Taxable Income for NRIs & Indian Residents for FY 2026-27

Regardless of where you live, one question decides your entire tax obligation, which is where do you stand? One key factor in determining how much tax you owe in India is knowing your residential status. If NRIs, returning Indians, and residents with foreign income get this wrong, they will end up paying either more or less tax, or miss out on valuable exemptions altogether.

In this guide, we will break down everything you need to know related to your taxability. From determining residential status, claiming DTAA benefits, to choosing the correct tax regimes and filing accurate ITR for FY 2026-27. 

Determining Residential Status Under the Income Tax Act

The first thing you need to do before moving further with calculating your tax liability in India is to determine your residential status for the financial year. Your status will decide which income is taxable for you in India, not your citizenship or passport. 

So, under Section 6 of the Income Tax Act, your status is determined based on the number of days you spend in India during a financial year (April 1 - March 31). Consider the table below to know what is your residential status for the current financial year:

So, by looking at this table, you can identify your residential status and calculate your tax liability accordingly. However, do you know that there is a special rule for Indian citizens and PIOs working abroad? Here is what that special rule is. 

• Special Rule for Indian Citizens/ PIOs Abroad

The 60-day threshold is replaced by 182 days for Indian citizens or PIOs working/visiting abroad. Moreover, an Indian citizen with an Indian income over ₹15 lakh who is not liable to pay tax in any other country is deemed a resident in India. 

Moving further, let's see what all income is taxable for Resident and Ordinarily Resident (ROR). 

Taxable Income for ROR 

Your global income will be taxed in India if you qualify as a resident and ordinarily resident (ROR). Under the Income Tax Act, everything you earn around the world must be reported and taxed in India if you are an ROR. Here is the income that is taxable for a person with ROR status:

Moreover, RORs who have paid tax abroad can avoid being taxed twice on the same income by claiming DTAA benefits or relief under Section 91. Let's now see what all income is taxable for RNORs. 

Taxable Income for RNORs

The RNOR (resident but not ordinarily resident) is a transitional category. It is typically provided to returning NRIs who have recently come back to India to offer valuable relief. It means your foreign income from business or profession is taxed in India only if it is controlled from India.

One key benefit for RNORs is that their foreign passive income earned from a source outside India is not taxable. It includes foreign salary, foreign bank interest, foreign rental income, and foreign capital gains. The table below lists the income taxable for RNORs:

Once you return to India, your RNOR status will typically last for 2-3 years. It depends on how many years you had the NRI status before returning. Your RNOR status will end, and you become a ROR once you've been a resident for more than 2 of the last 10 years and have spent 730+ days in the last 7 years. Moving further, let's see the income taxable for NRIs.

Taxable Income for NRIs

For NRIs, any income earned, received, or deemed to accrue in India is taxable in India. However, any income from abroad remains exempt from taxation in India. Here are the income taxable and not taxable for NRIs in India:

*Note: NRIs are taxed on capital gains acquired from Indian assets like stocks, mutual funds, and real estate. LTCG on equity/equity mutual fund above ₹1.25 lakh is taxed at 12.5% (FY 2026-27). while STCG on equities is taxed at 20%. Additionally, real estate LTCG is taxed at 12.5% without indexation.

To make understanding everything easier, let's check a taxability comparison table between ROR, RNOR, and NRI.

Taxability Comparison Between ROR vs RNOR vs NRI

Consider this quick reference table to understand what income is taxable under each residential status:

Now, we have an idea of the taxable income for each residential status. But, do you know that NRIs get certain special exemptions? Let's see what these exemptions are. 

Income Exempt for NRIs

Under the Income Tax Act, NRIs get certain special exemptions that are not available to Indian residents. These exemptions can be very beneficial to manage Indian investments while staying abroad. Here is the income that is exempt for NRIs:

• LTCG on NRI investments on a repatriable basis: Special rate benefit under Section 115E.
• Interest on NRE (Non-Resident External) Savings Account: Fully exempt under Section 10(4).
• Interest on FCNR (Foreign currency non-resident) Deposits: Fully exempt under Section 10(4).
• Interest on Notified Savings Certificates Purchased in Foreign Exchange: Exempt under Section 10(4B)
• Income from Specific Investments Made from Foreign Currency (Special Provisions - Chapter XII - A): Flat tax structure with simplified calculations. 

