For non-resident Indians (NRIs) investing in India, understanding how different investments are taxed is essential before making financial decisions, as tax treatment varies significantly across assets.
Bank deposits, equities and mutual funds, bonds, NPS, AIFs and real estate all follow different tax rules.
Here’s what you should know about how India’s income tax treats various NRI investments and assets, along with applicable TDS and exemptions
“NRIs should first determine their residential status, as Indian tax liability depends on status and the source of income—not citizenship alone," CA Chandni Anandan, Tax Expert at ClearTax, said.
Here’s how various investments and assets held in India are taxed for NRIs.
NRE and FCNR(B) depositsare among the most tax-efficient options for eligible non-residents. Interest earned on both investments is generally exempt from Indian income tax, subject to applicable residential status and regulatory conditions.
NRO fixed depositsare taxable in India. Interest is generally taxed at applicable rates, with TDS applicable to non-residents. NRIs should also consider whether relief is available under a Double Taxation Avoidance Agreement (DTAA).
For listed equity and equity mutual funds, short-term capital gains on eligible holdings are generally taxed at 20 percent, while long-term capital gains are taxed at 12.5 percent on gains exceeding Rs 1.25 lakh in a financial year. Dividends are separately taxable.
Debt mutual fundsbought on or after April 1, 2023, are generally covered by the specified mutual fund rules. Gains are treated as short-term capital gains and taxed at the applicable slab rate, irrespective of the holding period.
Government securities and bondsmay generate taxable interest, while capital gains on transfers are taxed according to the nature of the instrument. The precise treatment can vary depending on the security and the investment route.
NRIs can also invest in the National Pension System (NPS),with eligible lump-sum withdrawals receiving specified tax exemptions, while annuity income is taxable. Contributions may qualify for applicable deductions.
Real estatepresents separate tax considerations. Rental income is taxable after eligible deductions, while gains on property sales are generally taxed at 12.5% for long-term gains and slab rates for short-term gains, subject to applicable exemptions.
Alternative Investment Funds (AIFs)have category-specific taxation, making professional advice particularly relevant.
Key TDS changes for NRIs under the Income-tax Act, 2025
For NRIs, tax compliance also involves understanding the revised provisions under the Income-tax Act, 2025, effective from April 1, 2026.
Here are the key changes in TDS, remittance forms, investment taxation and repatriation rules under the new tax framework, as explained by ClearTax.
Importantly, NRIs should update their bank, broker, and investment records, use the appropriate NRE, NRO or FCNR account, and track interest, rent, dividends, and capital gains.
"NRIs should maintain investment and remittance records, assess DTAA benefits, and file the appropriate ITR where required. They should seek advice before selling property, making large investments or returning to India, when foreign-asset disclosure rules may apply," Anandan said.
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