Most NRIs ask the same question first: what Indian income is taxable, and what is not? NRI income taxable in India is limited to what you receive in India or what arises from an Indian source. Interest on an NRE account is exempt, while interest on an NRO account, rent from a flat in Pune or Mumbai, Indian dividends and capital gains are taxable. Your U.S. salary and foreign investments are outside Indian tax as long as you remain a non-resident. This page explains each item, the usual TDS, the special NRI regime, and how a refund arises when too much tax has been deducted.
What is NRI income taxable in India?
Section 5 sets the reach of Indian tax. A non-resident's total income includes income received or deemed to be received in India and income that accrues or arises, or is deemed to accrue or arise, in India. Section 9 lists deemed Indian-source income, including income from any asset, property or business connection in India, the transfer of an Indian capital asset, Indian-paid dividends, salary earned in India, and interest, royalty and technical fees paid by an Indian payer. The test of residence is in India residency rules.
| Income | Treatment for a non-resident | Notes |
|---|---|---|
| NRE account interest | Exempt (Schedule IV, entry 1, 2025 Act) | Exemption depends on FEMA non-resident status |
| FCNR(B) deposit interest | RBI lists it as exempt | Income-tax conditions depend on your tax status; confirm with your CA |
| NRO account interest | Taxable | Banks deduct tax at source |
| Rent from Indian property | Taxable under "income from house property" | 30% deduction on annual value, plus interest on borrowed capital |
| Dividends from Indian companies and funds | Taxable | Special rate under the NRI rules; TDS at 20% plus cess |
| Capital gains | Taxable | See capital gains for NRIs |
| Salary for work done in India | Taxable | Salary for work done outside India is not Indian-source |
| U.S. wages, U.S. interest and U.S. gains | Not taxed in India | Remain taxable in the U.S. |
| Gifts from relatives, inheritance | Not income when received | See gifts and inheritance |
How are rent and interest taxed?
Rent is taxed as house property income. The Act allows a deduction of 30% of the annual value and interest on money borrowed to buy or build the property. Interest paid outside India is not deductible if tax was neither paid nor deducted on it and no agent in India is responsible. Property tax actually paid to the local authority is deducted from the annual value (section 21(3)). Self-occupied property interest is disallowed in the new tax regime, but let-out property interest is allowed.
Interest on an NRO savings or fixed deposit is ordinary income taxed at slab rates, and the RBI FAQ confirms NRO income is taxable while NRE and FCNR(B) income earned in the accounts is exempt. The 2025 Act and CBDT confirm that the NRE exemption continues and rests on FEMA residence.
What is the NRI special regime?
Sections 212 to 217 of the 2025 Act (sections 115C to 115I of the 1961 Act) offer an optional flat-rate regime for an NRI whose income comes from assets bought with convertible foreign exchange. "Specified assets" are shares of an Indian company, debentures and deposits of an Indian company that is not private, central government securities and other notified assets. Investment income is taxed at 20% with no deductions, and long-term gains on specified assets at 12.5%. An NRI whose income is only investment income or long-term gains with tax deducted need not file a return (section 216). The regime is optional: a declaration in the return opts out for that year (section 217(2)).
What deductions and rebates apply?
The new regime is the default. Section 202 uses these slabs: nil to ₹4 lakh, 5% to ₹8 lakh, 10% to ₹12 lakh, 15% to ₹16 lakh, 20% to ₹20 lakh, 25% to ₹24 lakh and 30% above. A non-resident cannot claim the rebate for incomes up to ₹12 lakh; the portal's ITR-2 FAQ is explicit. The higher exemption limits for seniors are written for residents. The older regime still allows deductions for specified investments, insurance and similar items, but the choice between regimes is made in the return.
How does TDS work on NRI income?
The 2025 Act (section 393(2), serial 17) requires payers to deduct tax on interest and other sums chargeable to tax at "rates in force". For individuals that usually means the top 30% rate plus 4% health and education cess, and a surcharge on large amounts. Dividends are charged at 20%. Banks, tenants, mutual funds and brokers must deduct. A payer that does not receive a PAN deducts at least 20%, though non-residents are excused from quoting a PAN for some payments, if they give the prescribed details. TDS is a prepayment, not the final bill.
Which treaty limits help a U.S. resident?
