Income Tax for NRI FY 2026-27

Income tax for NRI FY 2026-27 follows the same slab structure as for resident Indians but with several important differences. NRIs are taxed only on income earned or received in India. The new tax regime is the default regime, and NRIs can opt for the old regime as well. However, key benefits available to residents such as the Section 87A tax rebate under the old regime and higher exemption limits for senior citizens are not available to NRIs. This guide covers residential status, taxable income types, TDS rates, DTAA benefits, available deductions, and the step-by-step ITR filing process for AY 2027-28.

Who Is an NRI for Income Tax Purposes?

Your residential status under the Income Tax Act determines how much of your income is taxable in India. Residential status is determined every financial year based on the number of days you were physically present in India. There are three categories:

• Resident and Ordinarily Resident (ROR): Taxed on global income. Most people who live and work in India fall in this category.
• Resident but Not Ordinarily Resident (RNOR): An in-between status for people who recently became residents after a long NRI period. Taxed mainly on Indian income with limited global income inclusion.
• Non-Resident Indian (NRI): Taxed only on income earned or received in India. No tax on foreign income.

When Are You an NRI?

You are an NRI for a financial year if you were present in India for fewer than 182 days during that year. A secondary test applies if your stay in the past four years was fewer than 365 days combined and you were in India for fewer than 60 days in the current year. Indian citizens working abroad on employment or crew members of Indian ships are subject to additional rules. Residential status must be determined fresh every year. It can change from year to year depending on travel patterns.

Income Tax Slabs for NRI FY 2026-27

NRIs follow the same income tax slab rates as resident individuals. There is no separate NRI tax slab. Budget 2026 made no changes to slab rates and the FY 2025-26 slabs continue for FY 2026-27.

New Tax Regime (Default)

Old Tax Regime

Important NRI-specific rules on slabs:

• NRIs do not get the benefit of higher basic exemption for senior citizens (Rs. 3 lakh) or super senior citizens (Rs. 5 lakh) under the old regime. The Rs. 2.5 lakh basic exemption applies to all NRIs regardless of age under the old regime.
• Under the new regime, the Rs. 4 lakh basic exemption applies uniformly to all, which is the same for residents and NRIs.
• The Section 87A tax rebate is NOT available to NRIs under either regime, old or new. Section 87A applies only to resident individuals. NRIs pay tax from the first rupee of income above the basic exemption limit with no rebate available.
• This means NRIs with Indian income between Rs. 4 lakh and Rs. 12 lakh under the new regime will pay actual tax at slab rates, unlike resident Indians who pay zero tax up to Rs. 12 lakh due to the Section 87A rebate.
• 4% health and education cess applies to all tax on NRI income, same as residents.

What Income Is Taxable in India for NRIs?

NRIs are taxed only on income that originates in India or is received in India. Income earned and received entirely outside India is not taxable in India for an NRI.

TDS Rates for NRI Income in FY 2026-27

NRIs face higher TDS rates than resident Indians on most income types. TDS is deducted by the payer at the time of payment. If actual tax liability after filing ITR is lower than TDS deducted, the excess can be claimed as a refund.

Note: TDS rates can be reduced under DTAA if the NRI provides a valid Tax Residency Certificate (TRC) and files Form 10F. Without these documents, the payer must deduct TDS at the full rate. The buyer of property from an NRI is responsible for deducting TDS. From October 1, 2026, TAN is no longer mandatory for resident individual and HUF buyers deducting TDS on NRI property transactions. A PAN-based challan is now sufficient for such buyers. Company and firm buyers still need TAN.

DTAA: How NRIs Can Reduce Tax in India

Double Taxation Avoidance Agreement (DTAA) is a tax treaty between India and another country that prevents NRIs from paying tax on the same income twice. India has DTAA agreements with over 90 countries including the USA, UK, UAE, Canada, Australia, Singapore, Germany, Netherlands, and Japan.

