NRI Taxation in India: Your Complete Guide to Income, Capital Gains, and DTAA

When Your Life Moves Abroad but Your Finances Stay in India

When Priya and Kunal moved overseas, they continued to track their Indian savings and investments every month. One evening, while reviewing their portfolio, Kunal asked, “Do we still pay tax in India even though we no longer live there?”

If that question sounds familiar, you’re not alone. Many Non-Resident Indians (NRIs) maintain investments or property in India after relocating. The tax rules can look complicated, but with the right understanding, managing them becomes much easier.

This guide explains how India taxes NRIs, how you can avoid being taxed twice, and the steps that help you stay compliant while keeping your finances efficient.

Understanding NRI Tax Status

Your tax liability depends on your residential status under Indian tax law.

You’re generally considered an NRI if you do not meet any of the following:

• Staying in India for 182 days or more in a financial year, or

• Staying in India for 60 days or more in that year and 365 days or more during the preceding four years.

Special exceptions apply to Indian citizens and persons of Indian origin. This is for those visiting India or leaving for work. For them, the 182-day threshold usually applies.

As an NRI, you’re taxed only on income that arises, accrues, or is received in India. Income earned entirely outside India is not taxable here. However, if you become a resident again, your global income becomes taxable in India.

Knowing your status each year ensures correct filing and informed financial decisions.

Income That Is Taxed in India for NRIs

India taxes income that has its source within India. Common examples include:

• Salary for work performed in India

• Rent or sale proceeds from property located in India

• Dividends, interest, and capital gains from Indian shares or mutual funds

• Royalties or fees for services rendered in India

Income earned and received entirely outside India remains outside India’s tax scope for NRIs.

Dividend and Capital Gains Tax

Dividends received from Indian companies or mutual funds are subject to withholding (TDS) before they reach you, generally at 20%, though certain tax treaties can cap this rate at a lower level.

To claim a lower treaty rate, you must provide a Tax Residency Certificate (TRC), Form 10F, and proof that you are the beneficial owner of the income, ideally before the payment is made.

Capital Gains

Tax on capital gains depends on how long you have held the investment and what kind of asset it is.

• For listed shares or equity-oriented mutual funds (with STT paid):

  • Short-term capital gains (STCG): If held for 12 months or less, taxed at 20% under Section 111A for transfers on or after 23 July 2024 (previously 15%).

  • Long-term capital gains (LTCG): If held for more than 12 months, taxed at 12.5% on gains exceeding ₹1.25 lakh per year under Section 112A (was 10% above ₹1 lakh before 23 July 2024).

• For unlisted shares, debt mutual funds, and property:

  • The holding period and rates differ. Long-term gains on property generally attract 20% with indexation, while short-term gains are taxed at normal slab rates.

Always confirm the specific rule before selling an asset since the nature and duration of the investment directly affect your tax.

Understanding the Double Taxation Avoidance Agreement (DTAA)

The DTAA prevents you from being taxed twice on the same income in two countries. It defines which country has the right to tax certain income and how you can claim relief.

Under a DTAA, there are two main ways to avoid double taxation:

• Exemption method: The income is taxed in only one country, and the other exempts it.

• Credit method: The income is taxed in both countries, but your country of residence gives credit for the tax already paid in India.

Each treaty is different. Some limit India’s right to tax dividends or interest by capping withholding rates, while others focus on the credit mechanism.

To claim DTAA benefits, you need to submit your TRC, Form 10F, and a declaration of beneficial ownership before payment. Without these, the Indian payer must deduct tax at higher default rates, and getting refunds later is tedious.

Smart Tax Moves Every NRI Should Know

• Use NRE or NRO accounts for all Indian transactions to stay compliant and simplify repatriation.

• Plan your investment holding periods, as timing a sale can reduce your tax bill.

• Keep key documents ready, such as PAN, TRC, and Form 10F, before any dividend or redemption.

• Consult professionals familiar with both jurisdictions to understand your complete tax picture.

• Review annually, since residency status and tax laws can change.

Why a Personalized Approach Matters

NRI taxation is rarely one-size-fits-all. Your residency pattern, investments, and goals create a unique mix that deserves a tailored plan.

A professional review helps align your Indian and overseas finances, minimize tax leakage, and bring clarity to your cross-border cash flow. The right plan fits your story, making compliance easier and growth smoother.

Bring Clarity to Your Cross-Border Finances

Your life may span countries, but your money should move with clarity and purpose. Book a consultation today with Basil Financials. We'll help you understand your NRI tax position, simplify your paperwork, and develop a tailored plan for long-term success.