ITR for NRIs - Income Reporting, DTAA Provisions, and Special Deductions
One of the most important concerns for NRIs is double taxation, paying taxes twice on the same income in two countries. India addresses this through DTAAs with various countries
Introduction These days, a huge number of Indians live and work overseas. If you’re one of them, chances are you still have some financial connection with India, maybe property, investments, or bank deposits. That means you may also have tax obligations here. It's not as difficult as it seems to file an Indian Income Tax Return (ITR) as an NRI. The secret is to understand...
Introduction
These days, a huge number of Indians live and work overseas. If you’re one of them, chances are you still have some financial connection with India, maybe property, investments, or bank deposits. That means you may also have tax obligations here.
It's not as difficult as it seems to file an Indian Income Tax Return (ITR) as an NRI. The secret is to understand how India determines your residency for tax reasons and what portions of your income are subject to taxation. After that has been determined, the next steps involve filling out the appropriate form, claiming any eligible deductions, and preventing double taxes.
Are you an NRI for tax purposes?
Under the Income Tax Act, your residency is based purely on how many days you’re physically in India, not your citizenship.
You’re treated as an NRI if:
- You were in India for less than 182 days in the financial year, or
- You were abroad for work and spent less than 365 days in India in the past four years, and under 60 days in the current year.
Why this matters: if you’re an NRI, India can only tax income that’s earned or received here. Anything earned abroad and kept abroad is usually off the radar.
What kind of income gets taxed in India for NRIs?
If the money is linked to India either because it was earned here or credited to an Indian account it’s taxable. Examples include:
- Salary for work done in India
- Rent from a property here
- Interest on deposits (except NRE/FCNR accounts)
- Capital gains from selling Indian shares, mutual funds, or property
- Dividends from Indian companies
- Income from a business or profession based in India
- Income purely from overseas work, credited to an overseas account, is generally safe from Indian tax.
Filing your ITR: How to do it right
- Pick the correct form; Most NRIs use ITR-2, unless you have business income.
- Report all Indian income - Interest, rent, capital gains, dividends… everything.
- Check if you must disclose foreign assets - Applies if Indian income is ₹50 lakh+ or you’re RNOR.
- Claim allowed deductions – Sections like 80C (for certain investments) and 80D (health insurance) are still available in many cases.
- Keep your paperwork – TDS certificates, rent agreements, sale deeds, bank statements.
(Tip: TDS for NRIs can be high. Filing a return is the only way to claim a refund.)
Avoiding double taxation with DTAA
If you pay tax abroad on the same income, India’s Double Taxation Avoidance Agreements (DTAAs) can save you from paying twice.
A DTAA either:
- Lets income be taxed in only one country, or
- Lets you claim a credit in one country for tax paid in the other.
To claim benefits:
- Get a Tax Residency Certificate (TRC) from your country of residence.
- Mention foreign tax details in your ITR (Schedules FSI and TR).
- File Form 10F if required.
Example: A US-based NRI with Indian bank deposits can use the India–US DTAA to bring TDS on interest down from 30% to 15%.
Countries with strong DTAA benefits
Some of the most useful treaties are with the USA, UK, Canada, Australia, Singapore, UAE, and many European nations. Each has its own terms, so don’t assume the rates are the same everywhere.
Deductions you can still claim as an NRI
You don’t get every deduction residents do, but a few big ones remain open:
- Section 80C: Life insurance, ELSS mutual funds, home loan principal repayment
- Section 80D: Health insurance premiums
- Section 80E: Interest on education loans
Special Deductions for NRIs: Maximize Savings Legally
Indian tax law provides some attractive deductions, though NRIs might not be eligible for all those available to resident Indians.
Deductions Available to NRIs
| Section | Type of Deduction | Eligibility for NRIs |
| 80C | Investments (e.g., LIC, PPF, NSC, ELSS, principal repayment of home loan) | Yes, with restrictions (e.g., PPF only if account opened when resident) |
| 80D | Health insurance premium | Yes |
| 80E | Interest on education loan | Yes |
| 80G | Donations to qualifying charities | Yes |
| 80TTA | Interest from savings accounts | Yes |
| 24(b) | Interest on home loan (property) | Yes |
Exclusions:
- Deductions for investment in NSC, Senior Citizen Savings Scheme, and Sukanya Samriddhi Account are not available.
- Deductions under Section 80DD, 80DDB, and 80U (relating to disability and medical treatments) typically not allowed.
How to Claim Deductions
- Enter eligible deduction amounts in ITR under respective sections.
- Maintain documentary evidence like insurance receipts, investment certificates, loan statements.
