NISM-Series-X-B: Investment Adviser (Level 2) · Tax Provisions for Special Cases

Taxation of Non-Residents and NRIs in India

Updated 11 October 2026 · Fact-checked

Tax in India depends on residential status, not citizenship. First test the days of stay in India. A non-resident pays tax only on income received, accrued or deemed to accrue in India. Then apply the rate for the asset, check TDS, and use the DTAA to avoid double tax.

Understand Taxation of Non-Residents and NRIs

Indian income tax does not ask whether you are an Indian citizen. It asks where you stayed during the previous year. That gives your residential status: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR). For residential status, the tax Act uses only these three statuses. NRI is a FEMA and common term. The Act defines non-resident Indian separately in section 115C, and only for Chapter XII-A (see below).

Why status matters: a resident (ROR) is taxed on global income. An RNOR is taxed on income received or accrued in India, plus income from a business controlled in India or a profession set up in India. A non-resident is taxed only on income received in India, accruing or arising in India, or deemed to accrue or arise in India. Foreign income earned and received abroad by an NR is not taxable here.

For investors, the main Indian-source incomes are interest (NRO deposits, bonds), dividends, rent, and capital gains on shares, mutual funds and property. Capital gains rates are generally the same as for residents. The ₹1,25,000 threshold on long-term gains under section 112A applies to everyone, resident or not. The difference is that only a resident can adjust a shortfall in the basic exemption limit against gains taxed at special rates (sections 111A, 112 and 112A). An NR also gets no section 87A rebate (that rebate is only for residents). Tax is mostly deducted at source at high rates, so many NRIs file returns to claim refunds.

Special relief exists too. Chapter XII-A applies to a non-resident Indian as defined in section 115C: an individual who is a citizen of India or a person of Indian origin and is a non-resident. Under this Chapter, income from specified foreign-exchange assets (such as shares of an Indian company bought with foreign currency) is taxed at special rates, without deductions. Under section 115E, investment income is taxed at 20% and long-term capital gains on assets other than specified assets at 12.5% (for transfers on or after 23 July 2024). Long-term gains on specified assets can be exempt under section 115F if the net consideration is reinvested in specified assets. Short-term gains on other assets follow the normal rates. The NRI can opt out of Chapter XII-A under section 115-I. And under section 90, the DTAA (Double Taxation Avoidance Agreement) between India and another country lets the NRI claim relief by exemption or tax credit.

Key formulas to remember

Basic residency tests: Resident if: stay in India ≥ 182 days in the previous year OR (stay ≥ 60 days in the previous year AND ≥ 365 days in the 4 preceding years); Meeting either test makes you resident. Failing both makes you non-resident.
Relaxed 60-day condition: Indian citizen or person of Indian origin visiting India: if Indian-source income is ₹15,00,000 or less, the 60 days becomes 182 days. If Indian-source income is above ₹15,00,000, the second test needs ≥ 120 days in the year AND ≥ 365 days in the 4 preceding years. Indian citizen leaving India for employment abroad, or crew of an Indian ship: 60 days becomes 182 days irrespective of income.; The 182-day test itself does not change. Only the second test is relaxed. The two-tier 182/120-day rule is for citizens or PIOs visiting India. Those leaving for employment abroad or serving as crew get 182 days only.
Deemed resident: Indian citizen with Indian-source total income > ₹15,00,000 and not liable to tax in any other country is deemed resident in India. He is treated as resident but RNOR, even if he fails both day tests.; Exam trap: foreign-source income is excluded when checking the ₹15,00,000 limit.
RNOR conditions: Resident but RNOR if either of these is met: (a) NR in 9 of the 10 preceding years, OR (b) stay ≤ 729 days in the 7 preceding years; The two tests are alternatives. One is enough. RNOR also applies to a citizen or PIO who is resident only through the 120-day rule and to deemed residents.
Scope of income: ROR: global income. RNOR: India-source income + business controlled/profession set up in India. NR: India-source income only.; Income received in India is taxable for all three.
Capital gains rates (listed equity shares and equity mutual funds, STT paid): Short-term: 20%. Long-term (held more than 12 months): 12.5% on gains above ₹1,25,000 a year. Plus 4% cess and surcharge if applicable.; Applies to transfers on or after 23 July 2024. The ₹1,25,000 threshold applies to residents and non-residents alike. Only a resident can adjust an unused basic exemption limit against gains under sections 111A, 112 and 112A. Check the latest rates in your study material.
Chapter XII-A (section 115E): Investment income from specified foreign-exchange assets: 20%. Long-term capital gains on assets other than specified assets: 12.5%. Long-term gains on specified assets: exempt under section 115F if the net consideration is reinvested in specified assets. No deductions allowed.; Only for a non-resident Indian as defined in section 115C: an individual who is a citizen of India or a person of Indian origin and is a non-resident. Assets must be bought with convertible foreign exchange. The NRI may opt out.
DTAA relief: Tax on the same income = lower of Act rate or treaty rate; claim needs Tax Residency Certificate (TRC) and Form 10F; Section 90 allows the assessee to choose whichever is more beneficial.

