Income Tax for NRI in India – Calculation, How to Save Taxes?

Introduction: Why NRI Taxation in India Needs Special Attention

Income tax for NRI in India is governed by the Income-tax Act, 1961, which follows a fundamentally different approach compared to resident taxation. NRIs are taxed only on income that is earned, accrued, or received in India, while foreign income generally remains outside the Indian tax net. However, recent regulatory changes have made NRI taxation more compliance-heavy and less forgiving of errors.

Even small mistakes such as choosing the wrong tax regime, ignoring excess TDS, or misclassifying residential status can lead to higher tax outgo or delayed refunds. This makes proactive tax planning essential for NRIs.

Key Change Drivers Impacting NRI Taxation

New Tax Regime as Default
The new tax regime now applies automatically, offering lower slab rates but removing most deductions. NRIs must actively compare regimes to optimise how to save tax as NRI.

Stricter TDS and Reporting
Income such as rent, NRO interest, and property sales attracts high TDS. Filing an income tax return is often the only way to recover excess tax.

Enhanced Global Income Tracking
Increased cross-border data sharing has improved monitoring of foreign income and assets, making accurate disclosure and compliance essential for NRIs.

Who This Guide Is For

• NRIs earning income in India, including rent, capital gains, salary, or interest
• Returning NRIs (RNORs) transitioning back to India and reassessing tax exposure
• Overseas Indians with Indian investments seeking compliant and tax-efficient planning

This guide helps decode income tax for NRI in a clear, practical manner focusing on compliance, tax efficiency, and long-term financial clarity.

Who is an NRI Under the Income-tax Act, 1961? (Residential Status Explained)

Understanding residential status is the starting point for determining income tax for NRI in India. Under the Income-tax Act, 1961, tax liability is not based on citizenship, but on the number of days an individual stays in India during a financial year. This classification directly decides whether only Indian income is taxed or global income becomes taxable.

Residential Status Rules for NRIs (FY 2025–26)

Residential status is determined using physical presence tests, applied every financial year (1 April to 31 March).

Residential Status Criteria Table

Condition	Residential Status
Stayed in India for 182 days or more	Resident
Stayed in India for less than 182 days	Non-Resident Indian (NRI)
Stayed 60 days in current year + 365 days in last 4 years	Resident (with specific exceptions)

For Indian citizens leaving India for employment or as crew members, the 60-day rule is relaxed, making the 182-day rule the primary test.

Explanation of Residential Categories

Resident

An individual is classified as a Resident if they meet either of the stay conditions.

• Tax implication: Global income (Indian + foreign) becomes taxable in India
• Applies to individuals who substantially reside in India during the year

Non-Resident Indian (NRI)

An individual is considered an NRI if they do not meet resident conditions.

• Tax implication: Only income earned, accrued, or received in India is taxable
• Foreign salary, overseas business income, and offshore investments are not taxed in India
• This status forms the base for most NRI tax planning and how to save tax as NRI

Resident Not Ordinarily Resident (RNOR)

RNOR is a transitional status, typically applicable to returning NRIs.

• Granted when an individual becomes resident after long-term overseas stay
• Tax implication:
  • Indian income is taxable
  • Foreign income is taxable only if derived from an Indian business or profession
• RNOR status provides temporary tax relief on global income, making it highly valuable for return planning

What Income is Taxable for NRIs in India?

Understanding what income is taxable for NRIs is central to calculating income tax for NRI in India and planning how to save tax as NRI. The Income-tax Act, 1961 follows a source-based taxation principle for non-residents, which clearly limits the tax scope.

Income Tax Scope for NRIs

Key Rule:
NRIs are taxed only on income that is earned in India, accrued in India, or is received in India during a financial year.

This means:

• Income connected to Indian assets, employment, or business is taxable
• Income earned and received outside India generally remains outside Indian tax liability

This rule applies regardless of the currency in which income is paid or the bank account into which it is credited.

