NRI Taxation
NRI Taxation refers to the income tax treatment of Non-Resident Indians under the Income Tax Act, 1961, where only India-sourced income (capital gains on Indian securities, rental income, interest from Indian accounts) is taxable in India, often subject to higher TDS rates and DTAA benefits.
An individual qualifies as a Non-Resident Indian (NRI) for income tax purposes in a financial year if they have been in India for fewer than 182 days in that year, or fewer than 60 days in that year and fewer than 365 days in the preceding four years combined (with certain exceptions for Indian citizens living abroad or seafarers). NRIs are taxed in India only on income sourced from India, unlike resident taxpayers who are taxed on global income.
For NRI equity investors, capital gains on Indian listed securities are taxable under the same basic structure as residents: LTCG at 12.5% under Section 112A and STCG at 20% under Section 111A. However, TDS is applied at the time of sale or redemption at these rates (or higher) by the broker or fund house, making TDS a critical compliance mechanism for NRIs since they may not file annual ITRs in India unless their India income exceeds the basic exemption limit.
Interest income for NRIs from Non-Resident Ordinary (NRO) accounts is taxed at a flat 30% TDS (plus surcharge and cess), while NRE account interest is fully exempt from Indian tax. Dividends attract 20% TDS for NRIs, subject to DTAA reduction. The Double Taxation Avoidance Agreements India has with 90+ countries often provide reduced TDS rates on various income types, and NRIs must obtain a Tax Residency Certificate (TRC) from their country of residence to claim DTAA benefits.
Budget 2023 introduced the concept of Specified Funds (such as IFSC GIFT City funds) with differentiated NRI tax treatment to attract foreign capital into India's International Financial Services Centre. NRI investments through GIFT City structures may have different withholding and capital gains tax implications compared to direct investments in Indian domestic markets.
A common challenge for NRIs is the repatriation of funds from India after tax. For NRO account funds (which include India-sourced rental and capital gains income), repatriation is permitted up to USD 1 million per financial year after applicable taxes have been paid, subject to CA certification. Failure to comply with FEMA repatriation procedures, even when taxes have been paid, can create regulatory issues separate from income tax obligations.