How to solve Taxation of Non-Residents and NRIs questions

Use this order for any NRI taxation question. Most errors come from skipping step 1.

1Find the previous year (the financial year before the assessment year) and count days of stay in India.
2Apply the 182-day test. If met, resident. If not, apply the 60 + 365-day test, using the 120-day or 182-day relaxation if the person is an Indian citizen or PIO visiting India, or left for employment abroad.
3Check deemed residence (citizen, Indian income above ₹15,00,000, not taxed elsewhere), then decide ROR or RNOR using the 9-of-10 years and 729-day tests.
4List each income and ask where it was received, accrued or deemed to accrue. For an NR, drop foreign income earned and received abroad.
5Pick the tax treatment for each income: capital gains rates, 20% under Chapter XII-A if applicable, or normal slab rates. Remember no section 87A rebate for NRIs.
6Note the TDS position (section 195 for payments to non-residents) and whether a refund or lower deduction is available.
7If another country also taxes the income, apply the DTAA: use the lower rate or credit, supported by a TRC and Form 10F.

Quickest way: Days first, then source of income

When to use it: Use this when the option set mixes residency statuses and the clock is running.

Underline the number of days in India this year and in the last 4 years.
If days are 182 or more, answer Resident. Then check RNOR only if the question asks.
If the person is a citizen or PIO visiting India, check Indian-source income. At ₹15,00,000 or less, you need 182 days. Above ₹15,00,000, you need 120 days or more this year and 365 days or more in the last 4 years. If that test is met, the person is RNOR.
A citizen with Indian-source income above ₹15,00,000 who is not taxed in any other country is deemed resident (RNOR) even if the day tests fail.
For income, ask whether it is Indian-source. If yes, taxable for an NR. If earned and received abroad, not taxable.
Eliminate options that say citizenship or domicile decides tax status.

Common mistakes in Taxation of Non-Residents and NRIs

Treating an Indian citizen abroad as a resident because of citizenship.
Students mix up the FEMA idea of NRI with tax status.
Fix: Residential status depends on days of stay. Citizenship matters only for the relaxations and for deemed residence.
Applying the 120-day rule to everyone who visits India.
The relaxation is remembered but not its conditions.
Fix: It applies only to Indian citizens or PIOs visiting India, only when Indian-source income exceeds ₹15,00,000, and it still needs 365 days or more in the 4 preceding years. Otherwise use 182 days.
Including foreign income of a non-resident when computing Indian tax.
Students carry over the global-income rule of a resident.
Fix: A non-resident is taxed only on India-source or India-received income.
Giving an NRI the section 87A rebate or senior-citizen exemption limit.
Students assume tax slabs are identical for all individuals.
Fix: The rebate and higher exemption for senior citizens are for resident individuals only.
Saying NRO interest is exempt like NRE interest.
Both are NRI accounts, so they look the same.
Fix: NRE interest is exempt for a person resident outside India under FEMA. NRO interest is taxable in India, with TDS.
Believing the DTAA always lowers the tax and applies automatically.
Students ignore the documentation condition.
Fix: The treaty applies only where the assessee claims it, usually with a TRC and Form 10F. The assessee picks the more beneficial of the Act or the treaty.