Tax Snapshot for NRO vs NRE vs FCNR

• NRE Account: Interest from the NRE account is fully exempt from Indian tax and can be repatriated freely.
• NRO Account: Interest from an NRO account is taxed at applicable slab rates, and fund repatriation has limits. Also, TDS is deducted at 30%.
• FCNR Deposit: Interest from FCNR is fully exempt from taxation, and funds are maintained in foreign currency. There are no restrictions on repatriating funds. 

India has two tax regimes, but do you know which regime you must choose while filing returns? Let's understand what the new and old tax regimes offer and which one you should choose. 

New vs Old Tax Regime for FY 2026-27

India has two tax regimes, and for the FY 2026-27, the new regime is the default for individuals. However, to claim the benefits of the old regime, you must explicitly select it when filing your return. 

NRIs have the option to choose between the new and old regimes for their Indian income. However, they cannot claim the standard deduction of ₹75,000 on salary in the new regime. It applies unless they have a valid employment in India. Moreover, most deductions under Chapter VI-A are also not available in the new regime.

The table below lists the new regime and old regime rates for FY 2026-27:

Now, let's discuss which tax regime you should choose. 

Which Tax Regime Should You Choose?

Consider the table below to have an idea of what both regimes offer:

Moving further, let's understand what a rebate is under Section 87A. 

Tax Rebate Under Section 87A

Under Section 87A, a taxpayer below a certain income threshold enjoys a full rebate on income tax. It means they pay zero tax even after calculating tax at applicable slab rates. 

One key point to keep in mind is that only Indian residents can claim the rebate. NRIs are not allowed to claim the Section 87A rebate. Even if their income in India is below the threshold (Rs. 12 lakh) in the new regime, they still cannot claim the 87A rebate. 

Additionally, the 87A rebate is not available against special-rate capital gains even for resident individuals. It applies only against tax on regular income calculated at slab rates. Apart from the rebate, there are certain deductions available to reduce your taxable income, which we will discuss next.

Deductions Available to Reduce Taxability

You can claim deductions to reduce your overall taxable income. Most of the deductions are available under the old tax regime, while the new regime offers only a few. Here are the deductions available under the old regime for both residents and eligible NRIs:

• Section 80C: Investments & Expenses - Max Rs. 1,50,000: Apply on PPF, ELSS MF, NSC, life insurance premium, home loan principal, children's tuition fee, 5-yr FD

• Section 80CCD (1B): NPS Additional Contribution - Max Rs. 50,000: For income over and above the 80C limit. It is available to resident individuals. Moreover, an NRI's eligibility will depend on the type of NPS account.

• Section 80D: Health Insurance Premium - Up to Rs. 1,00,00: For self/family, a deduction of Rs. 25,000 + Rs. 25,000 for parents and Rs. 50,000 for senior citizens. NRIs can claim this deduction for Indian policies.

• Section 24(b): Home Loan Interest - Max Rs. 2,00,000: NRIs with an Indian home loan can claim this deduction for a self-occupied property.

• Section 80E: Education Loan Interest - No Limit: Full interest deduction for 8 years, but the loan must be taken for higher education of self/spouse/children. 

• Section 80G: Donations Made for Charity - 50% - 100% of donation: NRIs can claim deductions on donations made to eligible charitable institutions and funds in India. 

• Section 80TTA: Savings Account Interest - Max Rs. 10,000: It is available for residents only, and NRIs are not eligible for this deduction. 

• Section 80TTB: Senior Citizen Interest - Max Rs. 50,000: It is only available for residents aged over 60. It covers savings, FD, and post office interest. NRIs cannot claim this deduction.

NRIs can claim deductions under Section 80D, 24(b), 80E, and 80C (Life insurance on Indian property, ELSS, MFs). However, they are not allowed to invest in PPF, NSC, or Sukanya Samriddhi Yojana once they become an NRI. They can continue their existing accounts until maturity. Moving further, let's talk about the DTAA benefits.

Avoid Double Taxation with DTAA Benefits

The Double Tax Avoidance Agreement (DTAA) is an agreement signed between India and another country. It aims to prevent the same income from being taxed twice, which means once in India and once in the country of residence. 

