For Non-Resident Indians (NRIs) living overseas but maintaining financial connections in India, understanding taxation can often be confusing. One of the first things to determine is your residential status, as it plays a crucial role in defining your tax liabilities in India.

Income that arises or is earned within India is taxable, regardless of your NRI status. However, earnings generated outside India are not taxable here, unless you qualify as a resident according to the Income Tax Act.

When it comes to filing your income tax return, you’ll need to carefully assess your Indian bank accounts, investments, and any other income sources. Keep in mind, the due date to file for Assessment Year and it can arrive sooner than expected.

If you own property or other assets in India, income like rental earnings or capital gains from a sale are subject to tax. Fortunately, Double Taxation Avoidance Agreements (DTAAs) can help reduce the burden if you reside in a country that has a tax treaty with India.

So, while tax filing for NRIs may not be effortless, staying informed and filing is the best way to avoid penalties—and rest easy knowing the taxman won’t come knocking.

This guide aims to simplify how NRIs can handle their individual tax returns.

Determining Residential Status Under Section 6 of the Income Tax Act

Your residential status for a financial year is determined based on specific criteria laid out in Section 6 of the Income Tax Act.

You will be classified as a Resident in India for any given previous year if either of the following conditions are met:

1. You are physically present in India for 182 days or more during that financial year, or

2. You have stayed in India for 60 days or more in that financial year and for 365 days or more in the four preceding years.

If neither condition is satisfied, you will be treated as a Non-Resident for that year.

However, there are exceptions for certain individuals. If you are an Indian citizen or a Person of Indian Origin (PIO) visiting India during the year, the 60-day period in the second condition is replaced with 182 days or 120 days, based on your total income.

A similar relaxation applies if you are an Indian citizen leaving India for employment abroad or as a crew member on an Indian ship. In these cases, the 182-day threshold applies instead of the 60 days.

NRIs and Filing Income Tax Returns in India

Many NRIs find themselves asking, “Is it necessary for us to file a tax return in India?” The answer is — yes, if your total income in India crosses the basic exemption limit defined under the Income Tax Act, 1961, you are required to file an income tax return.

The following sources typically contribute to an NRI’s taxable income in India:

• Salary earned for services rendered in India

• Rental income from property located in India

• Capital gains from the sale of real estate like land, flats, or buildings in India

• Interest income from Indian savings accounts, fixed deposits, or other investments

• Business income from any business activity or partnership based in India

Even when your total income in India falls below the taxable threshold, it’s often a smart move to file a return. Why? Because it allows you to claim refunds on any TDS (Tax Deducted at Source) that may have been deducted from your income.

Which ITR Form Should an NRI File?

Selecting the appropriate Income Tax Return (ITR) form is a crucial step for NRIs when filing taxes in India. The choice of form depends entirely on the type of income earned.

If you hold NRI status and do not have income from business or profession, you should file your return using ITR-2.
On the other hand, if you are an NRI and earn income through a business or professional activity in India, you are required to use ITR-3.

Important Requirements for NRI Tax Filing

• Form 16A: This certificate, issued quarterly, displays the TDS (Tax Deducted at Source) deducted on your income. It is a key document when preparing your NRI tax return.

• Necessary Documents: Be sure to collect all relevant documentation, including your PAN, Aadhaar (if applicable), bank statements, investment details, and Form 16A.

• E-Filing Portal: The standard method for NRIs to file their return is through the Income Tax Department’s online e-filing portal. Familiarity with the portal will ensure a smoother filing experience.

• Investment Monitoring: Regularly reviewing your investments in India is essential for effective tax planning. It may be worthwhile to consult a financial advisor for a comprehensive review and better management of tax liabilities.

Applicable Tax Slabs for NRIs

As per the Finance Act, changes to Section 115BAC have made the new tax regime the default starting from Financial Year. However, NRIs still retain the option to opt-out of the new regime and choose the old tax regime, if it results in lower tax liability.

The old regime allows for various deductions and exemptions, whereas the new regime features streamlined tax slabs with limited deductions. NRIs are advised to compare both regimes and select the one that best aligns with their income structure and financial goals.

Deductions / Exemptions Available to NRIs Under the Income Tax Act

NRIs are eligible to claim a range of deductions under the Income Tax Act, 1961, which help reduce their taxable income in India. Here are some of the key deductions that can be availed:

• Section 24(b): NRIs can claim a deduction on the interest paid on housing loans, including loans taken for home improvement. This applies to income earned from house property in India.

• Section 80C: Deductions are allowed for various investments and payments such as:

  • Life Insurance Premiums

  • Contributions to Provident Fund (PPF)

  • Subscription to certain equity-linked schemes

  • Tuition fees paid for children’s education

  • Investments in National Savings Certificate (NSC)

  • Principal repayment on housing loans, and more

• Section 80D: NRIs can claim deductions for health insurance premiums paid for self and family, including preventive health check-ups.

• Section 80G: Contributions made to approved charitable organizations and relief funds are eligible for deduction under this section.

• Section 80TTA: NRIs can claim a deduction of up to ₹10,000 on interest earned from savings bank accounts (not applicable to fixed deposits). This deduction is available to individuals (excluding senior citizens) and HUFs.

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