A Non-Resident Indian (NRI) is an Indian citizen who resides outside India for purposes of employment, business, or any other purpose that indicates their intention to stay outside India for an uncertain duration.
Tax Residency Test (as per Income Tax Act):
You are considered a Non-Resident for tax purposes if you have been in India for:
Your residential status can change from year to year based on your physical presence in India. Always determine your status for each financial year separately.
Note:
You can invest in Indian mutual funds using either NRE or NRO accounts, but repatriation rules differ
NRIs are taxed at the same capital gains tax rates as resident Indians. However, TDS (Tax Deducted at Source) is applicable on capital gains for NRIs.
Tax Rate
20%
TDS Rate: 20%
Plus applicable surcharge and cess
Tax Rate
12.5%
On gains exceeding ₹1.25 lakh
TDS Rate: 12.5%
Plus applicable surcharge and cess
Tax Rate: Based on Income Tax Slab
Debt funds, hybrid funds with \u003c65% equity, and international FoFs are taxed at your applicable income tax slab rate
TDS Rate: 30%
Unlike resident Indians, TDS is deducted at a flat rate of 30% (plus surcharge and cess) on capital gains for NRIs from debt mutual funds
TDS is tax deducted directly at the source of income. When you redeem your mutual fund units and make a capital gain, the AMC (Asset Management Company) deducts TDS before crediting the redemption amount to your account.
TDS Rates Summary for NRIs:
India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. If you are a resident of a DTAA country, you may be eligible for lower TDS rates.
To claim DTAA benefits:
If the TDS deducted is more than your actual tax liability, you can claim a refund by filing an Income Tax Return (ITR) in India.
Step 1: Gather Documents
Step 2: File Income Tax Return (ITR)
File ITR-2 (for capital gains) on the Income Tax e-filing portal
Step 3: Verify Your ITR
Within 30 days of filing, verify your ITR using Aadhaar OTP, Net Banking, or by sending a signed physical copy to CPC Bangalore
Step 4: Receive Refund
After successful verification and processing, the refund will be credited to your bank account within 30-90 days
You must file your ITR within the due date (usually July 31st for the previous financial year) to claim a refund. Late filing may result in penalties and loss of refund eligibility.
For example, for FY 2024-25 (ending March 31, 2025), you should file by July 31, 2025.
LTCG from Equity Funds:
₹2,00,000
TDS Deducted (12.5%):
₹25,000
Tax Calculation:
Refund Eligible: ₹15,625
(TDS Deducted ₹25,000 - Actual Tax ₹9,375 = ₹15,625)