Fully Taxable Income for NRIs

The following income categories are fully taxable in India for NRIs and must be reported while filing returns:

• Salary for services rendered in India
  Salary is taxable if the work is performed in India, even if payment is credited to a foreign bank account.
• Rental income from Indian property
  Rent from residential or commercial property located in India is taxable after allowing standard deductions.
• Capital gains from Indian assets
  Gains from sale of Indian real estate, shares, mutual funds, or other capital assets are taxable based on holding period.
• Interest from NRO accounts
  Interest earned on NRO savings or fixed deposits is taxable and subject to high TDS.
• Income from business controlled or set up in India
  Profits from businesses operated or managed in India are taxable, even if the NRI resides abroad.

Income Not Taxable in India for NRIs

Certain income remains fully exempt from Indian taxation, making it a key component of how to save tax as NRI:

• Foreign salary for services rendered outside India
  Income earned from overseas employment and received abroad is not taxable in India.
• Overseas business income
  Profits from businesses operated and controlled outside India are not taxed, provided there is no Indian nexus.
• Tax-free interest income, including:
  • NRE accounts – Interest is exempt as long as NRI status is maintained
  • FCNR deposits – Interest earned in foreign currency deposits remains tax-free in India

Income Tax Slabs for NRIs – Old vs New Regime [FY 2025–26]

For FY 2025–26, NRIs can choose between the old tax regime (with deductions) and the new tax regime (lower rates but fewer benefits). The new regime is the default option, making conscious selection essential for those planning how to save tax as NRI.

Old Tax Regime – NRI Slabs

The old tax regime allows NRIs to claim deductions such as Section 80C, 80D, home loan interest, and capital gains exemptions.

Old Regime Income Tax Slabs for NRIs

Income (₹)	Tax Rate
Up to 2.5 lakh	Nil
2.5 – 5 lakh	5%
5 – 10 lakh	20%
Above 10 lakh	30%

Best suited for: NRIs with significant deductions from investments, insurance premiums, home loans, or pension contributions.

New Tax Regime (Default) – NRI Slabs

The new regime offers lower slab rates but removes most exemptions and deductions. It applies automatically unless the taxpayer opts out.

New Regime Income Tax Slabs for NRIs

Income (₹)	Tax Rate
Up to 4 lakh	Nil
4 – 8 lakh	5%
8 – 12 lakh	10%
12 – 16 lakh	15%
16 – 20 lakh	20%
20 – 24 lakh	25%
Above 24 lakh	30%

Best suited for: NRIs with minimal deductions or those earning income primarily subject to flat TDS such as interest or dividends.

Key Differences for NRIs: Old vs New Regime

• No rebate under Section 87A for NRIs
  Even if total income is below exemption limits, NRIs cannot claim tax rebate under either regime.
• Maximum surcharge capped at 25% in the new regime
  This benefits high-income NRIs by limiting surcharge exposure compared to the old regime.
• Deductions allowed only in the old regime
  Popular tax-saving options like:
  • Section 80C (ELSS, insurance, NPS)
  • Section 80D (health insurance)
  • Home loan interest are not available under the new regime.

Old Tax Regime vs New Tax Regime for NRIs (Can NRIs Select Either?)

Choosing between the old and new tax regime directly impacts income tax for NRI in India. Although the new tax regime is the default, NRIs are allowed to opt for the regime that results in a lower tax liability, subject to eligibility rules.

Old Tax Regime for NRIs

• Higher slab rates but allows deductions and exemptions
• Key benefits include:
  • Section 80C (ELSS, insurance, home loan principal)
  • Section 80CCD(1B) – additional ₹50,000 via NPS
  • Section 80D (health insurance)
  • Home loan interest under Section 24
• Capital gains exemptions remain available
  Best suited for: NRIs with investments, insurance, or home loans

New Tax Regime for NRIs (Default)

• Lower slab rates with minimal tax planning options
• No major deductions (80C, 80CCD, 80D not allowed)
• Capital gains exemptions still allowed
• Maximum surcharge capped at 25%
  Best suited for: NRIs with few deductions or flat-TDS income

Can NRIs Choose Between Regimes?

