Introduction –
For a Non-Resident Indian (NRI), Indian taxation is not “global income” based. The core principle is source-based taxation: you pay tax in India mainly on income that accrues/arises in India, or is received in India. That is why common NRI income items—Indian property sale, rental income, interest from Indian bank accounts, dividends from Indian companies, and capital gains from Indian shares—need correct reporting and correct tax treatment as per the Income-tax Act.
Main Discussion –
1) When do you become NRI (residential status test)?
Residential status is decided using the “days in India” criteria. The discussion highlighted two main conditions commonly applied:
- Stay in India for less than 182 days during the relevant previous year; and
- Alternatively, stay in India for less than 60 days during the previous year and less than 365 days in total in the preceding 4 years (cumulative).
A key practical point discussed: for an Indian citizen leaving India for employment (and also in certain travel situations), the shorter-day rule can shift to a higher threshold such as 182 days, and a 120 days concept can also become relevant based on Indian income conditions.
2) Deemed residency (anti-avoidance concept)
The discussion also covered a “deemed residency” provision, introduced to address cases where an Indian citizen is not liable to tax in any other country. The language used was:
“Indian citizen with total income from Indian business and profession exceeding 15 lakh during the previous year will be deemed a resident if they are not tax liable in any other country.”
Practically, this means that if you are structured in a jurisdiction where you are not taxed (example discussed: no-tax situations), India may still treat you as resident for limited purposes and bring relevant Indian income into tax.
3) What incomes are typically taxable for an NRI in India?
As discussed, the following are generally taxable in India for NRIs when sourced from India:
- Rental income from house property situated in India
- Capital gains on transfer of Indian assets (including property and Indian shares)
- Interest income from Indian bank accounts, especially NRO interest
- Dividend from an Indian company
- Interest from Indian government bonds/securities
- Royalty / fees for technical services from India, discussed as typically attracting 10% TDS
At the same time, the discussion noted NRE account interest is not taxable in India, and FCNR account interest is also not charged in India (as per the treatment explained).
4) Property sale by NRI: higher TDS and claiming it back
A major compliance point: when an NRI sells property in India, TDS is deducted at a higher rate than what applies to resident individuals. Practically, if TDS is deducted higher than the final tax payable, the NRI must file the ITR and claim the TDS credit/refund, or apply for a lower deduction certificate before the transaction, to avoid excess deduction.
5) Capital gains on Indian shares: reporting remains structured
The discussion emphasized that Section 111A and Section 112A style computations remain aligned in approach for residents and non-residents, with reporting in the relevant schedules. Additional non-resident reporting options appear where foreign exchange adjustment is required.
Practical Impact / Expert View –
- Keep your compliance “clean”: if you are an NRI, do not report foreign salary/foreign income in Indian ITR unless required by your Indian residential status rules. For NRIs, the focus is on India-source income only.
- For ITR forms, the discussion clearly stated: NRIs generally file ITR-2 or ITR-3 (ITR-1 and ITR-4 are not eligible).
- Keep documentation ready: Passport, PAN, tax ID/Passport reference for the country of residence, AIS, Form 26AS, TDS certificates, bank statements (NRE/NRO/FCNR), and investment/property records.
- On tax regime selection, the discussion leaned towards New Regime as more attractive in many cases, but also clarified a crucial rule: rebate under Section 87A is not available to NRIs in either regime.
Conclusion – key takeaways – (bullets allowed)
- NRI taxation in India is primarily source-based: income accruing/arising in India or received in India becomes taxable.
- Residential status depends on day-count rules (182/60+365), with special situations and deemed residency concepts also relevant.
- Common taxable items: rent, capital gains, NRO interest, dividends, India-source royalty/FTS; while NRE/FCNR interest was explained as not taxable in India.
- Property sale by NRI triggers higher TDS—plan for lower deduction certificate or claim refund via ITR.
- File the correct return (ITR-2/ITR-3) and reconcile taxes using AIS and Form 26AS before submission.
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