NRI tax status explained: What income is taxable in India (2026 edition)

Key takeaways

• You remain an NRI if you stay in India for fewer than 182 days in a tax year. However, if you stay 60 days and have spent 365 days in India over the last 4 years, you may be treated as a resident unless your Indian income is below ₹15 lakh.
• India taxes you only on money earned or received within its borders. Your foreign salary and overseas investment income remain tax-free in India as long as you maintain your NRI or RNOR status.
• The new Income Tax Act, 2025, replaces the complex dual-year system with a single ‘Tax year’ starting April 1, 2026.
• New TCS rates lower the immediate financial burden when sending large sums abroad for education, medical care or travel. Starting April 2026, the tax collected at source for these categories drops to a flat 2%, helping you manage your cash flow more effectively.
• The FAST-DS 2026 scheme offers a six-month window to disclose forgotten foreign assets without facing criminal charges. To avoid paying tax twice, you must submit a Tax Residency Certificate (TRC) and file Form 67 before your tax deadline.

Managing your tax in India as a non-resident can feel overwhelming, especially with new updates in 2026. Rules may change based on how long you stay in the country, where your income comes from, and how it’s received. This is where NRI taxation becomes crucial, as even small details can affect what you need to report.

This matters even more today since India continues to rank as the top recipient of remittances worldwide with a large share coming from NRIs. As cross-border income grows, so does the need to follow the right tax rules.

In this guide, you’ll learn what income is taxable in India, what’s not, and how to handle your income tax return (ITR) in India for an NRI with clarity and ease. Let’s walk through each part, so you can stay informed and make sound financial decisions.

Understanding your residential status in 2026

Your residential status in India decides how NRI taxation applies to you. The Income Tax Department counts the days you physically stay in the country each year to set your tax status. Building on this, the 2025 Income Tax Bill weighs your Indian earnings along with your stay to decide your classification.

Check the rules below to see which group you fall into this year:

The 182-day rule

If you spend 182 days or more in India during a tax year, the government treats you as a resident, and your global income becomes taxable. Stay fewer than 182 days, and you remain an NRI, with only your India-sourced income subject to tax.

According to India Briefing, the 182-day rule remains the primary test for tax residency under the new Income Tax Bill 2025, unchanged from the original Income Tax Act, 1961. However, the 182-day rule isn’t the only one. There’s a second test that applies even if you don’t cross that number.

The 60-day + 365-day rule

You may also be classified as a resident if you:

• You stay in India for at least 60 days in the current tax year, and
• You spent a total of 365 days or more over the past 4 years combined.

That said, the following people are exempt from the 60-day rule:

• Indian citizens working abroad or serving as crew on Indian ships.
• NRIs and Persons of Indian Origin (PIOs) visiting India, as long as their Indian income stays below ₹15 lakh.

Tip: Count your days carefully; every day you spend in India counts toward the 182-day threshold, no matter who pays your salary or where your employer is based.

Deemed residency rules

You’re a deemed resident if you’re an Indian citizen earning more than ₹15 lakh from Indian sources and pay no tax in any other country. This rule prevents people from using tax havens (countries with no or very low personal income tax) to avoid their Indian tax obligations. 

The logic is simple: if you arrange your finances to avoid paying taxes abroad, India taxes your Indian income. Living in a zero-tax country, like the UAE or Bahrain, doesn’t shield you if your Indian earnings exceed ₹15 lakh.

Key scenarios:

Condition	Result
Indian citizen, Indian income below ₹15 lakh, no tax abroad	Remains NRI; no deemed residency
Indian citizen, Indian income above ₹15 lakh, taxable abroad	Remains NRI
Indian citizen, Indian income above ₹15 lakh, not taxable anywhere	Deemed resident in India

Under this rule, non-resident taxation applies only to Indian-sourced income, not your foreign salary or overseas earnings. Understanding this rule is essential before assuming you are fully exempt.

Resident but not ordinarily resident (RNOR)

RNOR is a middle ground between being a full resident and an NRI. If you’re an RNOR, you pay tax only on income earned in India, not on your global earnings. This status is useful for those who want to test the waters before moving back permanently.

According to ClearTax, you qualify as RNOR if you meet any of these conditions:

• You were an NRI in 9 out of the last 10 years.
• You stayed in India for fewer than 729 days over the last 7 years.
• You fall under the ‘deemed resident’ rules discussed earlier.

