Tax planning has always played a central role in managing cross-border investments, but lately, the importance of structured and well-informed tax planning for NRIs (non-resident Indians) has increased significantly. India’s updated tax residency rules are expected to apply from April 2026, and the new rules aim to streamline how residential status is determined, especially for globally mobile individuals, as there has been a strong need for clarity and forward-planning for individuals living abroad with financial ties to India.
Many NRIs maintain active financial relationships with India through property, NRE/NRO banking, equity investments, or inherited assets. Yet the taxation framework for NRIs is built on one key pivot: residential status. Every tax accountability, from what income gets taxed, to which exemptions apply, to how the NRI tax slabs in India are computed, flows from this classification. This blog aims to provide a clearer understanding of these rules.
Why NRI Tax Planning Matters in 2026
With the new residency rules slated to come into effect from April 2026, NRIs must understand how even slightest changes in their travel patterns or income thresholds can alter their tax status. The updates emphasise concepts such as “significant economic presence” and “deemed residency,” making compliance more nuanced than before (Source 1; Source 2; Source 3). Since residential status is recalculated every financial year, a single period of extended stay or an increase in India-sourced income can shift a person from non-resident to resident — creating a tax liability on their global income.
This makes proactive planning essential to avoid unintended financial implications. A strategic approach to travel scheduling, investment allocation, property transactions, and documentation will help NRIs avoid overstated tax liability or unexpected assessments. In short, 2026 represents a pivotal year for Indian individuals balancing financial lives across borders.
Suggested Reading: NRIs and Indian Investments: Being Cautious Without Losing Growth
Understanding Residential Status: The Core of NRI Taxation
According to the Income Tax Act, 1961, the residential status of an Indian citizen is determined primarily by the number of days spent in India within the financial year. The official Income Tax portal (Source) and the government’s residency guide (Source) explain these rules with precision.
You are considered a resident in India if:
- You stay in India for 182 days or more during a financial year; OR
- You stay for 60 days in the relevant financial year and 365 days over the preceding four years.
Those who do not meet these thresholds are classified as Non-Resident Indians (NRIs).
However, exceptions apply. For instance, Indian citizens leaving for employment abroad may not be subject to the 60-day rule, and certain high-income individuals shall fall under “deemed residency” based on updated 2026 criteria.
This is why residency is the foundation of NRI taxation rules in India. NRIs are taxed only on income that is received or arises in India. In contrast, residents must report global income. The difference between these two classifications can significantly influence tax liability, making residency determination the first and most important step in tax planning.
Also Read: Unlisted Shares for NRIs
Taxability of Income for NRIs: What Counts as Taxable Income
Under the Income-tax Act and guidance issued by the Income Tax Department, a non-resident Indian (NRI) is taxable in India only on income that accrues or arises in India or is received in India. Examples include rental income from property located in India, capital gains on assets situated in India, and interest credited to NRO accounts.
Interest on NRE and FCNR deposits, while the investor remains an NRI, is generally exempt from Indian tax; interest on NRO accounts, by contrast, is taxable in India. For immovable property, rental income is taxed in India after allowing the standard deductions available under the Act.
Capital gains on transfers of assets located in India are taxable in India and are computed under the capital-gains provisions of the Act, generally by deducting the cost of acquisition (with indexation where applicable) and allowable costs from the full value of consideration to arrive at capital gains, and then applying the relevant tax rate. Recent legislative changes (Finance Act) have impacted indexation and rates for certain long-term capital gains; consult the Income Tax Department guidance for exact treatment by asset class and assessment year.
TDS and timing of withholding: Payments to non-residents are generally subject to withholding under Section 195 of the Income-tax Act; the payer (the “person responsible for paying”) is required to deduct tax at source while making payment to a non-resident, even where tax may ultimately be determined to be lower on assessment. This can result in a higher withholding at source relative to the NRI’s final tax liability, which is why NRIs frequently reconcile TDS and file returns to claim refunds where appropriate. For capital-gains transactions, the payer/buyer often withholds under the specific capital-gains provisions at the time of payment as prescribed by law (Source 1) (Source 2)
In short: the legal test is source-based. If the income arises or is received in India, it falls under India’s tax net for NRIs; the Income-tax Act and the Income Tax Department’s guidance are the primary authorities for these rules.