• NRIs without business income: Can switch between regimes every year
• NRIs with business income: Can opt for the old regime only once; switching to new is irreversible unless business income stops

How to Calculate Income Tax for NRIs in India (Step-by-Step)

Calculating income tax for NRI in India follows a structured process defined under the Income-tax Act, 1961. Since NRIs are taxed only on Indian-source income, correct computation helps avoid overpayment and supports effective planning on how to save tax as NRI, especially when high TDS is already deducted.

NRI Tax Calculation Formula (Step-by-Step)

Follow these steps sequentially to compute your final tax liability:

1. Add all Indian-source income
   Include salary for services rendered in India, rental income from Indian property, capital gains from Indian assets, interest from NRO accounts, and business income linked to India.
2. Reduce eligible exemptions
   Apply exemptions such as standard deduction on rental income or capital gains exemptions where applicable.
3. Claim deductions (only if old tax regime is chosen)
   Deductions commonly claimed by NRIs include:
   • Section 80C (ELSS, insurance, home loan principal)
   • Section 80D (health insurance)
   • Section 80E (education loan interest)
4. Apply applicable income tax slab rates
   Calculate tax based on old or new regime slabs selected for the year.
5. Add surcharge (if applicable)
   Surcharge applies when total income exceeds prescribed thresholds, with a capped rate under the new regime.
6. Add 4% Health & Education Cess
   This is mandatory and calculated on the total tax plus surcharge.
7. Adjust TDS / TCS already deducted
   Subtract TCS collected / TDS deducted on rent, NRO interest, or property sale to arrive at:
   • Final tax payable, or
   • Refund due

Sample NRI Tax Calculation (Worked Example)

Scenario:
An NRI earns rental income and NRO interest during FY 2025–26 and opts for the old tax regime.

Income Details

• Rental income from Indian property: ₹6,00,000
• NRO fixed deposit interest: ₹1,00,000
• Gross Indian income: ₹7,00,000

Deductions Claimed

• Section 80C investments: ₹1,00,000
• Section 80D health insurance: ₹25,000
• Total deductions: ₹1,25,000

Taxable Income

• ₹7,00,000 – ₹1,25,000 = ₹5,75,000

Tax Calculation (Old Regime)

• Tax up to ₹2.5 lakh: Nil
• ₹2.5 – ₹5 lakh @ 5% = ₹12,500
• Remaining ₹75,000 @ 20% = ₹15,000
• Total tax: ₹27,500
• Health & Education Cess @ 4% = ₹1,100
• Total tax liability: ₹28,600

TDS Already Deducted

• TDS on rent and NRO interest: ₹45,000

Final Outcome

• Refund due: ₹16,400

TDS Rules for NRIs (Most Common Compliance Issue)

Tax Deducted at Source (TDS) is one of the biggest pain points in income tax for NRI in India. Unlike resident Indians, NRIs are subject to higher, flat TDS rates on most Indian income, regardless of their actual tax slab. Understanding TDS rules is essential for accurate tax calculation and for learning how to save tax as NRI through refunds and proper filing.

TDS Rates Applicable to NRIs

For NRIs, TDS is deducted by the payer before income is credited, and rates are significantly higher than those applicable to residents.

TDS Rates for Common NRI Income Types

Income Type	TDS Rate
Rent from Indian property	30%
Interest from NRO account	30%
Dividend income	20%
Property sale (Long-Term Capital Gains)	12.5%
Property sale (Short-Term Capital Gains)	Up to 30%

Key points NRIs must note:

• TDS is deducted on the gross amount, not on net taxable income
• Surcharge and cess may apply over and above base TDS rates
• TDS applies even if total income is below the basic exemption limit

Why NRIs Often Face Excess TDS

NRIs frequently end up paying more tax upfront than their actual liability, leading to blocked funds until a refund is claimed.

