What are the Income Tax Rules for NRI?

Don't assume that having TDS deducted means your tax liability is automatically settled.

For example, if you have Indian rent, bank interest, capital gains or other taxable Indian income, you may need to calculate your overall Indian tax liability and file the appropriate return.

For AY 2026-27, the Income Tax Department identifies ITR-2 as applicable to an individual/HUF, including a non-resident, who does not have income under the head "Profits and Gains of Business or Profession." ITR-3 applies where business or professional income is involved.

Also, DTAA does not simply mean that an NRI pays no Indian tax. A tax treaty can affect where income is taxable and how relief from double taxation is provided, but the result depends on the type of income, treaty provisions and your circumstances.

If you are actually a non-resident for Indian tax purposes, Indian-source income can still be taxable.

For example, rental income from property situated in India is generally within the Indian tax net. Similarly, interest earned on an NRO account is generally taxable in India.

The Income Tax Department's explanation of non-resident taxation states that income accruing or arising in India, income received in India, and income deemed to accrue or arise or be received in India can be taxable for a non-resident. Income that accrues outside India generally isn't taxable in India merely because you are an Indian citizen or have an Indian bank account.

There are also specific rules for NRE interest. The Income Tax Department's current NRI FAQ says the exemption for qualifying NRE-account interest has been retained under the Income Tax Act, 2025, subject to the applicable FEMA/RBI conditions.

The first thing to determine is your residential status under Indian income-tax law for the relevant tax year. Simply living abroad or holding an overseas visa does not by itself determine your Indian tax status.

For FY 2025-26, the Income Tax Department's guidance says an individual generally becomes resident if they satisfy the applicable day-count tests under Section 6 of the Income-tax Act, 1961. There are special rules for Indian citizens/PIOs visiting India, including the 120-day rule in certain cases where Indian income exceeds ₹15 lakh. There is also a deemed-resident provision for certain Indian citizens with income above ₹15 lakh who are not liable to tax in another country.

So I'd calculate your days in India first rather than deciding your status based only on where your permanent home or job is.

I think the safest way to approach NRI taxation is to separate three questions:

1. What is my residential status?

2. What income has an Indian tax connection?

3. Which return form applies to me?

The first one is important because someone can be living abroad but still become a resident in India under the applicable statutory tests. For tax years beginning on or after April 1, 2026, residential status is determined under the Income Tax Act, 2025. For earlier tax years, the Income Tax Department says the Income Tax Act, 1961 continues to govern residential status.

For the second question, I would make a list of Indian income separately: Indian bank interest, rent, dividends, Indian investment gains, etc. Then check the tax treatment of each item.

And for the return, an NRI with salary, house property, capital gains, or other non-business income will generally be looking at ITR-2, while an NRI with business or professional income may need ITR-3.

I wouldn't rely only on the amount of TDS deducted by a bank. Compare the TDS information in AIS and Form 26AS with your bank statements and investment records.

If there is foreign income, foreign assets, dual residency, or a treaty issue, that's where I'd get individual professional advice rather than copying someone else's return.

I'm an NRI living in Dubai, and my situation is a little different because I don't have salary income outside India that's subject to personal income tax in the UAE.

For me, the biggest confusion was the difference between NRE and NRO accounts.

My NRE fixed-deposit interest was treated differently from my NRO interest. The Income Tax Department currently confirms that the interest exemption earned on an eligible NRE account has been retained under the Income Tax Act, 2025, subject to the applicable FEMA/RBI conditions.

My NRO interest, on the other hand, was taxable in India, and the bank deducted TDS.

I also have an apartment in Pune, so rental income had to be considered. I initially thought that because my tenant paid into my NRO account and TDS was already deducted, there was nothing else to do. That's not how I handled it in the end—I included the relevant income while preparing the return and reconciled the TDS.

Another thing: don't assume you can file ITR-1 just because your income is relatively simple. The Income Tax Department specifically says ITR-1 cannot be filed by an NRI. For AY 2026-27, ITR-2 is available to resident and non-resident individuals who don't have business/professional income, while ITR-3 applies where business/professional income is involved.