Understanding NRI Taxation in India

Understanding NRI Taxation in India

Living abroad doesn’t free you from tax obligations in India—especially when your income spans borders. For Non-Resident Indians (NRIs) returning to India or earning income from foreign sources, Sections 89A and 115H can provide significant tax relief. Whether it’s avoiding double taxation or managing income from foreign assets, these provisions are designed to ease the transition and reduce tax friction. In this blog, we break down what each section means and how it applies to your financial life.

NRI Taxation in India

Non-resident Indians (NRIs) earning income in or from India are liable to pay taxes by Indian laws. While global income is not taxed for NRI, any income arising or received in India—such as rent, interest, or capital gains—is taxable. Additionally, complexities arise when Non-Resident Indians (NRIs) return to India or receive income from foreign sources. The Indian Income Tax Act includes specific provisions, such as Sections 89A and 115H, to provide relief and clarity in such cases and avoid double taxation or compliance issues.

Section 89A: Relief from Double Taxation on Foreign Retirement Income

Section 89A was introduced to address a common challenge faced by Non-Resident Indians (NRIs)—double taxation on foreign retirement income. In many countries, retirement benefits such as pensions are taxed at the time of withdrawal. However, under Indian law, they could be taxed when they accrue, leading to a mismatch in tax treatment across jurisdictions.

This section enables eligible Non-Resident Indians (NRIs) to defer taxation in India until the income is received, aligning it with the tax regime of the foreign country. It applies explicitly to NRIs who have income from notified foreign retirement funds and are residents in India during the relevant financial year. To avail of the benefit, a declaration must be filed in the prescribed form before the due date for filing the income tax return. This provision offers significant relief by preventing unfair double taxation and making post-return financial planning more efficient.

Section 115H: Tax Benefits for NRIs Returning to India

Section 115H of the Income Tax Act provides tax benefits to Non-Resident Indians (NRIs) who return to India and become residents. It allows them to continue enjoying the special tax rates applicable to NRIs on certain income—such as interest or dividends—from foreign assets even after changing their residential status.

This benefit is available for the period during which income continues to accrue from foreign sources acquired while the person was a non-resident. To claim this, the individual must declare the income in their return and opt for taxation under Chapter XII XII A of the Income Tax Act.

Section 115H ensures a smoother financial transition for returning Non-Resident Indians (NRIs) by providing continuity in tax treatment for foreign investments and reducing the overall tax burden during the adjustment phase.

Tax Deductions and Exemptions Available to NRIs

Non-resident Indians (NRIs) are entitled to several tax deductions and exemptions under Indian tax laws, just like resident taxpayers. However, some benefits are restricted or limited based on the nature of income and eligibility. Deductions under Sections 80C, 80D, 80G, and 80TTA are commonly available to Non-Resident Indians (NRIs) for investments, insurance premiums, donations, and interest on savings accounts. It’s essential for NRIs to carefully choose eligible financial instruments and plan accordingly to maximise tax savings while remaining compliant with Indian regulations.

Major Sections Under Which NRIs Can Claim Tax Benefits, Including 80C, 80D, etc.

• Section 80C: Deductions up to ₹1.5 lakh for investments like ELSS, life insurance premiums, PPF (existing account only), and principal on home loans.
• Section 80D: Deduction for health insurance premiums—₹25,000 (₹50,000 for senior citizens).
• Section 80G: Donations to eligible charitable institutions can qualify for tax benefits under Section 80G.
• Section 80TTA: Deduction up to ₹10,000 on interest from savings accounts in India

Tax Filing for NRIs: Key Rules and Deadlines

ITR Form Applicable to NRIs

• ITR-2 is typically applicable for NRIs with income from capital gains, rent, or foreign assets.
• Use ITR-1 only if income is from salary, one house property, or interest, and the total income is below ₹50 lakh.
• NRI taxpayers cannot use ITR-4 (for presumptive taxation).