Main Reasons for Excess TDS on NRI Income

• TDS is applied on gross income
  For example, rent TDS is deducted before allowing standard deductions or home loan interest.
• No slab benefit at the deduction stage
  Banks, tenants, and buyers deduct tax at fixed rates without considering income slabs, deductions, or exemptions.
• Refund can be claimed only through ITR filing
  Filing an Income Tax Return is mandatory to:
  • Adjust actual tax liability
  • Claim excess TDS as a refund
  • Maintain compliance under Indian tax laws

Capital Gains Tax for NRIs in India

Capital gains form a major component of income tax for NRI in India, especially for those holding real estate, shares, or mutual funds. The tax rate depends on the type of asset and the holding period, making correct classification essential for how to save tax as NRI.

Capital Gains on Property

• Long-Term Capital Gains (LTCG)
  Applies if property is held for more than 24 months
  Tax rate: 12.5% (plus cess and applicable surcharge)
• Short-Term Capital Gains (STCG)
  Applies if property is held for 24 months or less
  Tax rate: Taxed as per applicable income tax slab

Capital Gains on Shares & Mutual Funds

• Listed Equity
  • Long term Capital gains up to ₹1.25 lakh in a financial year are exempt under new regime while gains up to ₹1 lakh are exempt under old regime
  • Long term Capital gains above ₹1.25 lakh (in case of new regime) / ₹1 lakh (in case of old regime) are taxed at 12.5%
  • Short term capital gains in a financial year are taxed at 20%
• Debt mutual funds
  • Short-term gains taxed as per slab rates
• Unlisted shares
  • Taxed based on holding period
  • Long-term gains taxed at 12.5%
  • Short-term gains taxed as per slab rates

Capital Gains Exemptions for NRIs

NRIs can reduce or eliminate capital gains tax by reinvesting gains under specific sections of the Income Tax Act.

Section	Investment Option	Maximum Limit
54	Purchase or construction of residential property	Up to ₹10 crore
54EC	Investment in notified government bonds	₹50 lakh
54F	Purchase of residential house from sale of other assets	Proportional subject to upper cap of ₹10 crore

How to Save Tax as NRI – Best Tax Saving Options (2026)

Effective planning is essential to reduce income tax for NRI in India, particularly because NRIs face higher TDS and are not eligible for certain rebates. Tax-saving options differ significantly under the old tax regime and the new tax regime, making regime selection critical in 2026.

Tax Saving Options Under the Old Tax Regime (NRIs)

The old tax regime allows NRIs to reduce taxable income through multiple deductions and exemptions.

Section 80C – Tax Saving Investments (Up to ₹1.5 Lakh)

NRIs can claim deductions for the following:

• ELSS Mutual Funds
  Equity-oriented funds with a 3-year lock-in, offering tax deduction and long-term capital appreciation.
• Life Insurance Premiums
  Premiums paid for self, spouse, or children qualify within prescribed limits.
• Unit Linked Insurance Plans (ULIPs)
  Combine investment growth and insurance coverage with tax-deductible premiums.
• Home Loan Principal Repayment
  Principal repaid on housing loans for property in India is deductible.
• National Pension System (NPS – Section 80CCD)
  Contributions qualify within the overall Section 80C ceiling.

Additional ₹50,000 Deduction – Section 80CCD(1B)

• Exclusive deduction for NPS contributions
• Available over and above the ₹1.5 lakh Section 80C limit
• Enables total deductions up to ₹2 lakh in a financial year

This is one of the most effective tools for NRIs to save tax under the old regime.

Other Key Deductions for NRIs (Old Regime Only)

Section	Benefit
80D	Health insurance premiums for self and family
80E	Interest paid on education loan
80G	Eligible charitable donations
80TTA	Savings account interest up to ₹10,000
Section 24	Home loan interest deduction up to ₹2 lakh

Tax Saving Options Under the New Tax Regime (NRIs)

The new tax regime focuses on lower slab rates and simplified compliance.

• No deductions available under Sections 80C, 80CCD(1B), 80D, or Section 24
• Capital gains exemptions under Sections 54, 54EC, and 54F continue to apply
• Tax savings arise mainly from lower slab rates, not investment-linked deductions

Best suited for:
NRIs with minimal deductions or income largely subject to flat TDS.