How Tax Computation and Filing Works for NRIs
The tax treatment for NRIs is governed by the Income-tax Act, 1961, as administered by the Central Board of Direct Taxes (CBDT), which outlines taxable income, withholding rules, and compliance obligations.
To compute tax:
- All taxable Indian income sources like the rental income, capital gains, NRO interest must be aggregated.
- Eligible deductions permitted to NRIs (Source), such as 80C, 80D, and 80G, are applied.
- TDS deductions must be reconciled; since TDS rates for NRIs are often high, refunds are common.
Collectively, these varying elements of tax liability makes NRI tax filing essential.
An NRI is required to file a tax return in India when Indian income exceeds the basic exemption threshold or when tax has been deducted and a refund is due. Filing is a legal obligation in such income occurrences or tax-deduction events, and non-compliance may delay refunds or invite notices under the Act.
Benefits and Deductions Available to NRIs
Effective tax planning includes identifying available deductions and exemptions.NRIs may claim deductions under:
- Section 80C — life insurance premiums, ELSS funds, principal repayment on home loans
- Section 80D — health insurance premiums
- Section 80G — eligible charitable contributions
Long-term capital gains (LTCG) on equity-oriented instruments also follow specific holding-period rules under the Income-tax Act. Equity shares and equity-oriented mutual funds held for more than 12 months qualify as long-term assets, and LTCG above the prescribed threshold is currently taxed at 10% without indexation, provided STT conditions are met. For NRIs, these gains continue to be taxable in India irrespective of their country of residence, and the TDS mechanism applies at the applicable rates. Double Taxation Avoidance Agreement (DTAA) provisions may offer relief in certain jurisdictions, making the choice of holding period and repatriation route an important part of tax-efficient planning.
Taxation Challenges for NRIs in 2026
The biggest taxation-related challenge NRIswould face in 2026 is the unintentional triggering of residency status. A slight misinterpretation of travel days or income thresholds can create a shift into residency, bringing global income into the Indian tax net.
Double taxation remains another risk when NRIs do not apply the Double Taxation Avoidance Agreement (DTAA) provisions correctly. Higher TDS rates on NRO accounts and real estate transactions can also create liquidity issues, requiring timely tax filing to claim the applicable income tax refund. Overall, the complexity of cross-border taxation makes systematic tax planning essential for NRIs.
How Rurash Financials Assists
In this evolving landscape, NRIs benefit immensely from an expert partner who understands both compliance and wealth strategy. Rurash Financials assists NRIs with residential status evaluation, capital gains’ planning, real estate-related taxation, documentation support, and long-term tax-efficient investment strategy. Our approach blends clarity, regulatory expertise, and a deep understanding of cross-border wealth behaviour, thus helping NRIs stay compliant and confident.
Conclusion
With India’s tax residency rules set to change in 2026, NRIs must re-evaluate their tax position, income structure, and filing obligations. Understanding residential status, taxability of income, available deductions, and compliance requirements is now essential for efficient tax planning for NRIs.
For tailored taxation and investment advisory suited to your global financial life, the experts at Rurash Financials can help you navigate every step with clarity and confidence.
FAQs
The process of organising taxes on India-sourced income while ensuring full compliance with residency and filing rules.
NRIs pay tax only on income that arises or is received in India.
No, foreign income is not taxable unless the NRI becomes a resident under Indian law.
Rental income, NRO interest, capital gains, and income from business controlled in India.
Yes; equity, debt, and real estate gains are taxable at applicable capital gains taxation rates.
Yes, if their Indian income exceeds the exemption limit or if they seek a refund due to TDS.
Passport, visa details, entry-exit records, PAN, bank statements, investment proofs, Form 16A, and capital gains statements.