Every NRI tax question eventually reduces to the same thing. Not citizenship, not where the employer sits, not which currency you are paid in. Residential status under the Income-tax Act, determined by how many days you were physically present in India — and it is re-determined every single financial year.
Three statuses, not two
- Resident and Ordinarily Resident — India taxes your worldwide income.
- Resident but Not Ordinarily Resident (RNOR) — a transitional status. India taxes Indian income and, broadly, foreign income only where it is derived from a business controlled in or a profession set up in India.
- Non-Resident — India taxes only income that accrues, arises or is received in India.
What India taxes for a non-resident
The test is source, not receipt. If the income arises in India, it is taxable here even if it is paid into a foreign account.
- Salary for services rendered in India, wherever it is paid.
- Rent from Indian property — with TDS obligations on the tenant that are frequently ignored.
- Capital gains on Indian shares, mutual funds and property.
- Interest on NRO accounts. Interest on NRE and FCNR accounts is generally exempt while you are a non-resident.
- Business income from a business connection in India.
Where the treaty comes in
If the same income is taxable in India and in your country of residence, the Double Taxation Avoidance Agreement between the two decides who taxes it and at what rate, and gives credit for tax paid in the other. It routinely reduces withholding on interest, dividends and royalties below the domestic Indian rate.
Treaty benefit is not automatic. You have to claim it, and to claim it you need a Tax Residency Certificate from your country of residence, Form 10F, and in many cases a declaration that you have no permanent establishment in India. Without those, the payer withholds at the higher domestic rate and you are left recovering it through a refund.
The property sale trap
When a non-resident sells Indian property, the buyer is required to deduct TDS at the rate applicable to non-residents — computed on the entire sale consideration, not on the gain. On a property that has appreciated modestly, the tax withheld can far exceed the actual liability, and the difference comes back only as a refund after filing.
The fix is to apply for a lower or nil deduction certificate before the transaction closes. After the money has been deducted and deposited, the only route left is a refund claim, and that takes a filing cycle.
Filing, and when you must
A non-resident with Indian income above the basic exemption limit is required to file. Beyond that, filing is worth doing voluntarily where TDS has been deducted at source and exceeds your actual liability — which, given the rates applied to non-residents, is more often than not. Repatriating funds out of India will separately need Form 15CA and, above a threshold, Form 15CB from a Chartered Accountant.