How DTAA Works for NRIs

• Under DTAA, the NRI pays tax in India at the lower of the Indian rate or the treaty rate for specific income types like interest, dividends, and royalties.
• For example, under the India-UAE DTAA, TDS on interest income from India can be reduced to 12.5% instead of the standard 30%.
• To claim DTAA benefits, the NRI must submit a Tax Residency Certificate (TRC) from the country of residence and file Form 10F electronically on the income tax portal. Both documents must be submitted to the payer before TDS is deducted.
• If tax is paid in India and the NRI’s country of residence also taxes the same income, the NRI can claim a Foreign Tax Credit (FTC) in their country of residence to offset the India tax paid.

DTAA Rates for Key Countries on Interest Income from India

Always verify the specific DTAA rate applicable to your income type directly with your tax adviser or on the income tax portal, as treaties are updated periodically. Recent updates to DTAA terms with the UK, UAE, and Singapore have changed some applicable rates from FY 2025-26 onwards.

Deductions Available to NRIs in FY 2026-27

NRIs can claim most deductions under the old tax regime, with a few exceptions that apply only to resident Indians.

Note: NRIs investing in PPF accounts they opened while they were resident Indians can continue contributing to those accounts but cannot open new PPF accounts as NRIs.

Capital Gains Tax for NRIs in FY 2026-27

Capital gains from Indian assets are taxable for NRIs. The rates are the same as for resident Indians from FY 2026-27. For a detailed breakdown of all capital gains rates and calculation methods, see our guide on capital gains tax for FY 2026-27.

NRIs selling property in India must note that the buyer is obligated to deduct TDS on the entire sale amount (not just on the gain) before paying the NRI. The TDS rate is 12.5% for LTCG property and 30% for STCG property. NRIs can apply for a Lower or Nil Deduction Certificate using Form 13 from the income tax portal to reduce excess TDS deduction if their actual tax liability is lower.

NRO and NRE Accounts: Tax Treatment Summary

When NRIs return to India permanently, their NRE accounts convert to resident accounts and the interest exemption ends. The NRO account treatment remains the same.

How to File ITR as an NRI for AY 2027-28

1. Determine your residential status. Count days spent in India during FY 2026-27. Confirm whether you are NRI, RNOR, or Resident for that year. Status can change year to year.
2. List all Indian income. Salary earned in India, NRO interest, rental income from Indian property, capital gains from Indian shares or property, dividends from Indian companies. Exclude NRE and FCNR interest and all foreign income.
3. Check your AIS and Form 26AS. All TDS deducted on your Indian income by banks, tenants, and brokers will appear in your Annual Information Statement (AIS). Verify every entry before filing. For a detailed walkthrough, see our guide on how to read Form 26AS and AIS.
4. Choose the correct ITR form. Most NRIs use ITR-2 (salary, capital gains, house property, no business income). If you have business income from India, use ITR-3. NRIs cannot use ITR-1. See our guide on new ITR forms for AY 2026-27 for full details.
5. Compare old and new regime. If you have significant deductions (home loan, 80C investments), calculate both. Note that Section 87A rebate is NOT available to NRIs under either regime, so actual slab rates apply from the first rupee above the basic exemption limit.
6. Claim DTAA relief if applicable. Submit TRC and Form 10F electronically on the portal before filing. Claim relief under Schedule FSI (Foreign Source Income) and Schedule TR (Tax Relief) in your ITR.
7. Declare Indian assets if required. NRIs filing ITR-2 with Indian total assets exceeding Rs. 1 crore must declare assets including deposits, property, shares, and mutual funds. Liabilities above Rs. 50 lakh must also be disclosed.
8. File before the deadline. The ITR filing last date 2026 for NRIs filing ITR-2 is July 31, 2026. For ITR-3 without tax audit, the deadline is August 31, 2026. File on the Income Tax Portal using your PAN login.

Understanding the tax year vs financial year distinction is especially important for NRIs since determining which year’s rules apply depends on when income was earned versus when the return is filed.

