Are you an NRI earning income both in India and abroad?
Are you worried about paying double tax or getting income tax notices from India?
This blog explains everything about NRI Taxation 2025 — including the new 120-day rule, DTAA, residential status, foreign income taxability, and tie-breaker rule.
Table of Contents
1. Who is an NRI under Indian Income Tax Law?
As per the Income Tax Act, 1961, your residential status determines whether your global income will be taxed in India or not.
You are treated as an NRI (Non-Resident Indian) if:
- You were in India for less than 182 days in the financial year OR
- You were in India for less than 60 days in that year and less than 365 days in the previous 4 years
But from FY 2020–21, the Finance Act introduced a new condition called the 120-day rule, which now affects many NRIs.
2. What is the 120-Day Rule?
This rule applies to:
- Indian citizens or Persons of Indian Origin (PIOs) who come to India temporarily
- And have total Indian income exceeding ₹15 lakh in a financial year
In such cases:
- If you stay in India for 120 days or more, but less than 182 days,
- And your Indian income exceeds ₹15 lakh,
You will be considered Resident but Not Ordinarily Resident (RNOR) instead of NRI.
3. Why RNOR Status Matters?
As an RNOR, your foreign income may also become taxable in India, especially if:
- The income is received or deemed to be received in India
- Or if it arises from a business controlled from India
This has created confusion and panic among many NRIs — especially those who visit India frequently or own businesses in India.
4. How is DTAA Useful for NRIs?
DTAA stands for Double Taxation Avoidance Agreement — a treaty signed between India and other countries to protect taxpayers from paying tax twice on the same income.
Example:
Let’s say you are an NRI living in the UAE.
You earn rent and interest from India (₹18 lakh) and a salary from UAE.
Without DTAA, you may pay:
- Tax in India on Indian income
- Tax in UAE on global income (especially after UAE corporate tax was introduced in 2024)
With DTAA:
- You can claim tax relief in either India or UAE
- You avoid double taxation
- You only pay net tax once, depending on treaty terms
India has signed DTAAs with 90+ countries, including:
- USA
- UK
- Canada
- Singapore
- UAE
- Australia
- Germany
5. Tie-Breaker Rule under DTAA – For Dual Residents
If both India and another country consider you a resident, then the tie-breaker test under the DTAA decides which country has primary taxation rights.
How the Tie-Breaker Works (Step-by-Step):
- Permanent Home
- Where do you have a permanent home? (Owned or rented)
- Centre of Vital Interests
- Where are your personal and economic relations stronger (e.g., family, bank accounts, job, business)
- Habitual Abode
- Where do you usually stay during the year?
- Nationality
- Which country’s passport do you hold?
- Mutual Agreement Procedure (MAP)
- If the above fail, both countries will talk and resolve based on treaty clauses
Tip: Tie-breaker tests are essential for high-net-worth NRIs or those with dual-residency situations.
6. What Type of Income Is Taxable for NRIs in India?
| Type of Income | Taxable in India? | TDS Applicable? |
|---|---|---|
| Salary earned in India | Yes | Yes (Section 192) |
| Salary earned outside India | No (if NRI), Yes (if RNOR) | No/Yes based on status |
| Rent from Indian property | Yes | Yes (Section 194I – 30%) |
| Interest on NRO account | Yes | Yes (30% TDS) |
| Interest on NRE/FCNR accounts | No | No |
| Capital gains on Indian assets | Yes | Yes (15% or 20%) |
| Dividends from Indian companies | Yes | Yes (20% TDS) |
| Foreign income (salary/business) | No (NRI), Maybe (RNOR) | May need DTAA proof |
7. How to Claim DTAA Benefit as NRI?
To avoid excess TDS or double taxation, NRIs must file proper documentation:
Documents Required:
- Tax Residency Certificate (TRC) – From the foreign country’s tax department
- Form 10F – To be filed online on income tax portal
- Self-Declaration Letter – Stating no Permanent Establishment (PE) in India
Without these, Indian banks and companies will deduct higher TDS.
8. Common Problems Faced by NRIs in 2025
- TDS deducted at 30% on interest/rent despite being eligible for DTAA benefit
- Foreign income taxed in India due to RNOR status and lack of DTAA claim
- ITR refund stuck due to incomplete Form 10F or TRC not uploaded
- Notices under Section 148A for mismatch in foreign bank transactions vs. ITR
- AIS & Form 26AS errors showing incorrect income/TDS
9. Step-by-Step Tips to Avoid Tax Trouble as NRI
- Track your days in India every financial year (important for residency status)
- Calculate Indian income and check if it exceeds ₹15 lakh
- Plan your visit duration if you want to retain NRI status
- File ITR even if TDS is already deducted (to claim refund or adjust against other incomes)
- File Form 10F + TRC before due date for DTAA relief
- Consult with taxgiveindia.com if you earn in multiple countries or are RNOR
10. Important Deadlines for NRI Taxation 2025
| Task | Due Date |
|---|---|
| ITR Filing (if no audit) | 15th September 2025 |
| ITR Filing with Audit | 31 October 2025 |
| Form 10F + TRC submission | Before ITR filing |
| Revised or Belated ITR | 31 December 2025 |
Conclusion
NRI taxation is not just about staying outside India — it’s about your total income, duration of stay, and proper documentation.
With the new 120-day rule, many NRIs unknowingly fall into RNOR category and face double taxation.
To avoid tax notices, penalties, or refund delays — know your residential status, understand DTAA, and file returns smartly.
If in doubt, take help from a professional — it saves money and peace of mind.