Personal Finance News
5 min read | Updated on July 04, 2025, 11:43 IST
SUMMARY
NRI taxation may seem complex, but smart planning unlocks powerful opportunities. With sections like 115F, NRIs can legally save lakhs (or crores) in tax, reinvest efficiently in India, and maintain wealth creation across borders.
It's possible for NRIs to pay zero tax on capital gains. | Repesentational image
Non-Resident Indians (NRIs) are subject to Indian income tax laws but with specific provisions and exemptions tailored to their unique status. While most NRI incomes, like rent, dividends, and interest, are taxable in India, certain capital gains can be completely exempt from tax if strategic reinvestments are made.
Section 115F read with Section 115C of the Income Tax Act offers NRIs a golden opportunity to pay zero tax on long-term capital gains from foreign exchange assets.
Let us see how NRI taxation works, dive into types of income taxable in India, and demystify the powerful tax-saving strategy using Sections 115F and 115C.
But first, let’s see why it is important.
With rising cross-border asset holdings, understanding how India taxes NRIs has become essential, not just for compliance but also for intelligent wealth planning.
Under Section 6 of the Income Tax Act, an NRI is a person who:
were in India for less than 182 days during the relevant financial year, or
were in India for less than 60 days during the year and less than 365 days in the last 4 years.
The 60-day rule extends to 120 days if the individual is an Indian citizen or PIO visiting India with total income (excluding foreign income) up to ₹15 lakh.
The 60-day rule extends to 182 days if the individual is an Indian citizen and leaving indian for employment.
Here's a detailed look at how various types of income earned by NRIs are taxed under income tax:
Income Type | Taxability in India |
---|---|
Rent from Indian property | Taxable in India under "Income from House Property". Deduction: 30% std. + interest. |
Interest on NRO account | Fully taxable in India. |
Interest on NRE/FCNR deposits | Exempt as long as NRI status is maintained and account is funded via foreign income |
Dividends from Indian companies | Taxable as "Income from Other Sources". No threshold exemption. |
Short-term capital gains (STCG) | On listed shares: taxed at 20% under section 111A. Others are taxed at slab rate. |
Long-term capital gains (LTCG) | 12.5% above ₹1.25 lakh, subject to section 115F |
Business income from India | Taxable only if the business is controlled/set up in India. |
Gift received in India | Exempt, if received from relatives. Taxable if the value of the gift exceeds ₹50,000 and is received from a non-relative. |
Section 115F of the Income Tax Act provides full or proportional exemption from LTCG tax for NRIs who:
a “foreign exchange asset” is any asset purchased using convertible foreign exchange.
Reinvestment must be made in:
Exempt Capital Gain = (Cost of New Asset / Net Consideration) * Total Capital Gain
Example:
Exempt Gain = (₹3 crore / ₹4 crore) × ₹2 crore = ₹1.5 crore
Taxable Gain = ₹50 lakh
Lastly, NRI taxation may seem complex, but smart planning unlocks powerful opportunities. With sections like 115F, NRIs can:
This is not tax evasion. It’s strategic, lawful tax planning endorsed by the Income Tax Act.
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