It works in two methods - one is the exemption method, and the other is the credit method (Foreign tax credit). Here is how both methods work:

You can choose either the exemption method or the FTC method based on the DTAA provisions, your residency status, and the nature of your income. To have an idea, let's check the key DTAA treaty rates for NRIs in some common countries. 

Key DTAA Treaty Rates for NRIs in Common Countries

However, if you wish to claim the DTAA benefits in India, you need to provide some documents. 

Documents Required to Claim DTAA Benefits

You need to submit the following documents to claim benefits of the DTAA treaty in India:

• Self-declaration in Form 10F
• Tax-residency certificate (TRC) from the country of residence
• PAN card (mandatory to claim lower TDS rate)
• Proof that income is taxable in the other country (if required)

Submitting these documents is important to claim the benefits of the DTAA treaty. Now, you must be thinking, what if your country of residence has no DTAA signed with India? Here is what you can do. 

Section 91 for Countries with No DTAA Agreement

Countries with DTAA include some Gulf nations and certain African and South American countries. However, if your country of residence has no DTAA signed with India, you can claim unilateral relief under Section 91. It is the lower of the Indian tax on the doubly-taxed income or the foreign tax paid.

Moving further, let's discuss the applicable TDS rules for NRIs & residents. 

TDS Rules for NRIs & Residents

Before making payments, the payer deducts tax at source. As compared to residents, NRIs face a higher rate of TDS on most income types. It is because they cannot claim the 87A rebate, and the government wants to collect taxes upfront from non-residents. The table below lists the TDS rate for NRIs and residents based on the type of income:

Now, to reduce TDS, NRIs can apply for a lower/Nil TDS certificate under Section 197 to the Assessing Officer. It applies if they expect their actual tax liability to be less than the TDS being deducted. 

This helps them prevent excess TDS and avoid the need to claim a large refund later. You can submit Form 13 online on the TRACES portal or submit TRC + Form 10F to the payer for lower treaty rates under DTAA. 

Now, we have covered almost everything about the tax rates, deductions, rebates, DTAA, etc., for residents and NRIs. We will now discuss the latest changes introduced under the Income Tax Act, 2025. 

New Changes Introduced Under the Income Tax Act, 2025

Under the Income Tax Act, 2025, a few significant simplifications and structural changes were introduced effective from FY 2026-27. Below are the key changes relevant to NRIs and residents:

• Revised New Regime Slabs - Zero Tax up to Rs. 12 lakh: For income of up to Rs. 4 lakh, the new regime offers NIL tax. It also includes a more graduated scale peaking at 30% above Rs. 24 lakh. When combined with the improved 87A rebate (Rs. 60,000), residents with up to Rs. 12 lakh total income can enjoy zero tax. 

• Standard Deduction Increased to Rs. 75,000 Under the New Regime: Salaried employees and pensioners who opt for the new regime can now get a standard deduction of Rs. 75,000, increased from Rs. 50,000. For family pension, the deduction is Rs. 25,000 (higher of Rs. 25,000 or 1/3rd of pension). 

• Capital Gains Tax Rationalization: Listed equity and equity mutual funds, long-term gains (held over 12 months) are taxed at 12.5% on amounts exceeding Rs. 1.25 lakh. Similarly, short-term gains (held 12 months or less) are taxed at 20%. For real estate, long-term gains are taxed at 12.5% without indexation. But you still have the option to opt for 20% with indexation, provided that the property was acquired before the 23rd of July, 2024. 

• Claiming DTAA Simplified and Online Form 10F Made Permanent : The Income Tax Department has made Form 10F filing permanent. NRIs can claim DTAA tax benefits entirely online through the e-filing portal, avoiding the need for physical submissions. 

• NRI Buyback Tax - Sec 115QA Amended: Buyback of shares by Indian companies is now taxed in the hands of the NRI shareholder as deemed dividend taxation, rather than the company. The issuing company must now deduct TDS at a flat 20% on the buyback proceeds for NRIs. 

• Faceless Assessment Strengthened: All income tax assessments, appeals, and penalties are now fully conducted online. NRIs and resident payers no longer need to visit Indian tax offices or appoint a local representative to handle routine assessments. 

• Surcharge on High Income Rationalized: The new tax regime caps your income surcharge at 25% (also applicable to NRIs), scaling as follows: 10% on incomes of ₹50L–₹1Cr, 15% on ₹1Cr–₹2Cr, and 25% for ₹2Cr–₹5Cr and above. Additionally, there is zero surcharge on both LTCG and STCG equities, regardless of your income level. 