NRI Investment Options in India & Tax Treatment

Investment Category	Includes	Tax Treatment in India	Key Tax Insight
Tax-Free Bank Deposits	NRE FDs, FCNR FDs, GIFT City FDs	Interest fully tax-free	Fully repatriable; lowest risk
Taxable Bank Deposits	NRO FDs, NRO savings	Interest taxable at 30% TDS	Refund claim possible via ITR
Equity Investments	Direct shares, equity mutual funds, ELSS	LTCG 12.5% (above ₹1.25 lakh), STCG 20%	ELSS deduction only under old regime
Debt & Hybrid Funds	Debt MFs, balanced funds	Short term Capital gains as per applicable slab rates	No indexation for recent investments
Retirement & Pension Products	NPS	Taxable on withdrawal	Deductions only under old regime
Insurance-Linked Investments	Life insurance, ULIPs	Maturity generally tax-free (conditions apply)	Premium–sum assured rules apply
Real Assets	Residential & commercial property	Rental income & capital gains taxable	High TDS on rent and sale
Gold-Based Investments	Sovereign Gold Bonds, Gold ETFs	Interest taxable; gains vary	SGB redemption gains exempt
Market-Linked Managed Products	PMS, AIF Category I & II	Pass-through; taxable in investor’s hands	Wealth creation, not tax saving
Aggressive Alternative Funds	AIF Category III	Taxed at fund level (maximum rate)	Least tax-efficient option

• Tax-Free Bank Deposits for NRIs
  This category includes NRE Fixed Deposits, FCNR Fixed Deposits, and GIFT City Fixed Deposits. Interest earned on these deposits is fully exempt from Indian income tax as long as the NRI status is maintained. These instruments are fully repatriable, carry minimal risk, and are commonly used for capital protection and predictable returns.
• Taxable Bank Deposits Through NRO Accounts
  NRO Fixed Deposits and NRO savings accounts fall under this category. Interest income earned is taxable in India at 30% TDS, along with applicable surcharge and cess. However, NRIs may claim a refund by filing an Indian Income Tax Return if their actual tax liability is lower, including cases where DTAA relief is available.
• Equity Investments in Indian Markets
  Equity investments include direct listed shares, equity mutual funds, and ELSS funds. Long-term capital gains are taxed at 12.5% on gains exceeding ₹1.25 lakh, while short-term capital gains are taxed at 20%. ELSS funds continue to offer tax deductions only under the old tax regime, making them relevant primarily for long-term tax planning rather than liquidity.
• Debt and Hybrid Mutual Funds
  This category covers debt mutual funds, balanced funds, and hybrid schemes. Capital gains are taxed based on the holding period, with short-term gains taxed according to the investor’s applicable slab rate. Following recent tax amendments, indexation benefits are no longer available for new investments, significantly reducing the post-tax returns for NRIs.
• Retirement and Pension-Oriented Investments
  The National Pension System (NPS) is the primary product in this segment. While NPS offers structured retirement savings, withdrawals are taxable as per prevailing rules. Tax deductions for contributions are available only under the old tax regime, limiting its usefulness for NRIs who have minimal Indian taxable income.
• Insurance-Linked Investment Products
  This includes life insurance policies and ULIPs. Maturity proceeds are generally exempt from tax, provided specific conditions are met. These conditions mainly relate to premium limits in relation to the sum assured, and violations can result in the maturity amount becoming taxable.
• Real Asset Investments in India
  Real assets include residential and commercial properties. Rental income earned from property in India is fully taxable, and capital gains are taxed based on holding period. NRIs face higher TDS obligations on rent received and on sale of property, which often necessitates filing a return to claim refunds.
• Gold-Based Investment Options
  This segment includes Sovereign Gold Bonds (SGBs) and Gold ETFs. Interest earned on SGBs is taxable, while capital gains treatment depends on the mode of exit. A key advantage is that capital gains on redemption of SGBs at maturity are exempt from tax, making them relatively efficient for long-term gold exposure.
• Market-Linked Managed Investment Products
  Products such as Portfolio Management Services (PMS) and AIF Category I and II funds fall under this category. These investments follow a pass-through taxation structure, meaning income is taxed in the investor’s hands. They are primarily designed for wealth creation and professional management, rather than tax efficiency.
• Aggressive Alternative Investment Funds
  AIF Category III funds employ complex and high-turnover strategies. These funds are taxed at the fund level at the maximum marginal rate, regardless of the investor’s personal tax slab. From a taxation perspective, this makes them the least efficient option for NRIs, despite their potential for higher returns.

