NRI vs Resident Tax Filing in India

What if the moment you return to India, you realise you lose all your NRI tax benefits? You instantly start calculating your foreign salary, rental income, and FCNR deposits and are amazed by the results. But the good news is that it is not completely true.

The tax obligations of an individual returning to India depend on three tax statuses, i.e., NRI, RNOR, or resident. Considering this, understanding residential status is vital when dealing with NRI vs resident tax filing in India. This is because a single factor determines whether you pay tax on your global income or on income received or earned in India. Additionally, the ITR form you will fill out, the deductions you can claim, and how much TDS will be deducted from your payments.

To help you out, this blog breaks down NRI vs resident tax filing in India and compares them across income types, tax slabs, TDS rates, and available tax deductions to help you know which works in your favour. So read on and resolve all your doubts.

Three Tax Residence Statutes Under Indian Law

First, let's clear your doubts: your tax obligation in India does not depend on your passport or citizenship. It depends on your residential status as stated under the Income-tax Act, 1961. Considering this, every financial year (April 1 to March 31), the Indian law determines the number of days you spend in India and labels your residential status accordingly.

• If, in a financial year, you stayed in India for 182 days or more, you are generally treated as a resident and are liable to pay tax on your global income.
• However, if you do not meet the residential tests, i.e., stayed in the country for less than 182 days, you are considered an NRI. Additionally, you are liable to pay tax on the income you received or earned in India. In simple terms, you live overseas but occasionally visit India.
• Under RNOR (resident but not ordinary resident )status, you are now physically living in India, but were an NRI in 9 of the last 10 financial years or were in India for 729 days or fewer across the last 7 financial years. In simple words, you just returned to India after living too long overseas.

Here, the transition sequence from NRI to RNOR works like this: You spend years overseas as an NRI and return to India. Now, for the first two to three years, you are considered an RNOR. After that, once your abroad history fades, you become ROR (resident and ordinarily resident) and become liable to pay tax on your global income.

This was all about tax residency status under Indian law. Understanding the residential status is important because it impacts whether you are liable to pay tax on your global income or only on the income you earned or received in India.

Moving forward, let's know what income is taxable for NRIs and residents in India.

Income Scope: What Gets Taxed?

The table below answers all your queries, i.e., which income is taxed based on your residential status in India.

This was all about the income taxable in India as per your residential status. Moving further, let's know about the tax regime and slabs available for NRIs and residents in India.

Tax Regimes & Slabs for NRIs and Resident

The residential status of an individual in India shapes tax slabs and rates. Considering this, residential faces a progressive income tax structure, while for specific income types, NRIs have a flat tax rate. Additionally, for certain income, such as dividends and capital gains, a special tax rate applies to both groups. Apart from this, NRIs and residents can choose from the new tax regime and the old tax regime.

New Tax Regime for Financial Year (FY) 2026-2027

The new tax regime treats both NRIs and residents alike, eliminating the slab rate difference.

Along with all slab rates, 4% health and education are also applied to the total tax. Additionally, a surcharge also applies to income more than INR 50,00,000.

Old Tax Regime- Optional

Under the old tax regime, NRIs and residents have similar tax slabs; however, for certain types of income, NRIs have special rates. Additionally, the old tax regime requires Form 10-IEA for business income.

After knowing about the tax regime and slab rates for NRIs and residents in India, moving forward, let's know about the Section 87A rebate.

Section 87A Rebate: NRI vs Resident

Under section 87A, a rebate is a tax benefit in India provided to middle to low-income earners. It is the most impactful difference between resident and NRI tax filing in India. This is because it is only available to residents.

This was all about the section 87A rebate for NRIs and residents in India. Moving ahead, let's know about the TDS rates available for NRIs and residents in India.

TDS Rates: NRI vs Resident

Compared to residents, NRIs pay higher TDS rates for payments, showcasing the effort of the government to collect tax at source before funds leave India. This further creates a cash flow challenge. NRIs often pay more TDS, and to reclaim the excess, they should file an ITR. To provide you with an idea, the table below showcases TDS rates for NRIs and residents in India.

This is how NRIs and residents are taxed in India. Moving further, let's know about the ITR forms available for NRIs and residents in India.

ITR Forms: Which Form You Need to File in India?

This is the area where most NRIs get confused, as the income tax department has issued several ITR forms. Considering this, NRIs need to choose the right ITR form based on their residential status and income type.