Worked examples

Example 1

Mr Rao is an Indian citizen who works in Singapore. He visited India during the previous year and stayed for 150 days. His total income from India is ₹8,00,000. He was in India for 500 days in the 4 preceding years. What is his residential status for the year?

Show the solution

He stayed 150 days, which is below 182, so the first test fails.
He is an Indian citizen visiting India from abroad, so the 60-day condition is relaxed.
His Indian-source income is ₹8,00,000, which does not exceed ₹15,00,000. So 60 days becomes 182 days.
He stayed only 150 days, which is below 182, so the second test also fails, even though his 500 days in the 4 preceding years is above 365.
Deemed residence needs Indian-source income above ₹15,00,000 and no liability to tax in any other country. His income is ₹8,00,000, so it does not apply.

Answer: Non-resident. Only his India-source income is taxable in India.

Example 2

Variant: Mr Rao's facts are the same (Indian citizen working in Singapore, 150 days in India in the previous year, 500 days in the 4 preceding years), but his Indian-source income is ₹18,00,000. What is his residential status?

Show the solution

He stayed 150 days, which is below 182, so the first test fails.
His Indian-source income is ₹18,00,000, which is above ₹15,00,000. So the second test needs 120 days or more in the year and 365 days or more in the 4 preceding years.
He stayed 150 days, which is at least 120, and 500 days in the 4 preceding years is at least 365. The second test is met, so he is resident.
A citizen who becomes resident only through the 120-day rule is treated as RNOR.

Answer: Resident but not ordinarily resident (RNOR). Only his India-source income, plus income from a business controlled in India or a profession set up in India, is taxable in India.

Example 3

An NRI sells listed equity shares on a recognised stock exchange (STT paid) after holding them for 18 months. The long-term capital gain is ₹3,25,000, and she has no other long-term gains this year. Compute the tax on the gain, ignoring surcharge and TDS credit. Assume the 12.5% rate and ₹1,25,000 exemption apply.

Show the solution

Holding is more than 12 months, so the gain is long-term.
Taxable gain = ₹3,25,000 − ₹1,25,000 = ₹2,00,000.
Tax at 12.5% = ₹2,00,000 × 12.5% = ₹25,000.
Cess at 4% on tax = ₹25,000 × 4% = ₹1,000.
Total = ₹25,000 + ₹1,000 = ₹26,000.

Answer: Tax payable is ₹26,000, including 4% cess. The ₹1,25,000 threshold applies to her as it does to a resident. But she cannot use any unused basic exemption limit against this gain, because that adjustment is available only to residents.

Exam tips

Questions often hide the answer in a number of days. Compute it before reading the options.
Watch the ₹15,00,000 limit. It is Indian-source income. Above it, the second test for a visiting citizen or PIO needs 120 days in the year plus 365 days in the 4 preceding years. At or below it, 182 days are needed. The same limit is used for deemed residence.
Know what is taxed under each status. A table-style match of ROR, RNOR and NR is a common question.
On DTAA, remember the conditions: the Act or the treaty, whichever is more beneficial, and TRC with Form 10F.
Check dates of transfer in capital gains questions, because rates changed on 23 July 2024.

Practice questions from Tax Provisions for Special Cases

Taxation of Non-Residents and NRIs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalSpecial Provisions for Non-Resident Indians

Taxation of Non-Residents and NRIs: frequently asked questions

How do I determine residential status under the Income-tax Act?

Count your days in India in the previous year. You are resident if you stayed 182 days or more, or 60 days or more in the year plus 365 days or more in the 4 preceding years. Relaxations apply to Indian citizens and PIOs visiting India and to those leaving for work abroad.

Is NRE account interest taxable in India?

Interest on an NRE account is exempt for a person resident outside India under FEMA. Interest on an NRO account is taxable in India and has tax deducted at source.

What is the difference between a resident and a non-resident for tax?

A resident and ordinarily resident is taxed on global income. A non-resident is taxed only on income received in India or accruing or arising in India. Status is decided by days of stay, not by citizenship.

How does DTAA help an NRI?

A DTAA between India and the NRI's country of residence prevents the same income being taxed twice. The NRI can claim exemption or a tax credit and may choose the Act or the treaty, whichever is more beneficial. A tax residency certificate and Form 10F are normally needed.