Tip: Track your travel days and income sources carefully. This ensures your income tax return India for NRI is accurate and compliant.

The ‘source’ rule: What income is taxable in India?

As an NRI, India doesn’t tax everything you earn. It only taxes income that originates from India; this is what’s called the ‘source’ rule. Under the income tax rules for NRIs, only income that arises in India or is received in India is subject to Indian tax laws. 

Taxable in India

NRI tax covers salary for services rendered in India, rent from Indian properties, capital gains from Indian assets, and interest from NRO bank accounts. Each of these income types has its own tax rate, its own TDS rules and its own filing requirements. 

Here’s a breakdown of each one.

Rental income from Indian property 

If you own a house or shop in India and rent it out, that income is taxable, no matter where you are when the payment clears. You can reduce your tax by claiming a 30% standard deduction for repair and maintenance costs.

Key points:

• The math: Total rent − 30% deduction = Taxable rent.
• Property tax: You can also deduct the local municipal tax you paid.
• The limit: If your total Indian income is below ₹2.5 lakh (old regime) or ₹4 lakh (new regime), you can file an ITR and claim back the TDS your tenant already deducted.

For example, if you live in the US and get ₹50,000 a month from your Delhi flat, you must report this on your return.

Salary for services rendered in India (even if paid abroad) 

If you work for an Indian firm while visiting, the salary earned for services rendered in the country is taxable, no matter where it’s paid. For instance, if your company transfers your salary to a UK bank account but you spend three months working from Mumbai, that portion is taxable in India.

For example, Vikram works for a Singapore firm and earns ₹30 lakh a year. He spent 4 months working from India. The taxable portion is:

₹30 lakh × (4/12) = ₹10 lakh taxable in India

The remaining ₹20 lakh, earned while working outside India, isn’t taxable in India. TDS on salary follows the applicable slab rates under the Income Tax Act, 1961. Your employer must deduct it at source for services rendered in India. If they don’t, you are responsible when filing your return.

Capital gains from Indian stocks, mutual funds and real estate

Capital gains from Indian assets are fully taxable for NRIs. This covers:

• Indian stocks: When you sell shares listed on Indian exchanges, you pay tax on the profits. Short-term gains (sold within 12 months) are taxed at 20% (flat rate) when STT is paid, while long-term gains (held over 12 months) above ₹1 lakh are taxed at 12.5% without indexation.
• Mutual funds: Equity mutual funds follow the same rules as stocks. Short-term gains (sold within 12 months) are taxed at 15%. Long-term gains (held over 12 months) above ₹1 lakh are taxed at 10% without indexation. Dividends are added to income and taxed at your slab rate.
• Real estate: Selling property in India triggers capital gains tax. If you hold the property for over 2 years, long-term gains are taxed at 12.5% without indexation, or 20% with indexation for older properties, whichever is more beneficial. Short-term gains (sold within 2 years) are taxed at your slab rate.

Tip: Keep detailed records of purchase dates, sale dates, and holding periods. Accurate tracking ensures you calculate taxable gains correctly and follow income tax rules for NRI without errors.

Interest on Non-Resident Ordinary (NRO) accounts 

Most NRIs use an NRO account to hold India-sourced income, like rent, dividends, pensions or any rupee earnings from India. Unlike NRE accounts, all interest earned on NRO accounts is fully taxable in India.

Banks automatically deduct TDS at 30% on NRO interest from the first rupee. Adding the 4% cess brings the effective rate to 31.2%.

For example, Srishti moved to the US in July 2025. Her NRO fixed deposit earned ₹70,000 in interest during FY 2025–26. Her bank deducted ₹21,000 as TDS (30%). Since her total Indian income is below ₹2.5 lakh, she owes no further tax, but she must file an ITR to claim a refund of ₹21,000.

• TDS on NRO income and how to reduce it

Standard TDS rates on NRO income:

Income type	Standard TDS rate
NRO account interest	30% + 4% cess = 31.2%
Capital gains from Indian assets	Varies by asset: 10–15% for equity, 20% for property, or the DTAA rate.
Rental income	30% + 4% cess = 31.2%

These rates can feel high, especially if your real tax liability is lower. Fortunately, you can reduce TDS in two ways:

• Option 1 — Apply for a Lower Withholding Certificate (Form 13)

Before TDS is deducted, apply to the Income Tax Department for a Lower or Nil Deduction Certificate using Form 13. If approved, your bank, tenant or buyer will deduct TDS at the lower rate. This works best if your actual tax liability is below the default 30%.