Investments NOT Allowed for NRIs

While planning income tax for NRI in India, it is equally important to know which tax-saving instruments are not permitted for NRIs. Investing in restricted schemes can lead to regulatory non-compliance and loss of expected tax benefits.

NRIs cannot make fresh investments in the following instruments:

• Public Provident Fund (PPF – new accounts)
  NRIs are not allowed to open new PPF accounts. Existing accounts opened while resident can continue only till maturity.
• National Savings Certificate (NSC)
  This government-backed tax-saving instrument is available exclusively to resident Indians.
• Senior Citizen Savings Scheme (SCSS)
  Restricted to resident senior citizens; NRIs are not eligible even if age criteria are met.
• Sukanya Samriddhi Yojana
  This scheme for the girl child is not permitted once the parent or guardian attains NRI status.
• Post Office 5-Year Deposit Scheme
  Not available to NRIs for fresh investments.

NRE vs NRO vs FCNR – Tax Impact Comparison

Choosing the right bank account is crucial for optimising income tax for NRI in India, as interest taxability and repatriation rules differ significantly.

Account-wise Taxation Comparison

Account Type	Interest Tax in India	Repatriation
NRE Account	Tax-free	Fully repatriable
NRO Account	Taxable	Limited, subject to conditions
FCNR Account	Tax-free	Fully repatriable

Key Takeaways for NRIs

• NRE and FCNR accounts are ideal for parking foreign income due to tax-free interest.
• NRO accounts should be used for Indian-source income, despite taxable interest.
• Proper account structuring plays a major role in long-term tax efficiency for NRIs.

DTAA – How NRIs Avoid Double Taxation

Double taxation is a common concern in income tax for NRI in India, especially for NRIs earning income in both India and their country of residence. To prevent the same income from being taxed twice, India has entered into Double Taxation Avoidance Agreements (DTAA) with more than 90 countries, making DTAA a critical tool for how to save tax as NRI.

What is DTAA?

DTAA is a bilateral tax treaty between India and another country that:

• Allocates taxing rights between the two countries
• Prevents double taxation of the same income
• Provides clarity on tax rates for income such as salary, interest, dividends, and capital gains

For NRIs, DTAA ensures that Indian income is either taxed in one country or credit is given for tax paid in the other.

Methods of Relief Under DTAA

NRIs can claim DTAA relief using one of the following methods, depending on the treaty provisions:

• Exemption Method
  Income is taxed in only one country and fully exempt in the other.
• Tax Credit Method
  Income is taxed in both countries, but tax paid in India is allowed as a credit against foreign tax liability.

Key requirement: A valid Tax Residency Certificate (TRC) from the country of residence is mandatory to claim DTAA benefits.

DTAA for US, UK, UAE, and Canada NRIs

• US & UK NRIs
  Indian income is taxable in India, but tax paid can be claimed as a foreign tax credit in the US or UK.
• UAE NRIs
  Since UAE has no personal income tax, Indian income is generally taxed only in India, reducing overall tax burden.
• Canada NRIs
  Indian tax paid can be adjusted against Canadian tax liability through foreign tax credit mechanisms.

UAE Tax Residents Investing in Indian Mutual Funds (DTAA Clarification)

• A UAE tax resident investing in Indian mutual funds may claim benefits under the India–UAE DTAA, particularly Article 13(4) (capital gains), subject to conditions.
• To avail DTAA benefits, the investor must furnish a valid Tax Residency Certificate (TRC) issued by the UAE tax authorities for the relevant financial year.
• Where applicable, this can result in relief from or reduction in Indian capital gains tax, depending on the nature of the mutual fund (equity vs non-equity) and the specific DTAA interpretation adopted by Indian tax authorities.

