR
• You were in India for 60 days or more during the financial year AND 365 days or more in the preceding 4 financial years

If you meet neither, you are a Non-Resident for that FY. Citizenship is irrelevant — an Indian passport holder who works abroad and visits India 30 days a year is an NRI for tax purposes.

A third intermediate status, Resident but Not Ordinarily Resident (RNOR), applies to returning NRIs in the first 2 years after relocation. RNOR has tax benefits — foreign income not taxed in India unless received from a business controlled in India.

Account-by-Account NRI Taxation

NRE Account — The Tax-Free Wrapper

NRE (Non-Resident External) accounts hold foreign earnings repatriated to India in INR. Interest is fully exempt from Indian tax for NRIs. Principal and interest are also fully repatriable (no FEMA limit). NRE FDs at 6-7.5% offer better risk-adjusted returns than most foreign-currency deposits in stable currencies. Caveat: when you become Resident again (returning home), NRE interest becomes taxable from that day forward; you must convert NRE to resident savings within 90 days of relocation.

NRO Account — Where Most NRIs Get Surprised

NRO (Non-Resident Ordinary) accounts hold Indian-source income — rent, dividends from Indian shares, capital gains, pension. Interest faces 30% TDS flat, regardless of amount. Repatriation is capped at USD 1 million per FY with a CA certificate (Form 15CA/15CB). NRIs often hold tens of lakhs in NRO accounts without realising 30% TDS is being deducted on the interest each quarter. Form 15G/15H is not available to NRIs.

FCNR Deposits

Foreign Currency Non-Resident deposits are held in foreign currency (USD, GBP, EUR, AUD, etc.). Interest is fully tax-free in India. No exchange-rate risk if you plan to repatriate in the same currency. Useful parking for diaspora wealth that needs to stay in foreign currency.

DTAA — Double Taxation Avoidance Agreements

India has DTAA with 90+ countries — UAE, US, UK, Canada, Australia, Singapore, Germany, France, etc. The DTAA defines which country has primary taxing rights for various income types and provides relief from double taxation.

How DTAA helps NRIs:

1. Lower TDS rates: Many DTAAs cap TDS on interest, dividends, royalty at 10-15% instead of the default 30/20%. To claim, submit Tax Residency Certificate (TRC) from your country of residence + Form 10F to your Indian payer.
2. Foreign Tax Credit (FTC): If you pay tax abroad on Indian income (rare scenario), or pay tax in India on foreign income (RNOR scenario), you can claim FTC via Form 67 to avoid double tax.
3. Source country wins for property: Indian rental income is taxed in India regardless of DTAA; the DTAA usually gives India primary right.

Form 67 — Foreign Tax Credit

Form 67 must be filed before filing ITR (or at the time of filing). It lists foreign income, foreign tax paid, and DTAA reference. Without Form 67, FTC is denied even if you have a TRC. Common NRI mistake: filing ITR first, then trying to add Form 67 — does not work, FTC lost for that year.

Capital Gains on Indian Investments

NRIs are taxed on Indian capital gains:

• Listed equity STCG: 20% from FY 2025-26 (up from 15%)
• Listed equity LTCG: 12.5% on gains above Rs 1.25 lakh (held over 12 months)
• Property STCG: Taxable as per slab
• Property LTCG: 12.5% (without indexation) or 20% (with indexation) — the better option for NRIs depending on holding period and gain
• Debt mutual funds: Taxable as per slab (no LTCG benefit after April 2023 unit purchases)

See our LTCG tax guide for the full breakdown.

TDS on Property Sale by NRI

When an NRI sells Indian property, the buyer must deduct 20% TDS on LTCG or 30% on STCG under Section 195. This is much higher than the 1% TDS for resident sellers (under Section 194-IA). NRIs often face cash-flow issues from this high TDS. Workaround: apply for a Lower TDS Certificate under Section 197 from the AO, typically issued at the actual capital gains tax rate.

ITR Filing for NRIs

NRIs file ITR-2 typically (or ITR-3 if there is business income). Required schedules:

• Schedule FA — Foreign assets disclosure (if RNOR/ROR)
• Schedule TR — Tax relief claimed via DTAA
• Schedule FSI — Income from outside India
• Standard schedules for Indian income

Common NRI Tax Mistakes

1. Not converting account types on residence change. Resident savings should be reclassified to NRO within 6 months of becoming NRI; reverse on return.
2. Forgetting to claim DTAA benefit. Default Indian TDS is 30% on NRO interest; DTAA can reduce to 10-15%. Submit TRC + Form 10F to your bank.
3. Holding RFC (resident foreign currency) accounts incorrectly. RFC is only for returning NRIs; non-residents should use FCNR or NRE.
4. Not filing ITR thinking TDS is enough. NRIs with India-source income above Rs 2.5L (excluding NRE/FCNR exempt income) must file ITR. Skipping invites notices.
5. Missing Form 67 before ITR. File Form 67 first, then ITR — FTC is forfeit otherwise.
6. Treating gifts to NRO as exempt. Gifts from non-relatives above Rs 50K are taxable to NRIs same as residents. See tax on gifts guide.

FAQs

Are dividends from Indian companies tax-free for NRIs?

No. Dividend income for NRIs is fully taxable in India at 20% (potentially lower via DTAA). The earlier dividend distribution tax (DDT) regime was abolished in 2020.

Can NRIs invest in PPF/NPS?

PPF: existing accounts continue till maturity but no new contributions allowed for NRIs. NPS: Tier-1 allowed for NRIs (special category accounts).

If I am in UAE (no income tax), do I still need to pay tax in India?

Only on Indian-source income. UAE salary is not taxable in India even though UAE itself does not tax it. India-UAE DTAA doesn't change this for personal salary.

How do I prove NRI status to my bank?

Submit passport copy showing entries/exits, visa, and a declaration of NRI status. Banks may also require the deemed NRI certificate.

Sources

• Income Tax Act, Section 6 — residential status definitions
• Section 9 — income deemed to accrue in India
• Section 90 / 90A — DTAA provisions
• Section 195 — TDS on payments to non-residents
• FEMA Regulations on NRE/NRO/FCNR accounts
• India's DTAA treaty texts (per country)