• Option 2 — Use your DTAA benefit

If your country has a Double Taxation Avoidance Agreement (DTAA) with India, you may pay a reduced TDS rate. For example, under the India–UAE DTAA, TDS on interest can drop to 12.5%. To claim this, submit a Tax Residency Certificate (TRC) from your country along with Form 10F.

Not taxable 

Not all income linked to India is taxed under the income tax rules for NRI. Certain types of earnings stay fully exempt, even if you hold them in India. According to ClearTax, interest on NRE and FCNR accounts, for instance, doesn’t attract tax. Knowing what falls outside India’s tax net is just as important as knowing what falls inside it. 

Here’s what you don’t owe tax on:

Interest on NRE and FCNR accounts 

NRE and FCNR accounts let NRIs earn interest without paying tax in India. Banks credit this interest tax-free under Section 10(4)(ii) for NRE accounts and Section 10(15)(iv)(fa) for FCNR accounts. No TDS is deducted from this income.

Take a look at how both accounts work under non-resident taxation rules:

Feature	NRE account	FCNR account
Currency	Indian Rupees (INR)	Foreign currency (USD, GBP, EUR, etc.)
Interest taxable in India?	No	No
TDS deducted?	No	No
Freely repatriable?	Yes, no limit	Yes, no limit
Exchange rate risk	Yes (INR can fluctuate)	No (held in foreign currency)

Both accounts allow full repatriation with no yearly limit. You can transfer the full balance abroad at any time through standard bank procedures. In contrast, NRO accounts cap repatriation at USD 1 million per year, which makes NRE and FCNR accounts more suitable for holding foreign income if you want to move abroad.

While the interest is tax-free, you should still report it in ITR-2 under ‘Exempt income’ when you file your return. It won’t be taxed, but it must be declared.

Foreign income for ‘Notified scheme’ professionals 

Union Budget 2026 introduces a new 5-year foreign income exemption for NRI professionals who come to India to work under government-notified schemes. If you qualify, only your Indian-sourced income gets taxed in India. Your foreign salary, bonuses and equity income earned outside India stay exempt for up to five years.

Who qualifies:

• You must have been a non-resident for five consecutive years immediately before your first visit to India under the scheme.
• You must be deployed under a CBDT-notified scheme, expected to cover high-skill transfer, R&D, and capacity-building programmes.

This benefit isn’t automatic. The CBDT must first publish which schemes qualify. The exemption takes effect from Assessment Year 2027–28, pending Parliament’s passage of the Finance Bill 2026.

Major changes in the budget 2026: Every NRI must know

India’s Union Budget 2026–2027 brought real, practical changes to NRI tax that directly affect how you file, sell property, and how much cash you hold back when sending money abroad. It introduced reforms to ease NRI taxation, improve compliance and streamline remittances to help you stay aligned with the rules and avoid errors. 

Here’s what you need to know.

Unified tax year

Starting April 1, 2026, India replaced its old Income Tax Act of 1961 with the new Income Tax Act of 2025. The new law introduces a single concept called the ‘Tax year,’ which replaces the old dual system of Financial Year (FY) and Assessment Year (AY).

What changes:

Before	Now
Income earned in one year, filed in the next year	Income and filing align in one tax year
Two terms: Financial year + Assessment year	One clear tax year
Higher chance of filing errors	Simpler, clearer process

For example, if you earn income in 2026, you report and file it within the same tax cycle, instead of waiting for the next year.

Property sales simplified

From October 1, 2026, resident buyers who purchase property from an NRI no longer need to obtain a Tax Deduction and Collection Account Number (TAN). They can now deduct TDS using their existing PAN.

To see why this matters, here’s how the old process worked:

Before 1 October 2026:

• Buyer agrees to purchase the NRI’s property
• Buyer applies for a TAN for this single transaction
• TAN approval takes 2–4 weeks
• Both parties wait, which delays the sale
• Buyer files quarterly TDS returns using the TAN

From 1 October 2026:

The buyer deducts TDS using their PAN and deposits it directly. They then report the deduction by quoting the NRI seller’s PAN in the challan-cum-statement filed with the tax department. The process now works like a standard resident-to-resident property sale.