ITR Filing Rules for NRIs (FY 2025–26)

Filing an Income Tax Return (ITR) is a key compliance requirement under income tax for NRI in India. Even though NRIs are taxed only on Indian-source income, filing becomes mandatory in several situations especially when TDS is deducted at higher rates.

When Filing an ITR is Mandatory for NRIs

NRIs must file an ITR in India if any of the following conditions apply:

• Total Indian income exceeds the basic exemption limit
  This applies irrespective of the tax regime chosen.
• Claiming a refund of excess TDS
  High TDS on rent, NRO interest, or property sale can be recovered only by filing an ITR.
• Capital gains earned in India
  Sale of property, shares, or mutual funds requires return filing, even if tax is fully deducted.

ITR Forms Applicable for NRIs

Choosing the correct ITR form is essential for accurate reporting and compliance.

ITR Form	Applicable Use Case
ITR-2	Salary income, house property, capital gains
ITR-3	Business or professional income
ITR-5 / ITR-6	Firms, LLPs, and companies

Important: NRIs cannot file ITR-1 or ITR-4.

Due Date for NRI ITR Filing

• 31 July 2026 for FY 2025–26
• Extensions may be announced, but timely filing avoids late fees and interest.

Special Cases & Advanced NRI Tax Implications

Certain scenarios require additional attention while managing income tax for NRI in India.

Returning NRIs & RNOR Benefits

• Returning NRIs may qualify for Resident Not Ordinarily Resident (RNOR) status
• RNORs enjoy temporary relief where foreign income remains largely non-taxable

Advance Tax Applicability

• Advance tax is mandatory if total tax liability exceeds the prescribed threshold
• Non-payment can attract interest and penalties

FEMA & Reporting Compliance

• Correct classification of NRE/NRO accounts
• Disclosure of foreign assets where applicable
• Compliance is essential to avoid regulatory issues

FATCA & FBAR for US NRIs

• US-based NRIs must report Indian bank accounts and financial assets
• Non-compliance can lead to severe penalties under US regulations

Common Mistakes NRIs Make in Tax Planning

Errors in planning income tax for NRI in India often lead to excess tax payments, compliance issues, and missed refunds. Avoiding the following common mistakes is essential for anyone looking to understand how to save tax as NRI in 2026.

Most Frequent NRI Tax Planning Mistakes

• Not updating residential status
  Tax liability depends on days stayed in India, not citizenship. Incorrect status can unintentionally make global income taxable.
• Using the wrong bank accounts
  Continuing resident savings accounts or misusing NRE/NRO accounts can trigger tax and FEMA non-compliance.
• Ignoring DTAA benefits
  Failure to claim tax relief under Double Taxation Avoidance Agreements often results in paying tax twice on the same income.
• Skipping ITR filing
  Many NRIs assume TDS deduction ends their tax responsibility. In reality, filing ITR is necessary to remain compliant and claim refunds.
• Overlooking tax refunds
  High TDS on rent, interest, and property sales often exceeds actual tax liability, leaving refundable money unclaimed.

Smart NRI Tax Planning Can Save Lakhs in 2026

Strategic planning plays a decisive role in reducing income tax for NRI in India, especially amid higher scrutiny and changing regimes.

Key Takeaways for NRIs

• Choose the right tax regime every year
  Comparing old vs new regimes helps optimise deductions and slab benefits.
• Plan investments for long-term tax efficiency
  ELSS, NPS, insurance, and tax-efficient bank accounts improve post-tax returns.
• Track compliance proactively
  Timely ITR filing, correct account structuring, and DTAA usage prevent penalties and cash flow blockages.
• Seek professional guidance when needed
  NRI taxation involves cross-border rules, making expert advice valuable for accurate compliance and optimal savings.

With the right strategy, NRIs can legally reduce tax liability, avoid common pitfalls, and save substantial amounts in 2026. Smart planning is the most effective way to manage income tax for NRI in India while building long-term financial security.