When Rohan, a Dubai-based non-resident Indian (NRI), sold his Bengaluru apartment last year, he expected the usual indexation benefit to soften his tax outgo. Instead, he was hit with a higher-than-expected liability.
The July 2024 amendment had quietly scrapped indexation for NRIs, making long-term capital gains far costlier than for resident sellers.
Rohan’s surprise is shared by many expatriates who are discovering that India’s fast-changing tax rules can sharply alter returns.
India remains one of the world’s fastest-growing economies, offering NRIs attractive opportunities across real estate, equities and start-ups. But before investing, it is vital to understand the evolving tax framework.
NRI taxation is layered, and overlooking key rules can mean paying far more than expected.
Residential status
Residential status is the most important factor determining how an NRI is taxed under Indian law. It is based on the number of days spent in India.
Anyone who stays in India for more than 182 days in a financial year, or for more than 60 days in the current year along with 365 days in the previous four years, qualifies as a resident. For those leaving India for employment, the 60-day requirement is replaced with 182 days. Anyone who does not satisfy these conditions is treated as a non-resident.
In addition, the deemed residency rule states that a person can be classified as Resident but Not Ordinarily Resident (RNOR) if India-sourced income exceeds ₹15 lakh.
The principle is simple: Income earned or received in India is taxable in India.
Income earned and received outside India is not taxed unless the person qualifies as a resident.
Salary income
A frequent query is how salary is taxed. The deciding factor is where the work is performed. If all services are carried out outside India, salary is generally not taxable in India, even if paid by an Indian company. However, if an NRI works in India for a few months, the salary attributable to that period is taxable in India.
The DTAA edge
Double taxation avoidance agreements (DTAA) provide relief to NRIs by reducing tax rates and enabling them to claim foreign tax credits for taxes already paid in India. Many countries have signed DTAAs with India, and availing of these benefits helps avoid paying tax twice.
Tracking the number of days spent in India remains critical, since it not only affects residential status but also DTAA eligibility.
House property
House property is another major source of income for NRIs. Rental income from Indian property is fully taxable, though deductions are allowed. These include a standard deduction of 30 per cent, municipal taxes actually paid, and interest on a housing loan.
When property, shares, securities or other assets are sold, the resulting gains are taxed as capital gains. This is among the most complex areas of NRI taxation, as the rates vary by asset class and holding period.
The removal of indexation benefits for NRIs in July 2024 has significantly raised liabilities for those selling long-held assets, whereas resident Indians who purchased property before the amendment can still use indexation.
Capital gains
For equity shares and equity-oriented mutual funds, gains depend on the holding period. If held for less than one year, short-term capital gains (STCG) are taxed at 20 per cent.
If held for more than 12 months, long-term capital gains (LTCG) are taxed at 12.5 per cent, with only gains above ₹1.25 lakh taxable. For house property or unlisted shares, different rules apply.
If held for more than 24 months, LTCG is taxed at 12.5 per cent without indexation. If held for less than 24 months, gains are treated as STCG and taxed at normal slab rates.
Other sources of income
Interest and dividends are taxed differently. Interest on an NRE account is fully exempt, while interest on an NRO account is fully taxable. Dividends and other income streams are taxed at slab rates applicable to NRIs.
Compliance tips
Being proactive about compliance is essential. NRIs should carefully track their stay in India as even a brief extension can change residential status and tax obligations. Filing income tax returns is advisable, not only to report income but also to adjust for the typically high TDS deducted on NRI income such as rent or interest.
Filing enables refunds of excess tax withheld. Returning NRIs should also be mindful of the requirement to disclose global income and assets under the Black Money Act.
Bottomline
With shifting rules around residency and capital gains, NRIs can no longer rely on outdated knowledge or assumptions. A proactive approach, supported by expert guidance, ensures compliance while optimising available tax benefits. Staying informed, filing returns on time, and planning ahead are the best ways for NRIs to protect wealth and make the most of India’s opportunities.
The author is head — taxation at Equirus Family Office