Real Example: NRI with NRO Interest and Rental Income

Profile: Rahul, NRI in UAE for 10 years. Owns a flat in Pune rented out at Rs. 25,000 per month (Rs. 3 lakh per year). Also has Rs. 5 lakh in NRO fixed deposit earning Rs. 40,000 interest per year. No Indian salary income.

Under the old tax regime, Rs. 2.5 lakh is below the basic exemption limit. Rahul’s actual tax liability is zero. However, TDS of Rs. 72,000 has already been deducted. Rahul must file ITR-2 to claim a refund of Rs. 72,000.

Under the India-UAE DTAA, Rahul could also have provided his TRC and Form 10F to the bank before the FD was renewed to reduce TDS on NRO interest from 30% to 12.5%. Going forward this can save meaningful TDS on large NRO deposits.

Frequently Asked Questions

Do NRIs pay income tax in India?

Yes, NRIs pay income tax in India on income that arises or is received in India. This includes salary for work done in India, NRO account interest, rental income from Indian property, capital gains from Indian assets, and dividends from Indian companies. NRE and FCNR interest and all foreign income are not taxable in India.

Is NRE account interest taxable in India?

No. Interest on NRE (Non-Resident External) accounts and FCNR (Foreign Currency Non-Resident) accounts is fully tax-free in India for NRIs. Interest on NRO (Non-Resident Ordinary) accounts is fully taxable with TDS at 30% plus surcharge plus cess.

Can NRIs claim Section 87A rebate?

No. Section 87A rebate is NOT available to NRIs under either the old or the new tax regime. The rebate is available only to resident individuals as per Section 6 of the Income Tax Act. This is one of the most important differences between NRI and resident taxation. An NRI with Indian income of Rs. 10 lakh under the new regime will pay actual tax at slab rates, while a resident Indian with the same income pays zero tax due to the rebate. NRIs pay tax from the first rupee above the basic exemption limit with no rebate offset available.

Which ITR form should NRIs use?

Most NRIs file ITR-2, which covers income from salary, house property, capital gains, and other sources. NRIs cannot use ITR-1 (Sahaj), which is only for resident Indians with simple income. If the NRI has business income from India, ITR-3 must be used. The deadline for ITR-2 is July 31 and for ITR-3 (non-audit) is August 31.

What is Form 10F and when does an NRI need it?

Form 10F is a self-declaration form filed electronically on the income tax portal by an NRI who wants to claim lower TDS rates under a DTAA. It supplements the Tax Residency Certificate (TRC) issued by the foreign country. Both documents must be submitted to the payer (bank, tenant, company) before TDS is deducted. Without Form 10F, the payer must deduct TDS at the full Indian rate even if a treaty rate is lower.

Is rental income from India taxable for NRIs?

Yes. Rental income from property located in India is taxable for NRIs regardless of whether the rent is credited to an Indian account or directly to a foreign account. A standard deduction of 30% is allowed on gross rent. If annual rent exceeds Rs. 2.4 lakh, the tenant must deduct TDS at 30% (plus surcharge and cess) and file Form 15CA. NRIs must declare rental income in their ITR and pay tax at slab rates after the standard deduction.

How do NRIs avoid double taxation on Indian income?

NRIs avoid double taxation through the DTAA between India and their country of residence. The NRI can either pay tax at the lower treaty rate in India, or pay full tax in India and then claim a Foreign Tax Credit (FTC) in their country of residence to offset the Indian tax already paid. The exact method depends on the specific DTAA and the type of income. Submitting TRC and Form 10F to the payer allows lower TDS deduction at source itself, avoiding the need for a larger refund at the time of filing.

Written & Reviewed by

Diksha Chawla

Financial Educator & Content Creator | FinLecture.in

Diksha covers Indian income tax, mutual funds, ITR filing, and personal finance. FinLecture content is cross-checked against official government portals and SEBI/AMFI guidelines.

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