NRI Taxation & FEMA Compliance — Complete Guide for Non-Resident Indians

Non-Resident Indians (NRIs) face a unique and complex set of financial and tax obligations in India — spanning income tax on India-sourced income, FEMA compliance for investments and remittances, NRI bank account rules, property transactions, and repatriation of funds. Getting any of these wrong can mean penalties, blocked remittances, and tax demands. This guide covers the key areas of NRI taxation and financial compliance in India that every NRI must understand.

1. Determining NRI Status — Tax Residency in India

Your residential status for income tax is determined each financial year under Section 6 of the Income Tax Act — not by your passport or visa status:

• Resident and Ordinarily Resident (ROR): Present in India for ≥182 days in the FY, OR ≥60 days in FY and ≥365 days in preceding 4 years
• Resident but Not Ordinarily Resident (RNOR): Was NRI for 9 out of 10 preceding years, or present ≤729 days in preceding 7 years
• Non-Resident (NRI): Does not meet Resident conditions above

An NRI is taxable in India ONLY on income earned or received in India. A Resident is taxable on global income.

2. What Income is Taxable for NRIs in India?

• Rent from Indian property: Fully taxable in India — TDS at 30% by tenant (Section 195) before remitting rent to NRI
• Capital gains on Indian assets: Gains on sale of property, shares, mutual funds in India — taxable in India
• Interest on NRO accounts: Taxable at 30% — TDS deducted by bank
• Salary for services rendered in India: Taxable if work performed in India
• Business income from India: Taxable if business has a Permanent Establishment in India
• Interest on NRE accounts: Exempt from Indian income tax
• Income from outside India: Not taxable in India for NRIs

3. NRI Bank Accounts — NRE vs NRO vs FCNR

Account Type	Currency	Source of Funds	Repatriability	Taxability
NRE (Non-Resident External)	INR	Foreign earnings remitted to India	Fully repatriable	Interest exempt
NRO (Non-Resident Ordinary)	INR	India-sourced income (rent, salary, etc.)	Repatriable up to USD 1 million per year with CA certificate	Interest taxable at 30%
FCNR (Foreign Currency Non-Resident)	Foreign currency	Foreign earnings	Fully repatriable	Interest exempt

4. NRI Property Transactions in India

• Buying property: NRIs can purchase residential and commercial property freely. Cannot purchase agricultural land, plantation, or farmhouse without RBI permission.
• Selling property: Buyer must deduct TDS — 20% on long-term gains (held > 2 years), 30% on short-term gains for NRIs. NRI can claim lower TDS certificate if actual gain is lower.
• Repatriation of sale proceeds: Up to USD 1 million per financial year from NRO account with CA certificate (Form 15CA/15CB)
• Form 15CA/15CB: Mandatory for any foreign remittance from India above ₹5 lakh — CA certifies the tax compliance before remittance

5. NRI ITR Filing

NRIs with taxable income in India must file an Income Tax Return (ITR-2 or ITR-3). Even if tax was fully deducted at source, filing an ITR allows claiming refunds, reporting capital gains correctly, and avoiding notices. NRIs must also report foreign assets and foreign income in Schedule FA and Schedule FSI of the ITR (if becoming resident in any year).