Are you living abroad and wondering how to manage your Indian tax responsibilities without overpaying? You’re not the only one. Many NRIs are often caught off guard by how India taxes income based on residential status, asset location, and account type.
If you're searching for legal ways to save tax, the foundation starts with knowing your residential status and expands to leveraging deductions, exemptions, and correct filing strategies. Let’s break it all down, step-by-step.
Understanding your residential status is the first step in evaluating your tax liability in India. The Income Tax Act, under Section 6(1), provides a clear method to determine whether you qualify as a Resident or Non-Resident for tax purposes.
A. Basic Conditions under Section 6(1):
You are considered a resident if:
B. Exceptions for Indian Citizens and PIOs:
For Indian Citizens or Persons of Indian Origin (PIOs) who return to India:
C. Special Case - Deemed Resident:
If you earn more than ₹15 lakh (excluding foreign income) and are not taxed in any other country, you will be treated as a Resident but Not Ordinarily Resident (RNOR).
ii) Impact on Global Income Taxation:
Residential Status
Scope of Taxable Income in India
Resident & Ordinarily Resident (ROR)
Global income (India + foreign income) is fully taxable
Resident but Not Ordinarily Resident
Indian income + foreign income from Indian-controlled businesses
Non-Resident (NRI)
Only income earned or received in India is taxable
Start by classifying your status correctly to avoid overreporting or underpaying taxes.
The type of bank account you maintain in India can significantly affect both your tax liability and how easily you can transfer funds abroad.
Taxation Overview:
Repatriation Rules:
Choosing the correct account type helps NRIs maintain compliance, reduce tax burden, and access funds without unnecessary delays or procedural hurdles.
Strategic use of deductions under Chapter VI-A can lower your tax liability considerably.
Section 80C (Up to ₹1.5 lakh):
Instrument
NRI Eligible
Lock-in
Tax Benefit
ELSS
Yes
3 years
80C deduction + 10% tax on gains above ₹1L
Life Insurance Premiums
Yes
Varies
For self, spouse, children
Home Loan Principal
Yes
N/A
Allowed under 80C
PPF
Only if opened before becoming NRI
15 years
Interest tax-free, no new accounts allowed
Other Deductions:
Self + Family: ₹20,000
Parents (Senior Citizen): ₹45,000
Total Deduction = ₹65,000
·
a. 80TTA: Up to ₹10,000 on savings account interest for NRIs.
b. 80TTB: Up to ₹50,000 for resident senior citizens (NRIs not eligible).
a. Allowed to self-employed or salaried people without HRA
b. Must not own house at place of residence/employment
Applying the right mix of deductions can bring your net taxable income to a much lower range.
NRIs are eligible for several property-related tax reliefs under Indian law.
Section
Benefit
Limit
NRI Eligible
24(b)
Home Loan Interest
₹2,00,000/year
Yes
80EE
First Home Buyer (older rule)
₹50,000
Yes
80EEA
First Home Buyer (newer rule)
₹1,50,000
Yes
54
Reinvestment in another house
Up to LTCG
Yes
54F
Asset sale to buy a house
Proportional
Yes
54EC
Capital gain bonds (5-year lock)
₹50 lakh
Yes
Details on Section 24(b):
Using these benefits wisely can reduce both immediate and long-term tax liability on real estate investments.
Choosing between the two tax regimes affects how much you pay and what deductions you can claim.
Old Regime Tax Slabs:
Allowed Deductions:
New Regime (No Deductions):
Income Range (₹)
Tax Rate
0 – 3 lakh
Nil
3 – 7 lakh
5%
7 – 10 lakh
10%
10 – 12 lakh
15%
12 – 15 lakh
20%
Above 15 lakh
30%
Deductions/exemptions are not allowed, except:
When to Choose Which?
Scenario
Recommended Regime
Deductions < ₹2.5L
New
Home loan + 80C + 80D + NPS > ₹3.5L
Old
Only salary, no investments
New
Senior citizens using 80TTB
Old
Regime selection can make or break your refund. Run the numbers before committing.
When income is taxed both in India and a foreign country, DTAA agreements can prevent double taxation.
Options Available:
Requirements:
Important: FTC is available only to Residents (not NRIs or RNORs).
Following these steps ensures you're not unfairly taxed twice.
Advance tax payments are mandatory if your tax liability exceeds ₹10,000.
