How NRI Income will be Determined: Key Takeaways from Income Tax Draft Rules

The Draft Income-tax Rules, 2026 propose 3 alternatives for determining taxableincome of non-residents in situations where the actual amount of income arising from India.

Rule 9, dealing with determination of income in case of non-residents, empowers the Assessing Officer (AO) to compute income on a reasonable or proportionate basis where precise figures are not available.

Under the draft rule, the trigger for estimation arises where the AO forms an opinion that the actual amount of income accruing or arising to a non-resident person whether directly or indirectly cannot be definitely ascertained.

This applies where income flows through or from any asset or source of income in India, any property located in India, or any business connection in India. Thus, it covers most India-linked income channels relevant to non-resident taxation.

In such cases, the income tax draft rules allow three alternative computation approaches.

First, the AO may determine income at a reasonable percentage of the turnover that accrues or arises in India.

Second, income may be computed on a proportional profit basis that is, by applying the ratio of Indian receipts to total global receipts against the total profits and gains of the non-resident’s business, computed under the Act.

Third, the rule also provides a residuary power enabling the AO to compute income in any other manner considered suitable, depending on the facts and evidentiary position of the case.

Also Read:CBDT releases Draft of Income Tax Rule, 2026: Complete Details Inside

Verbatim of Rule 9

“Determination of income in case of non-residents.

In any case in which the Assessing Officer is of opinion that the actual amount of the income accruing or arising to any non-resident person whether directly or indirectly, through or from -

• (a) any asset or source of income in India;
• (b) any property in India;
• (c) any business connection in India, or

cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be calculated: -

(i) at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable;

(ii) on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of the business; or

(iii) in such other manner as the Assessing Officer may deem suitable.”

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