- Your residential status — based mainly on days spent in India — decides what is taxable in India.
- Non-residents are generally taxed in India only on income earned or received in India.
- TDS applies to many payments to NRIs, including on property sales; a return may be needed to claim refunds.
Residential status comes first
Indian income tax depends on your residential status for the tax year, which is determined primarily by the number of days you are physically present in India — during the year and in preceding years. There are special rules for Indian citizens and persons of Indian origin who visit India, and for Indian citizens who are not liable to tax in any other country.
Status under the Income-tax law is different from status under FEMA (which governs bank accounts and investments). Both matter, and they can differ.
What income is taxable
A non-resident is generally taxable in India only on income that is received in India or accrues or arises in India — for example rent from Indian property, interest on NRO deposits, capital gains on Indian assets and income from a business connection in India. Salary earned for work performed abroad is generally not taxable in India for a non-resident.
Bank accounts: NRE, NRO and FCNR
| Account | Purpose | Tax treatment of interest (general) |
|---|---|---|
| NRE | Foreign earnings remitted to India; freely repatriable | Exempt for eligible non-residents |
| NRO | Income earned in India (rent, dividends, pension) | Taxable; TDS applies |
| FCNR (B) | Fixed deposits held in foreign currency | Exempt for eligible non-residents |
Selling property in India
When an NRI sells property in India, the buyer must deduct tax at source from the sale consideration. Because TDS is applied to the sale value rather than the gain, it often exceeds the actual tax liability. NRIs can apply in advance for a lower or nil deduction certificate, and can file a return to claim a refund of excess tax. Repatriation of sale proceeds is subject to FEMA limits and documentation.
Tax treaties and double taxation
India has Double Taxation Avoidance Agreements (DTAAs) with many countries, including the UAE. A treaty may reduce the Indian tax rate on certain income or provide relief for tax paid in the other country. Claiming treaty benefits typically requires a Tax Residency Certificate and prescribed declarations.
Do you need to file a return?
An NRI must file an Indian return if total Indian taxable income exceeds the basic exemption limit, and should file to claim refunds of excess TDS, to carry forward losses, or where capital gains arise. Filing also creates a clear record for future transactions.