This change simplifies the process but doesn’t change the tax itself. TDS rates on NRI property sales remain the same. The update focuses on ease of compliance under NRI tax rules, not on reducing or increasing tax liability.

TCS reductions

Tax Collected at Source (TCS) isn’t an extra tax. Banks or service providers collect it upfront when you send money abroad, and you can claim it back when you file your return. However, this upfront deduction can strain cash flow, especially for large payments like tuition or medical bills. Budget 2026 addresses this issue directly.

​​Before vs after:

Remittance purpose	Old TCS rate	New TCS rate (from April 1, 2026)
Education (LRS)	5% (above ₹10 lakh)	2% (above ₹10 lakh)
Medical treatment (LRS)	5% (above ₹10 lakh)	2% (above ₹10 lakh)
Overseas tour packages	5% (up to ₹10 lakh) / 20% (above ₹10 lakh)	Flat 2%, no threshold
Foreign investments (LRS)	20% (above ₹10 lakh)	No change

The FAST-DS 2026 amnesty scheme 

The FAST-DS 2026 scheme gives NRIs a one-time chance to disclose foreign assets without facing prosecution. As per the Government of India (PIB), this 6-month window targets small taxpayers, including students, young professionals and returning NRIs. You can declare past omissions, pay the required tax or fee, and close the issue cleanly.

Why it matters for your NRI taxation plan

• You get a 6-month window to disclose missed foreign assets like ESOPs or old bank accounts.
• You avoid prosecution by paying the applicable tax or flat fee.
• You reduce the risk of heavy penalties later.
• You align your records before stricter global data checks (CRS) take effect.

How the scheme applies:

Category	What it covers	What you pay
Category A	Undisclosed foreign income/assets up to ₹1 crore	30% tax + 30% penalty
Category B	Assets up to ₹5 crore, where tax was paid but not disclosed	₹1 lakh flat fee

For example, if you forgot to report an old overseas account with ₹40 lakh, you can disclose it under Category A, pay the required tax and penalty, and avoid legal action.

SME impact:

Small business owners often hold shares, accounts or ESOPs abroad. FAST-DS allows them to clean up past filings without long legal disputes. This helps you bring your cross-border holdings in line with Indian rules and move funds with confidence.

How to file your income tax return in India: Choosing between ITR-2 and ITR-3

Your NRI tax status 2026 decides how you file your return, but your income type determines which form you must use. According to Dinesh Aarjav & Associates, most NRIs will use ITR-2 if they have passive income like rent or stocks. However, if you run a freelance service or a firm in India, ITR-3 is your go-to form.

Here’s the simple split:

ITR-2 form

ITR-2 works for most NRIs. If you earn a salary, rent from property or gains from shares or real estate, this is your form. It also applies if you hold foreign assets or earn income abroad. The due date for FY 2025–26 is July 31, 2026.

How to file ITR-2:

1. Log in to the income tax portal and check your AIS to match your bank data.
2. Ensure your Indian bank account is pre-validated to receive your tax refund.
3. Select the ITR-2 form for the current 2026 tax year.
4. Enter your details for salary, house rent and any stock gains.
5. List your foreign assets in the FA schedule if you are an RNOR.
6. Submit the form and use Net Banking to verify it within 30 days.

ITR-3 form

ITR-3 applies if you run a business in India or earn from freelance or consulting work done for Indian clients. It covers all the income types ITR-2 handles, such as salary, rent, capital gains, plus business and professional income. Unlike ITR-2, it also requires you to report profit and loss details and maintain basic books of accounts.

Key points:

• Due date for FY 2025–26: August 31, 2026 (non-audit); October 31, 2026 (audit cases).
• If you choose the old tax regime, submit Form 10-IEA before the filing deadline.
• If your business uses presumptive taxation (Section 44AD/44ADA), file ITR-4 instead.