• ITR- 1 (Sahaj): Not Allowed
• ITR-1 Sahaj form is for residents with salary income, one house property, and other resources less than INR 50,00,000. NRIs are restricted from filing this form under any circumstances.
• ITR-2: Primary Form
• It is for individuals/ HUFs with multiple house properties, salary, foreign assets, and capital gains. Additionally, it is the standard form for NRIs with rental income, investments, and capital gains in India.
• ITR-3: Business Income
• This form is for individuals and HUFs with professional or business income in India. NRIs with Indian business income, partnership firm income, or professional fees need to fill out this ITR form.
• ITR-4 (Sugam): Not Allowed
• ITR-4 form is for residents using presumptive taxation under sections 44AD and 44ADA. ITR-4 is generally not available to NRIs under presumptive taxation schemes. However NRIs still need to file the ITR-3 form, not the ITR-4.

These are the different types of ITR forms available for NRIs and residents in India. Residents can fill out ITR-1, ITR-2, ITR-3, or ITR-4 forms without any restrictions. Additionally, like NRIs, RNOR individuals can use the ITR-2 or ITR-3 form based on their source of income in India. However, when filing the form, they need to choose their residential status as "RNOR." Failing to do so can result in paying tax on global income in India.

Now, moving forward, let's know about the tax deductions and exemptions available for NRIs and residents in India. 

Tax Deductions and Exemptions for NRIs and Residents

In India, NRIs can claim most of the tax deductions available to residents. However, not all tax deductions are available to NRIs in India. To give you an idea, here is a comprehensive deduction list available to NRIs and residents in India. 

• Section 80C: Up to INR 1,50,000 (Old Regime)
• This tax deduction is partially available for NRIs. They can claim a home loan principal, insurance premiums, ELSS, children's tuition fees, and 5-year FDs. However, they are not allowed to claim PPF contributions as they cannot invest in them, SCSS, or NSC.
• Section 80D: Up to INR 25,000 - INR 1,00,000
• Like residents under section 80D, NRIs can claim health insurance premium tax deduction for themselves, parents, spouse, and children. In this, the tax deduction limit is the same for both NRIs and residents.
• Section 24(b): Unlimited (let-out); INR 2,00,000 (Self-occupied)
• Under section 24(b), home loan interest deduction on Indian property has the same rules for both NRIs and residents. Considering this, unlimited tax deduction for let-out properties and INR 2,00,000 for self-occupied properties.
• Section 80TTA/ 80TTB: INR 10,000/ INR 50,000 (for seniors)
• Section 80TTA allows an INR 10,000 tax deduction on interest on savings. NRIs on their NRO savings can claim this deduction. Additionally, Section 80TTB allows an INR 50,000 deduction for senior citizens on their savings interest. However, it is not available for NRIs.
• Section 80G: 50% - 100% of Donation
• Under section 80G, tax deduction is available for donations to approved Indian institutions. The tax deduction rules are the same for both NRIs and residents. Additionally, for foreign-origin donations, only FCRA-registered institutions.
• Section 87A Rebate: Up to INR 60,000 (New Regime)
• Section 87A tax rebate under the new tax regime provides residents with zero tax up to INR 12,00,000. This tax rebate is not available for NRIs.
• Section 54/ 54EC: Capital Gains Exemption
• Under section 54, both NRIs and residents can claim a long-term capital gains tax exemption by reinvesting the proceeds in residential property in India. Additionally, under section 54EC, by investing in NHAI/RECs, they can claim up to INR 50,00,000 or the net proceeds.
• Standard Deduction (Salary): INR 75,000 (New Regime)
• Under the new tax regime, both residents and NRIs can claim INR 75,000 standard deduction for the salary they received from an Indian employer.
• Disability/ Medical (80U/ 80DD): Up to INR 1,25,000
• Under section 80U, tax deduction for self-disability, and under section 80DD, tax deduction for dependent disability is available for resident Indians only.

These are some of the tax deductions and exemptions available for NRIs and resident taxpayers in India. Moving ahead, let's know how NRIs and residents can claim DTAA benefits.

DTAA: How NRIs and Residents Can Avoid Double Taxation?

With the Double Taxation Avoidance Agreement (DTAA), India allows NRIs and residents to avoid paying double taxation with 90+ countries. Considering this, NRIs and residents use the DTAA benefits differently. Here, the table below showcases the DTAA use cases.

This is how NRIs and residents can claim DTAA benefits and avoid double taxation on the same income twice.

Final Thoughts

Lastly, in India, the tax obligation of an individual, rather than citizenship or passport, depends on their residential status. Considering this, for optimal financial planning, it is vital to understand NRI vs resident tax filing in India. Additionally, to ensure compliance with Indian legal norms and increase financial benefits, staying informed about changing tax regulations and taking professional advice is important for NRIs.

Further, being an NRI, if you are also confused about your residential status in India or facing issues in paying taxes, connect with Savetaxs. We have a team of tax experts who assist you in determining your residential status and fulfilling your tax obligations on time with complete accuracy. You can contact us anytime; our customer service team is 24/7 available to help you.