The Indian income tax filing season is here, and Non-Resident Indians (NRIs) need to stay updated with the latest tax rules. From changes in residential status to new exemptions on capital gains, this blog walks you through everything one need to know for NRI income tax filing in 2025.
Who is an NRI?
Your residential status plays a key role in determining your tax liability in India. For the financial year 2024-25 (assessment year 2025-26), you are considered an NRI if you do not meet any of these conditions:
- You stayed in India for 182 days or more during the financial year.
- You stayed in India for at least 60 days in the current year and 365 days or more in the last four years.
In certain special cases, like for Indian citizens working abroad or crew members of Indian ships, only the 182-day rule applies. Additionally, Indian citizens with income over ₹15 lakh in India (excluding foreign income) are treated differently.
What Income is Taxable for NRIs?
As an NRI, your global income is not taxable in India. However, income that is either received or accrued in India is subject to Indian tax laws. This includes:
- Salary for services rendered in India (even if paid abroad)
- Rent from property in India
- Capital gains on Indian assets such as real estate, shares, and mutual funds
- Interest on NRO accounts and fixed deposits
- Income from Indian business or profession
Some incomes are tax-free for NRIs, such as interest earned on NRE and FCNR accounts, and gifts from relatives under specified limits.
Capital Gains Tax Relief for NRIs
NRIs residing in countries like Singapore and the UAE can benefit from capital gains tax exemptions on mutual fund units in India, thanks to favorable provisions in their respective Double Taxation Avoidance Agreements (DTAAs). A recent ruling by the Mumbai ITAT confirmed that mutual fund units are not equivalent to shares, and hence capital gains from their sale are not taxable in India under Article 13(5) of the India-Singapore DTAA. This aligns with earlier cases involving UAE-based NRIs. Since Indian mutual funds are structured as trusts—not companies—under SEBI regulations, their units don’t qualify as shares under the Companies Act, 2013.
While this tax relief applies to mutual fund gains, it does not extend to Indian stock market investments. NRIs filing income tax returns in India must still report capital gains, even if exempt under DTAA, to ensure compliance. Experts caution that this loophole could encourage tax-motivated residency shifts, prompting calls for legal clarity to prevent misuse while preserving legitimate NRI tax benefits.
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ITR Filing Rules & Deadlines for NRIs
NRIs must file their income tax returns (ITR) if:
- Your total income in India exceeds ₹2.5 lakh.
- You have capital gains (even if they are below the threshold).
- You wish to claim a refund or carry forward losses.
There are two main ITR forms for NRIs:
- ITR-2: If you do not have income from business or profession.
- ITR-3: If you earn income from a business or profession in India.
The deadline for filing ITR is 31st July 2025, unless extended by the government.
Advance Tax for NRIs
If your total tax liability exceeds ₹10,000, you need to pay advance tax in installments. Failing to pay on time may result in penalties under Sections 234B and 234C.
Checkout – How to deal with Income Tax Notices for NRIs in 2025
Deductions and Exemptions for NRIs
NRIs are eligible for several deductions under the Income Tax Act, though some are not available to them. You can claim deductions under sections such as:
- Section 80C for investments in ELSS, life insurance premiums, and home loan repayments (up to ₹1.5 lakh).
- Section 80D for health insurance premiums.
- Section 80E for interest on education loans.
However, NRIs cannot claim deductions on new PPF accounts, senior citizen savings schemes, or certain other specific exemptions available to resident taxpayers.
Old vs. New Tax Regime
NRIs now face a key decision between the old and new tax regimes, especially as the government is actively incentivising a shift towards the new regime and has made it the default option from FY 2024-25. The new regime offers simplified compliance with lower tax rates, standard deduction of ₹75,000, and minimal documentation, making it attractive for those with fewer deductions or limited investment declarations. It also includes a higher tax rebate limit of ₹7 lakhs (₹12 lakhs in FY 2025-26 with enhanced Section 87A rebate) and reduced surcharge for HNIs. Select deductions like interest on let-out property, family pension, and NPS contributions are permitted under this regime.
In contrast, the old regime allows over 70 deductions and exemptions, such as HRA, LTA, and the popular Section 80C (up to ₹1.5 lakhs), which may appeal to NRIs with eligible investments and housing benefits. It also provides higher basic exemption limits for senior and super senior citizens, not available under the new system. However, it involves more paperwork and tax planning to optimise savings. With the new Income Tax Bill, 2025 proposing a long-term shift toward the new regime, NRIs must annually assess which structure yields better tax outcomes based on their income, deductions, and long-term financial goals. For FY 2024-25, opting for the old regime requires filing Form 10-IEA within the ITR deadline.
Double Taxation Avoidance Agreement (DTAA)
India has DTAAs with over 90 countries, which prevents NRIs from being taxed twice on the same income. Depending on your country of residence, you can claim either an exemption or a tax credit for taxes already paid abroad. Always ensure you have your Tax Residency Certificate (TRC) to claim DTAA benefits.
Final Thoughts
The NRI income tax filing is becoming increasingly complex, especially with new rules on deemed residency, capital gains, and evolving tax treaties. To make sure you comply with all the regulations and take advantage of the available exemptions, it’s a good idea to consult a tax advisor, particularly if you’re eligible for DTAA exemptions or are unsure about tax regimes.
Before filing, ensure your Form 26AS and AIS are up to date, and check if you need to file TDS returns if you receive rent from tenants. It’s important to file your ITR before the July 31st deadline.
FAQs
1. Who qualifies as an NRI for income tax purposes in India?
An individual is considered an NRI if they do not stay in India for 182 days or more during the financial year, or 60 days in the current year and 365 days over the previous four years. However, exceptions apply for Indian citizens working abroad and those with Indian income above ₹15 lakh.
2. Is global income taxable in India for NRIs?
No, global income is not taxable in India. Only income that is received in India or arises in India—such as rent from Indian property or capital gains from Indian assets—is subject to Indian income tax.
3. Are capital gains from mutual funds taxable for NRIs?
Generally, yes. However, a recent ruling by the Mumbai ITAT has clarified that capital gains on mutual funds for NRIs residing in certain countries like Singapore or UAE may not be taxable in India due to DTAA provisions. It’s best to consult a tax advisor and check the relevant treaty.
4. What ITR form should NRIs use?
If you have no business or professional income in India, use ITR-2. If you do have such income, then ITR-3 is applicable. Filing the correct form ensures smooth processing and refunds, if applicable.
5. Do NRIs need to pay advance tax?
Yes. If your total tax liability in India exceeds ₹10,000 in a financial year, you must pay advance tax in quarterly installments. Failing to do so may attract interest under Sections 234B and 234C.
6. Can NRIs choose between old and new tax regimes?
Yes. NRIs can opt for the old regime with deductions like 80C and 80D, or the new regime with lower tax rates but fewer deductions. You can switch annually unless you have business or professional income in India.
7. What documents should NRIs keep ready before filing their ITR?
You should keep your Form 26AS, AIS, bank account details, rental agreements (if applicable), capital gains statements, and Tax Residency Certificate (TRC) if you’re claiming DTAA benefits.