Due Date
Minimum % of Tax Payable
15 June
15%
15 September
45% (cumulative)
15 December
75% (cumulative)
15 March
100%
Penalties for Non-Compliance:
If there is any unpaid or underpaid advance tax then penalties and interest provisions are applicable under sections 234A, 234B and 234C
– 1% per month (simple interest)
– On unpaid tax from 1st April till date of actual payment
Installment Due
Tax Paid <
Interest
15 June
12% of tax
1% p.m. for 3 months
15 September
36%
1% p.m. for 3 months
15 December
75%
1% p.m. for 3 months
15 March
100%
1% for 1 month
Sticking to deadlines prevents unnecessary loss of funds.
Use the correct Income Tax Return form to avoid processing delays or penalties.
ITR Form
Who Should Use It
Exclusions
ITR-2
NRIs/Residents with salary, house property, capital gains, etc.
No business or professional income
ITR-3
Those with professional/business income
None
ITR-4
Presumptive income (Indian residents only)
Not for NRIs or foreign asset holders
Selecting the right form speeds up refunds and reduces queries.
Here's a comprehensive Hypothetical Scenario that demonstrates NRI tax computation including salary, NRO interest, and short-term capital gains, along with step-by-step calculation and comparison between old and new regimes.
1. NRI Profile: Income Sources
Income Type Amount (INR)
Foreign Salary (exempt) ₹0 (Not taxable in India if NRI)
NRO Fixed Deposit Interest ₹3,00,000
STCG (Short-Term Capital Gains on Shares – Sec 111A) ₹2,00,000
Other Indian Income (e.g. rent) ₹0
Total Indian Income = ₹5,00,000
2. Step Wise Calculation: Gross Income to Taxable Income
Gross Total Income:
NRO Interest = ₹3,00,000
STCG (Sec 111A) = ₹2,00,000
Gross Income = ₹5,00,000
Deductions (under Old Regime only):
Deduction Section Description Amount
80C ELSS / PPF ₹1,50,000
80D Health Insurance ₹25,000
80TTA NRO Savings Interest ₹10,000
Total Deductions = ₹1,85,000
Taxable Income:
1. Old Regime: ₹5,00,000 – ₹1,85,000 = ₹3,15,000
2. New Regime: No deductions → Taxable = ₹5,00,000
3.1. Tax Computation – Old vs. New Regime (Till 22nd Jul 2024)
Old Tax Regime:
STCG under Sec 111A = ₹2,00,000 × 15% = ₹30,000
Remaining ₹1,15,000 (₹3.15L – ₹2L STCG) is below basic exemption limit for NRI (₹2.5L), so no tax
Total Tax (Old Regime) = ₹30,000 + cess @4% = ₹31,200
New Tax Regime:
STCG (Sec 111A) = ₹2,00,000 × 15% = ₹30,000
Other income = ₹3,00,000 → Tax @5% on ₹50,000 (above ₹2.5L) = ₹2,500
Total = ₹32,500 + cess = ₹33,800
Tax Saved by Choosing Old Regime:
₹33,800 – ₹31,200 = ₹2,600
3.2. Tax Computation – Old vs. New Regime (After 22nd Jul 2024)
Old Tax Regime:
STCG under Sec 111A = ₹2,00,000 × 20% = ₹40,000
Remaining ₹1,15,000 (₹3.15L – ₹2L STCG) is below basic exemption limit for NRI (₹2.5L), so no tax
Total Tax (Old Regime) = ₹40,000 + cess @4% = ₹41,600
New Tax Regime:
STCG (Sec 111A) = ₹2,00,000 × 20% = ₹40,000
Other income = ₹3,00,000 → Tax @5% on ₹50,000 (above ₹2.5L) = ₹2,500
Total = ₹42,500 + cess = ₹44,200
Tax Saved by Choosing Old Regime:
₹44,200 – ₹41,600 = ₹2,600
4. TDS Adjustment & Refund Claim Process
TDS Deducted:
NRO FD Interest: ₹3,00,000 × 31.2% = ₹93,600
STCG: N/A
Total TDS = ₹93,600
TAX PAYABLE:
Tax liability (Old Regime) = ₹41,600
TDS Paid = ₹93,600
Refund Due = ₹93,600 – ₹41,600 = ₹52,000
5. Refund Claim Process
File ITR-2 (suitable for NRIs with capital gains + interest) and,
Verify return and claim refund → Credited to linked Indian bank account
Once you've mapped your deductions, chosen your regime, and filed correctly, don't stop there. Track your Form 26AS and make sure your TDS credits align. NRIs often lose