• PAN-Aadhaar Linkage Compliance for NRIs: Although NRIs are exempt from mandatory Aadhaar-PAN linking, resident taxpayers might still deduct TDS/TCS at a higher rate if their PAN becomes inoperative due to non-linking. This will impact NRIs receiving income from resident payers who were not compliant. 

These were the changes made under the Income Tax Act, 2025. Now, we know the changes, deductions, and taxable income. You can start filing the ITR, but do you know that there are various ITR forms and you must choose the correct form? Let's learn about which ITR form you must choose. 

Which ITR Form Should You File?

You need to choose the correct ITR form, as filing the wrong form can attract a defective return notice. Here are the ITR forms and who must use them:

Keep in mind that ITR must be filed within the deadline to avoid late filing penalties and interest. For FY 2026-27, the deadlines are as follows:

• July 31, 2027: Individuals not requiring audits (most NRIs & residents)
• October 31, 2027: Individuals/entities requiring audits (business income above threshold)
• December 31, 2027: Belated return with penalty (Rs. 5000 or Rs. 1,000 if income exceeds Rs. 5L).
• Report foreign assets in Schedule FA: It is mandatory for RORs and NRIs if they still have reportable Indian deemed assets.

NRIs can file their ITR on the Income Tax e-filing portal, avoiding the need to visit India. Also, e-verification can be done via net banking, EVC through the NRE/NRO account linked mobile number, or a digital signature certificate. Only residents can use the Aadhaar OTP option. 

We are now well aware of everything related to ITR filing, including selecting the correct ITR form. Moving further, to help you reduce your tax burden, let's look at some helpful tax planning tips for both NRIs and Indian residents. 

Smart Tax Planning Strategies

To legally minimise your tax burden, proactive planning is important. Here are some strategies for both NRIs and Indian residents for FY 2026-27:

Track Your Days Carefully: Ensure to maintain a record of the days you spend in India by keeping travel tickets, passport stamps, hotel records, etc. Staying even an extra day can shift you from NRI to RNOR, which will significantly impact your Indian tax liability. You can use the 182-day rule as your guide. 

Obtain TRC to Claim DTAA Benefits: Get a Tax Residency Certificate (TRC) from your country of residence each financial year. Then, submit it along with Form 10F to your bank and payers in India to enjoy lower DTAA TDS rates instead of paying the 30% flat rate. 

Use the RNOR Window Wisely: During the RNOR period, ensure to plan significant foreign asset realisation. It includes selling foreign property, encasing foreign investments, etc. Such gains will not be taxed in India, meaning you get a 2-3 year window. 

Compare the New vs. the Old Regime: Before filing, calculate your tax under both regimes for Indian income. If you have significant deductions like 80C, HRA, and a home loan, the old regime will help you save more. You can use tax calculators online for accurate answers. 

File Return Even If TDS Covers Tax: NRIs often end up paying excess TDS, like 30% on NRO interest, when slab rates may be lower. To claim a refund, filing an ITR is the only option. Moreover, to ensure a smooth refund credit, ensure to set up a valid Indian bank account with NEFT details. 

Moreover, if your income exceeds the threshold, which is Rs. 2.5L for the old regime, and Rs. 4L for the new regime, you must file an ITR even as an NRI. Non-filing will attract a penalty of up to Rs. 5,000 plus interest under Section 234A at 1% per month on outstanding tax. Also, non-disclosure of foreign assets can attract significant penalties under the Black Money Act.

The Bottom Line

Although India's tax framework is detailed, it doesn't have to be stressful. The key is to start by determining your residential status, understanding which income is taxable, and then claiming the right deductions, exemptions, and treaty benefits. With the changes introduced under the Income Tax Act, 2025, there are more opportunities to plan smartly and stay compliant. 

That being said, if you are someone with income in multiple countries, planning to return to India, have foreign assets to disclose, or other complex requirements, seek professional advice from Savetaxs. At Savetaxs, we have a team of experts who can help you with the complex ITR filing process and help you maximize returns and savings. Our experts will ensure you claim all applicable deductions and file an accurate ITR on time to avoid any potential penalties. Connect with us right away, as the cost of seeking professional advice is always less than the cost of errors or missed savings.