The income tax filing window for the Assessment Year 2025–26 is now open, with the Central Board of Direct Taxes (CBDT) officially notifying all seven ITR forms. During this period, individuals and businesses are required to report their income, claim deductions, and declare their tax liability to the Indian government by submitting their Income Tax Return (ITR).
For non-resident Indians (NRIs), filing taxes in India requires extra attention. One of the first steps is to assess whether your income falls under the Indian tax net or is taxable only in your country of residence. Indian tax laws include specific provisions for NRIs, so ensuring compliance with the right rules is crucial.
Special Tax Regime for NRIs
Non-Resident Indians (NRIs) investing in India have the option to avail of a special tax regime under Chapter XII-A of the Income Tax Act, 1961. This optional regime provides concessional tax rates on income from specific foreign exchange (FOREX) assets — including shares of Indian companies, debentures or deposits with Indian public companies, and securities of the Central Government.
“Chapter XII-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act) provides a special optional tax regime for (NRIs) in respect of certain investment income and long-term capital gains from specified foreign exchange (FOREX) assets (such as shares of Indian company, debentures and deposits with Indian public company, securities of Central Government, etc),” CA Dr Suresh Surana told Business Today.
Here are the top points:
1. Tax Rates:
Under this regime, NRIs can benefit from special tax rates:
Long-term capital gains (LTCG) from specified FOREX assets are taxed at 10%, which has been increased to 12.5% with effect from June 23, 2024.
Investment income, such as interest and dividends from specified assets, is taxed at 20%.
Any other income not covered under this regime is taxed at the standard applicable rates.
2. No deductions or indexation benefits:
NRIs opting for Chapter XII-A:
Cannot claim deductions under Chapter VI-A (which includes popular deductions under sections 80C, 80D, etc.).
Are not eligible for indexation benefits on LTCG.
Cannot deduct expenses or claim allowances while computing investment income.
Do not get the benefit of forex fluctuation adjustment under the first proviso to Section 48 for LTCG from specified FOREX assets.
3. Exemption from return filing
An NRI is not required to file an income tax return in India if:
Their only income during the financial year is investment income and/or LTCG from specified FOREX assets, and
The relevant tax has been deducted at source (TDS).
4. Flexibility to opt out
NRIs may choose not to adopt this special regime in a particular financial year. To do this, they must declare their intent to opt out in the return of income and inform the Assessing Officer accordingly.
5. Continued benefits even after returning to India:
If an NRI becomes a resident in future, the benefits of Chapter XII-A continue for income from existing specified FOREX assets until those assets are either transferred or converted into money.
Taxation for NRIs
To be classified as a Non-Resident Indian (NRI) in a specific tax year, an individual must meet one of the following criteria:
Residing outside of India for 182 days or more during the previous year
Living outside of India for 60 days or more during the previous year and for a total of 365 days or more over the four years immediately preceding the previous year.
NRIs are permitted to invest in a range of financial instruments and real estate within the country, except for agricultural or plantation property or a farmhouse. While they have the opportunity to purchase property and invest in other financial instruments, they are also obligated to pay taxes similar to residents living in India.
Tax forms for NRIs
The Income Tax Return (ITR) form depends on the nature of income:
ITR-2: To be used by individuals (Resident or Non-Resident) and Hindu Undivided Families (HUFs) not having business or professional income. This includes income from salary, rental property, capital gains, or other sources (excluding business income).
ITR-3: To be used by individuals or HUFs (Resident or Non-Resident) having income from business or profession in India.
One should note that ITR-1 (Sahaj) is not applicable to NRIs, even if their income falls under eligible heads.
“NRIs having income from salary, rental property, capital gains, or other sources (excluding business or professional income) are required to file ITR-2. Where the NRI earns income from business or profession in India, ITR-3 shall be applicable. It is important to note that ITR-1 (Sahaj) is not available for NRIs, even if their income falls within the eligible heads,” Dr Surana said.
Last date to file ITR forms
The last date to file ITR for the financial year 2024–25 (relevant to Assessment Year 2025–26) is July 31, 2025, for those not subject to a tax audit, including most NRIs. It’s also important to note that all deadlines and processes follow Indian Standard Time (IST), regardless of where the taxpayer resides.