- For joint property ownership, clarify proportionate shares.
Tax Rates and Surcharges Applicable to NRIs
Understanding applicable rates is crucial for accurate tax liability:
- On ordinary income: As per Indian tax slabs (after eligible deductions).
- On investment income: Special rates for capital gains (long-term, short-term), interest, and dividends.
- Sale of listed shares: 10% (LTCG over ₹1 lakh)
- Sale of unlisted property: 20%
- Short-term capital gains: 15% (for listed shares)
- Surcharge and cess: Higher-income brackets attract surcharges, plus health & education cess at 4%.
TDS (Tax Deducted at Source) For NRIs
Many income streams of NRIs are subject to TDS:
- Interest from Indian banks: 30% (may be reduced under DTAA)
- Rental income: 30% (tenant must deduct and deposit TDS)
- Capital gains: Varies by asset type
- Dividends: 20%
TDS acts as advance tax, but final liability is determined upon total income computation.
How to Avoid Mistakes
- Not updating NRI status with banks and financial institutions: As residential status changes, update your KYC to enable proper TDS deduction and compliance.
- Failure to report global assets: If qualifying as RNOR or resident, mandatory to report foreign assets in Schedule FA.
- Missing deadlines: NRI ITRs must be filed by July 31st each year; delay attracts penalties.
- Double taxation: Not claiming DTAA relief or omitting required documentation may lead to higher tax outgo.
Tax Filing Process Gather Income Details: Collect documents for all income sources and deductions.
- Select the ITR Form: Most NRIs use ITR-2; if you have business income controlled/set up in India, then ITR-3.
- Fill Scheduled Information: Include incomes, deductions, foreign tax claimed, and asset disclosures.
- Verify and Submit: File online via e-filing portal. Choose e-verification (Aadhaar OTP, bank account, etc.) or send a signed ITR-V to CPC Bangalore.
- Claim Refunds & Reliefs: If excess TDS has been deducted, claim refund via ITR (ensure correct bank account details).
Some Examples
Scenario 1: Working in UAE With Rental Income in India
Amit, an NRI in Dubai, owns an apartment in Mumbai, generating ₹40,000/month rental income. He must declare this rental income in his ITR-2, claim the standard deduction (30%) and interest on home loan (Section 24), and pay taxes on the net rental income. If the UAE does not tax personal income, DTAA provides relief from double taxation.
Scenario 2: US-Based NRI With Indian Fixed Deposits
Priya, an NRI living in California, earns ₹1 lakh interest from Indian bank FDs. Bank deducts TDS at 30%. Priya can use DTAA with the USA (TDS rate may reduce to 15%), claim credit for tax paid in India on her US return, and declare the interest in her Indian ITR-2.
Scenario 3: NRI Selling Indian Property
Samir, an NRI in Canada, sells a house in Delhi. The buyer deducts TDS at 20% (assuming LTCG). Samir should report the capital gains in his Indian tax return, claim eligible deductions (cost, improvements), and utilize DTAA with Canada for tax credit there.
Frequently Asked Questions (FAQs)
Q. Is an NRI required to file an income tax return in India?
Ans: Yes, if your taxable Indian income exceeds ₹2.5 lakh in a financial year.
Q. Can an NRI claim a refund of excess TDS?
Ans: Absolutely. If TDS deducted exceeds actual tax liability, file ITR to claim a refund.
Q. Are NRIs required to disclose foreign bank accounts?
Ans: Only resident Indians and RNORs exceeding specified income thresholds need to report foreign assets.
Q. Is income earned outside India taxable for NRIs?
Ans: No, only income earned or received in India is taxable.
Q. What is the due date for filing NRI ITR?
Ans: Generally July 31st of the assessment year.
Q. Can NRIs invest in Indian shares & mutual funds?
Ans: Yes, NRIs can invest; capital gains will be taxed as per Indian law.
Best Practices
- Regularly update residential status with banks, demat, and financial institutions.
- Use NRO accounts for Indian income; NRE accounts for foreign remittances.
- Note special TDS rates for NRIs on sale of property and investments.
- Seek expert advice for complex cases, such as split residency or dual income sources.
Managing Indian ITR as an NRI requires knowing how to report income, utilize special deductions, and benefit from Double Taxation Avoidance Agreements (DTAA).
By keeping your numbers straight, storing the appropriate paperwork, and avoiding last-minute filing, you may avoid most problems. Planning ahead makes taxes much less intimidating, no matter if your pay ends up in a London account, you're renting out a property in Mumbai, or you have money working for you in New York or Dubai.
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