How NRI taxation works on Indian investments

First question: are you a non-resident?

Indian tax status depends on days spent in India in the financial year, not on citizenship or passport. In broad terms, an Indian citizen is resident for a year if they are in India for 182 days or more. Citizens and persons of Indian origin who visit with Indian income above ₹15 lakh become resident at 120 days if they were in India for 365 days over the previous four years. A citizen with Indian income above ₹15 lakh who is not taxed in any other country is treated as a resident even without the days.

Many people returning to India first become Resident but Not Ordinarily Resident (RNOR), which keeps most foreign income out of Indian tax for a period.

The status matters because a resident is taxed on income from everywhere, while a non-resident (NRI) is taxed in India only on income earned or received in India. Salary earned abroad by an NRI is not taxed in India. Rent, interest, dividends and capital gains from Indian assets are.

Bank accounts: NRE, NRO and FCNR

The tax-free interest belongs to non-resident status. When you return to India for good, NRE accounts have to be redesignated and the tax treatment changes with your status, so check before assuming the interest stays tax-free.

Mutual funds: the same rates, collected upfront

An NRI pays the same capital gains rates as a resident. The difference is that the fund house deducts TDS on the gain at redemption, rather than leaving it to your return.

Surcharge, if your Indian income is high enough, and 4% cess sit on top of every rate. Three things work against an NRI here:

• Debt fund TDS assumes the top slab. An NRI with little other Indian income may owe much less than 30%, but gets the excess back only by filing a return.
• The basic exemption does not reduce equity gains. A resident with low income can set the untaxed slab against short-term or long-term equity gains. A non-resident cannot.
• No Section 87A rebate. It is for residents only.

This makes the type of fund matter more for an NRI than for a resident. As of 1 October 2026, the median arbitrage fund (40 funds, Direct plan, Growth option) returned 6.60% over the past year and the median liquid fund (54 funds) 6.47%. Before cess and surcharge, a liquid fund taxed at 30% keeps about 4.53%. An arbitrage fund, taxed as equity, keeps about 5.28% if sold within a year at 20%, and more if held beyond a year at 12.5% with the ₹1.25 lakh exemption. Past returns do not predict future returns, and the two funds behave differently: arbitrage funds can show small losses over short periods. Arbitrage fund returns and liquid fund returns for October 2026 have the details, and how mutual funds are taxed has the full rules.

Some fund houses do not accept investments from NRIs living in the US or Canada, because of those countries' reporting rules. Check before investing.

Property

An NRI selling Indian property pays 12.5% on the long-term gain (held over 24 months) with no indexation option. The choice of 20% with indexation, for property bought before 23 July 2024, is for resident individuals and HUFs only.

The buyer has to deduct TDS. For a resident seller it is 1%; for an NRI seller, the buyer deducts tax at the capital-gains rate plus surcharge and cess. Buyers who cannot work out the gain often deduct on the whole sale price. Applying in advance for a lower deduction certificate, based on the actual gain, avoids having most of the money held for a year until the refund.

The reinvestment exemptions (another house, or capital-gains bonds) are available to NRIs too. Selling property: how to reinvest and save tax explains them, and the property capital gains calculator computes the gain.

Double taxation treaties

India has tax treaties (DTAAs) with most countries NRIs live in. A treaty can lower the Indian rate on some income, most often dividends and interest, and the country you live in usually gives you credit for tax paid in India so you are not taxed twice.

To use a treaty rate in India, you generally need a Tax Residency Certificate from your country of residence and Form 10F, given to the fund house, bank or other payer. Treaties differ a lot, especially on capital gains, so check the one that applies to you.

Things NRIs cannot do

• Open a new PPF account. An account opened while resident continues to maturity but cannot be extended.
• Use the property indexation choice, as above.
• Hold resident savings accounts once non-resident; they must be converted to NRO.

When to file a return

An NRI must file an Indian return if Indian taxable income is above the basic exemption limit. Many should file even when not required, because TDS is often deducted at higher rates than the tax actually owed. Filing is the only way to get the refund, and to carry forward a capital loss.

This post is educational, not tax or investment advice; residency and treaty rules are complex, so check current law or a professional for your case, and past returns do not predict future returns.