NRI Taxation Practical Advisory
Compliant with ICAI Standards on Auditing, Central Board of Direct Taxes (CBDT), and CBIC GST notifications.
What You Need to Know at a Glance
- NRIs are taxed in India only on income earned, accrued, or received in India (e.g., rental income, capital gains, bank interest).
- When an NRI sells immovable property in India, the buyer must deduct TDS under Section 195 at up to 20% (plus surcharge and cess) on total sale proceeds unless a Lower TDS Certificate is obtained.
- Applying for a Lower Deduction Certificate via Form 13 before concluding property sale saves substantial working capital.
- Remitting funds abroad from an NRO account up to USD 1 Million per financial year requires Form 15CA and a Chartered Accountant certification in Form 15CB.
1. Determining Your Residential Status under Section 6
Under Section 6 of the Indian Income Tax Act, physical presence during the relevant financial year dictates whether you are classified as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR).
An individual is deemed Non-Resident if they stay in India for less than 182 days during the financial year (or less than 60 days if prior presence conditions are met, extended to 182 days for Indian citizens leaving India for employment abroad).
2. What Income is Taxable for NRIs in India?
Unlike residents whose worldwide income is taxed in India, an NRI is taxed strictly on income originating within India:
- Rental Income from Indian Properties: Taxable under Income from House Property, with a standard 30% statutory deduction plus municipal taxes deduction.
- Interest on Bank Accounts: Interest earned on NRO (Non-Resident Ordinary) accounts is taxable and subjected to 30% TDS, whereas interest on NRE (Non-Resident External) and FCNR accounts is 100% tax-exempt in India.
- Capital Gains on Investments: Sale of shares, mutual funds, or immovable property situated in India attracts capital gains tax.
3. Capital Gains on Selling Indian Real Estate
Many NRIs inherit or own real estate in cities like Hyderabad, Bengaluru, or Mumbai. When disposing of property, capital gains are classified as:
1. Short-Term Capital Gains (STCG): If held for 24 months or less, taxed at applicable slab rates.
2. Long-Term Capital Gains (LTCG): If held for more than 24 months, taxed at 12.5% (as per latest Finance Act provisions without indexation) or 20% under prior provisions.
NRIs can claim exemptions under Section 54 (by reinvesting capital gains in another residential house in India) or Section 54EC (by purchasing specified 5-year capital gains bonds like NHAI or REC up to ₹50 Lakhs).
4. High TDS under Section 195 & How to Apply for Form 13
When an Indian resident buys property from a resident seller, TDS is deducted at just 1% under Section 194-IA. However, when buying from an NRI seller, the buyer is legally obligated to deduct TDS under Section 195 at the highest rate (20% + surcharge + cess, often exceeding 23.92%) on the GROSS sale price, not just the gain!
This locks up immense liquidity for the NRI seller until an income tax refund is processed months later.
Apply for a Nil or Lower Deduction Certificate (Form 13) with the Assessing Officer 45 to 60 days before executing the sale deed. The officer computes tax solely on actual capital gains rather than the full gross value.
5. Repatriating Funds Abroad: Form 15CA & Form 15CB
Under the Liberalised Remittance Scheme (LRS) and FEMA regulations, NRIs are permitted to repatriate up to USD 1,000,000 (One Million US Dollars) per financial year out of balances held in their NRO account.
Authorized Dealer (AD) banks will not permit the foreign outward wire without two essential filings:
1. Form 15CB: An official certification by an independent Chartered Accountant certifying that proper Indian taxes have been discharged on the funds being remitted.
2. Form 15CA: An online self-declaration filed by the taxpayer on the income tax portal referencing the 15CB acknowledgment.
6. Double Tax Avoidance Agreements (DTAA)
India has signed comprehensive DTAA treaties with over 85 countries, including the USA, UK, UAE, Canada, Australia, and Singapore.
To prevent paying tax twice on the same income in both India and your country of residence, taxpayers can claim Foreign Tax Credit (FTC) by submitting Form 67 along with a Tax Residency Certificate (TRC) and Form 10F.
Frequently Asked Questions
CA Pranav Peddi
Partner & International Tax Lead
Guiding corporations, startups, and NRIs on tax planning, GST structuring, and regulatory audits. P. Ramesh & Associates has provided dependable financial counsel since 1988.