How to file ITR-3:

1. Log in to the tax portal and check your AIS to match your business bank data.
2. Choose the ITR-3 form for the current 2026 tax year to report your firm’s income.
3. Record all your professional gains and costs in the profit and loss section.
4. Add any other income, like rent or stock gains, to the correct schedules.
5. Fill in your balance sheet details if your business size requires those records.
6. Send the form and use Net Banking to e-verify it within 30 days.

Avoiding double taxation: DTAA vs. Foreign tax credits

Paying tax twice on the same income can cut deep into your returns. This is where tax relief tools step in. Under the NRI tax status 2026, India allows you to avoid double tax through DTAAs or foreign tax credits, based on where you earn and where you pay tax. India has tax treaties with over 90 countries. These deals can lower your tax rate or give you credit for tax paid abroad.

How to use the Tax Residency Certificate (TRC) to avoid paying twice

To claim DTAA benefits, you need proof of where you pay tax. This is where the Tax Residency Certificate (TRC) comes in. It confirms that you’re a tax resident of another country and helps you avoid double tax in India.

Here’s how to use it step by step:

1. Get your TRC from your country of residence

Each country has its own process and timeline, so apply early:

Country	Issuing authority	Form	Typical processing time
USA	IRS	Form 6166	45–60 days
UK	HMRC	Form RES1	20–30 days
UAE	Federal Tax Authority	FTA Certificate	5–10 days
Singapore	IRAS	TRC letter	15–20 days
Canada	CRA	TRC letter	30–45 days

2. Submit mandatory Form 10F to your Indian payer

Submit Form 10F to your Indian payer along with your TRC before making your first payment. Include Form 10F if your TRC misses any details, like TIN, taxpayer status, nationality or residency period. File both documents together each year. Renew your TRC annually, as it is valid for only one financial year, to maintain DTAA benefits.

3. Check if your country has a DTAA with India

India maintains active DTAAs with over 90 countries. Check the full list here. After confirming your country is covered, verify the rate for your specific income type. Note that rates differ by treaty and income category.

4. Choose your relief method

Two methods apply under most DTAAs:

• Exemption method: India doesn’t tax that income at all. Common when your country of residence has the sole right to tax that income type under the treaty.
• Tax credit method: India taxes the income, but credits the tax you already paid abroad.
  
  

5. File Form 67 before your ITR deadline

If you claim a foreign tax credit, you must file Form 67 before your ITR due date. This is now strictly enforced in 2026. Miss this, and you may lose the credit.

Final Thoughts

NRI taxation in 2026 is no longer just about filing on time. It’s about knowing your status, tracking where your income comes from, and using the right rules to avoid extra tax. Small details, like your stay days or account type, can change your outcome in a big way.

This is where having a clear system helps. When you move funds across borders, online payment services like Instarem keep the process simple, with clear FX rates, fast transactions, and full tracking. The goal is simple: keep more of what you earn and stay aligned with the tax rules.

If you want to manage your money with less stress, sign up with Instarem today.

Frequently asked questions (FAQs)

Do I need to file an ITR if my Indian income is below ₹2.5 lakh? 

Not always. If your total income stays below ₹2.5 lakh (old regime) or ₹4 lakh (new regime), you may not need to file.

However, file your ITR if:

• TDS was deducted, and you want a refund
• You have capital gains, even if small
• You need proof of income for loans or visas

Can I keep my NRE account if I return to India permanently?

No. Once you become a resident, you must convert it. You can move funds to a resident account or an RFC account to keep foreign currency.

Is my foreign salary taxable if it’s credited to an Indian NRE account? 

No, if you earn that salary outside India. Tax depends on where you earn the income, not where you receive it.

• Work done outside India → not taxable in India
• Work done in India → taxable in India

Even if your salary is deposited into an NRE account, it remains tax-free if the work was done abroad.

What is the penalty for not disclosing foreign assets in 2026?

The penalty can be up to ₹10 lakh for each year you fail to report foreign assets. The FAST-DS 2026 scheme gives a short window to fix this. You can declare the asset, pay the set tax or fee, and avoid legal action.

What happens to my NRI tax status if I work remotely for a foreign company while staying in India?

Your stay in India sets your tax status. Stay 182 days or more, and you may become a resident. If you stay for less than that, you remain an NRI, though other rules may apply. Income earned in India counts, even if paid by a foreign firm. If Indian income exceeds ₹15 lakh and you pay no tax abroad, the deemed residency rules apply.