The US-India treaty caps Indian tax at 15% on most interest (10% on interest on loans from banks or similar institutions) and at 25% on dividends paid to an individual. Because India's domestic dividend rate is 20%, the treaty adds nothing on dividends. Article 6 lets India tax rent from Indian property, and Article 25 gives U.S. persons a credit against U.S. tax for Indian income tax paid. To claim treaty rates on interest you normally give the payer a tax residency certificate and the information form (Form 10F under the old rules, Form 41 under the 2026 Rules); see India tax treaties, Form 10F and TRC.
Do you have to file a return?
You need to file if total income exceeds the basic exemption before deductions (section 263(1)(a)(iii)), if you want a refund of excess TDS, or if you have a loss to carry forward. Advance tax is due if the tax payable is ₹10,000 or more, with interest under sections 234B and 234C of the 1961 Act for FY 2025-26 if short-paid. Filing steps are in NRI ITR filing step by step.
A worked example
Vikram lives in Aurora, Illinois and grew up in Hyderabad. For FY 2025-26 he has NRO interest of ₹4,00,000, gross rent of ₹6,00,000 and Indian dividends of ₹50,000. Net rent after the 30% deduction is ₹4,20,000, so total income is ₹8,70,000. At the new-regime slabs, tax is ₹20,000 on the second slab plus ₹7,000 on the next ₹70,000, or ₹27,000, plus 4% cess for ₹28,080. Assume the payers deduct 31.2% on interest and rent and 20.8% on dividends: TDS is ₹1,24,800 plus ₹1,87,200 plus ₹10,400, or ₹3,22,400. He files a return and claims a refund of about ₹2,94,320. Without a return that surplus would stay with the government.
Documents you need
- PAN, bank interest certificates and NRO statements
- Rent agreement, rent receipts and municipal tax receipts
- Dividend statements from the registrar or fund house
- Tax residency certificate and Form 10F or Form 41 for treaty claims
- AIS and Form 26AS; see the portal and AIS guide
Mistakes to avoid
- Keeping interest in an NRE account after you become resident. The exemption ends and the account must be redesignated.
- Letting tenants deduct tax without a TAN-based or PAN-based process, then losing the credit.
- Assuming the treaty reduces dividend TDS below 20%.
- Not reporting rent because the tenant deducted tax.
U.S. side
U.S. citizens and residents report all of this income on Form 1040, including NRE interest that India exempts, and may claim the foreign tax credit for Indian tax actually paid, subject to treaty limits. Interest and rent accounts are reportable on FBAR and Form 8938. See foreign tax credits across three countries.
How we can help
We report your Indian income on the U.S. return from our Aurora, Illinois office, claims the foreign tax credit and files the foreign-account forms, coordinating with your Indian CA so the two returns agree. We do not file Indian returns. See individual tax returns for newcomers and NRIs and real estate investor tax. See the India hub for the related guides.
Frequently asked questions
Is NRE interest taxable in the United States?
For a U.S. citizen or resident, yes. India exempts it, but the United States taxes worldwide income. There is no Indian tax paid to claim as a credit.
Do NRIs pay tax on Indian dividends?
Yes. The domestic rate is 20% for non-residents, plus cess, and tax is deducted at source.
How much TDS applies to NRO interest?
Payers deduct at rates in force, which for individuals is usually 30% plus cess. Confirm with your bank, since treaty relief needs documents.
Can I claim a refund without living in India?
Yes. File a return, pre-validate an Indian bank account and verify the return electronically.
Is money I bring from the United States taxable in India?
Moving your own savings or salary to India is a transfer of capital, not Indian income. Income that is first received in India is taxable for a non-resident under section 5, so ask your CA before routing income through an Indian account.
Official sources
- Income Tax Department: Income-tax Act, 2025, sections 5, 9, 20-22, 202, 213-217 and Schedule IV (as amended by the Finance Act, 2026)
- Income Tax Department: Benefits available to non-residents, AY 2026-27
- CBDT: FAQs on Interplay and Transition (NRE interest and NRI regime)
- RBI: FAQs on accounts in India by non-residents
- Income Tax Department e-filing portal: ITR-2 FAQs for AY 2026-27
- IRS: United States-India income tax convention
This page summarizes public guidance in plain language. If anything here differs from the official source, the official source controls.
General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.