Advance Tax Requirement

• Non-resident Indians (NRIs) must pay advance tax if their tax liability exceeds ₹10,000 in a financial year.
• Payments are made in four instalments during the year (June, September, December, and March).
• Non-payment attracts interest under Sections 234B and 234C.

Due Dates for Filing ITR

• The standard due date for NRIs is 31st July of the assessment year.
• If accounts require an audit (for business or profession), the due date is 31st October.
• Belated returns can be filed by 31st December, with penalties.

How to Avoid Double Taxation: DTAA Explained

India has signed Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. These treaties help NRIs avoid being taxed twice—once in India and again in the country of residence. Under a Double Taxation Avoidance Agreement (DTAA), NRIs can claim a tax credit, exemption, or reduced tax rate, depending on the agreement’s terms. To avail of these benefits, NRIs must provide a Tax Residency Certificate (TRC) and relevant disclosures while filing their Indian tax return. Proper use of DTAA provisions ensures compliance while minimising tax outflow.

Key Points to Remember for NRIs

• Only income earned or received in India is taxable for non-resident Indians (NRIs).
• Foreign income is not taxed unless you become a resident.
• Deductions under sections 80C and 80D are allowed, subject to certain restrictions.
• File returns using the correct ITR form to avoid notices.
• Ensure proper disclosure of foreign assets and accounts, if applicable.

Comparison Between Section 89A and Section 115H

Sections 89A and 115H of the Income Tax Act offer specific relief to NRIs—but they cater to different situations. While Section 89A addresses the issue of double taxation on foreign retirement income, Section 115H provides continued tax benefits.

Aspect	Section 89A	Section 115H
Purpose	Avoids double taxation on foreign retirement income	Continues NRI tax benefits after becoming a resident
Target Group	NRIs receiving income from notified foreign retirement funds	Returning NRIs with income from foreign assets
Applicability	Applicable when NRI becomes a resident in India	Applicable from the year of return to India
Condition	Income taxed on receipt basis, not accrual basis	Must opt for Chapter XII XII A in ITR to claim benefit
Benefit	Aligns tax timing with foreign laws	Allows lower NRI tax rates on eligible income

Both provisions are designed to ease tax obligations for NRIs but serve different stages of the NRI journey. Section 89A benefits those transitioning back to India with foreign retirement income, while Section 115H helps returning Non-Resident Indians (NRIs) continue to enjoy tax benefits on investments made abroad.

FAQs on NRI Taxation, Section 89A & Section 115H

What is the income claimed for relief under Section 89A?

Section 89A provides relief on income earned from foreign retirement benefit accounts. It allows such income to be taxed in India in the year of receipt (not on an accrual basis), aligning with the tax rules of the foreign country and avoiding double taxation for returning non-resident Indians (NRIs).

Who is eligible for benefits under Section 115H of the Income Tax Act?

Any NRI who has returned to India and becomes a resident can claim benefits under Section 115H. This section allows them to continue enjoying concessional tax rates on income earned from foreign assets acquired. At the same time, they were non-residents, provided they opted for this in their income tax return (ITR).

Do Non-Resident Indians (NRIs) need to pay tax in India on their foreign income?

No, NRIs are taxed in India only on income earned or received in India. Foreign income is not taxable in India unless the NRI becomes a resident under Indian tax law and meets conditions under the residential status rules.

What are the significant tax exemptions for NRIs in India?

NRIs can claim exemptions under Section 10(4) (interest on NRE accounts), Section 10(15)(i) (certain interest income), and tax relief under Double Taxation Avoidance Agreement (DTAA) agreements. Other deductions under Sections 80C, 80D, and 80G are also available, albeit with certain limitations.

Which ITR form should an NRI use for filing returns?

Most non-resident Indians (NRIs) should use ITR-2—especially if they have capital gains, multiple properties, or foreign assets. ITR-1 is applicable only if income is below ₹50 lakh from salary, one house property, and Indian interest income. ITR-4 is not allowed for NRIs.

AN Jul 43/25