NRI Taxation in India — What's Actually Taxable, At What Rate
India taxes NRIs only on India-sourced income — but the TDS rates are higher than what residents pay, and getting the DTAA paperwork wrong means overpaying for a year until you claim it back. Here's exactly what applies.
The Core Rule
India taxes NRIs only on income earned, accrued, or received in India — not worldwide income. That narrower tax base comes with a trade-off: no threshold exemption on TDS, and TDS rates that are meaningfully higher than what a resident pays on the same transaction.
Rates by Income Type — Current Numbers
| Income type | TDS rate | Actual tax rate (via ITR) |
|---|---|---|
| Rental income | 31.2% (30% + surcharge + cess) | Slab rate — TDS usually exceeds actual liability |
| NRO account interest | 30% | Slab rate, reducible via DTAA |
| Dividends | 20% | Reducible via DTAA (e.g., 10% under India-UAE) |
| Equity LTCG (12+ month holding) | 10% | 12.5% above Rs 1.25L exemption (Section 112A) |
| Equity STCG | 15% | 20% |
| Property LTCG (24+ months) | 12.5-20% on full sale value | 12.5%, no indexation |
| Property STCG | 30% | Slab rate |
The property TDS line is the one that catches people off guard: the buyer deducts TDS on the entire sale price, not your actual gain, unless you've obtained a Lower Deduction Certificate beforehand. Sell a Rs 2 crore property with a Rs 40 lakh gain, and without the certificate, TDS gets calculated on the full Rs 2 crore — not the Rs 40 lakh you actually profited.
Fixing the Property TDS Problem: Section 197
Apply for a Lower or Nil Deduction Certificate (Form 13, under Section 197) before the sale closes. Approved, it caps TDS to your actual estimated gain instead of the full sale value. Skip this step and you're waiting for an ITR refund on money that should never have been withheld in the first place.
DTAA — What It Actually Requires
India has DTAA treaties with 90+ countries, including the US, UK, UAE, and Canada. To use one:
- Get a Tax Residency Certificate (TRC) from your country of residence's tax authority
- File Form 10F electronically on the Indian income tax portal — this must happen before the income is earned, not after
- Submit both to whoever is deducting TDS (bank, broker, tenant, buyer)
- If TDS was still deducted at the higher rate, claim the DTAA benefit via Schedule TR when filing your ITR
DTAA reduces double taxation — it doesn't mean zero tax in India. Common mistake: assuming a DTAA exists and skipping proper documentation, then discovering the deductor withheld at the default rate anyway because no TRC/Form 10F was on file.
Who Must File an ITR
| Trigger | Filing required |
|---|---|
| India income above Rs 4L (new regime) or Rs 2.5L (old regime) | Yes |
| Want a TDS refund, regardless of income level | Yes |
| Want to claim DTAA benefit not applied at source | Yes |
| Sold property or securities with TDS deducted | Yes, to reconcile actual liability |
NRIs use ITR-2 (or ITR-3 for business income). Deadline: July 31 for most NRIs (no audit requirement).
What to Actually Do
- Get your TRC and file Form 10F before the financial year you earn the income, not after
- For any property sale, apply for the Section 197 certificate before closing, not after
- Check Form 26AS / AIS on the income tax portal to confirm exactly what TDS was deducted against your PAN
- File ITR-2 every year you have India income above the threshold — even if TDS already covers what you owe, filing is how you'd get any excess back
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