Published 7 May 2026
Meet Aniruddh Mansukhani, 35, an IT consultant who relocated to Dubai 2.5 years ago. He has been in India for just 18 days during FY 2025-26 (visiting parents). Under Section 6 of the Income-tax Act, he qualifies as Non-Resident (NR).
His worldwide salary income from his Dubai employer is not taxable in India – as an NR, India only taxes income that arises or accrues in India (Sec 5(2)). But he still has India-source income:
- Rent from a Mumbai apartment (₹6 lakh/year)
- NRO bank interest (₹2.48 lakh/year)
This article walks Aniruddh through filing ITR-2 as an NRI – covering the residential-status determination, Section 195 TDS, Schedule FA exemption, and the deductions NRIs can and cannot claim.
1. Residential status – the gateway test
Sec 6 of the Income-tax Act, 1961 lays out a four-test framework:
Resident in India for the year IF either:
- Sec 6(1)(a): Stayed in India ≥ 182 days during the FY, OR
- Sec 6(1)(c): Stayed ≥ 60 days during the FY AND ≥ 365 days across the four preceding FYs.
Otherwise: Non-Resident (NR).
Explanation 1 to Section 6(1) replaces the 60 days in 6(1)(c) with 182 days for an Indian citizen who leaves India in the year for employment abroad, and for an Indian citizen or person of Indian origin who lives abroad and comes on a visit. For such a visitor whose total income, other than income from foreign sources, exceeds ₹15 lakh, the figure is 120 days instead; a person resident on that test is “not ordinarily resident” (Section 6(6)(c)).
Section 6(1A), inserted by the Finance Act 2020, deems an Indian citizen resident if his total income, other than income from foreign sources, exceeds ₹15 lakh and he is not liable to tax in any country by reason of domicile or residence; such a person is “not ordinarily resident” (Section 6(6)(d)). Aniruddh’s India income is about ₹6.55 lakh, so Section 6(1A) does not reach him.
Aniruddh is an Indian citizen, abroad on employment, in India only 18 days. He fails both 182-day and 60-day tests. Status: NR.
ITR-1 is open only to a resident who is ordinarily resident, so it is not available to a non-resident. ITR-2 is the right form.
2. What an NRI is taxed on in India
Sec 5(2) limits taxability to:
- Income received or deemed to be received in India (e.g. salary credited to an Indian bank account)
- Income accruing or arising in India (e.g. rent from Indian property, interest from Indian banks, capital gains on Indian shares/property)
NOT taxed:
- Salary earned and received abroad (Aniruddh’s UAE pay)
- Investments / accounts held abroad (subject to FEMA rules, but no India tax)
3. NRO vs NRE accounts – the tax distinction
| Account | Source of funds | India tax | TDS rate |
|---|---|---|---|
| NRO (Ordinary) | Indian-source income (rent, dividend, pension) | Taxable | 30% u/s 195 |
| NRE (External) | Foreign-source funds remitted to India | Exempt under Sec 10(4)(ii) | None |
| FCNR (Foreign Currency) | Foreign currency deposits | Exempt | None |
Aniruddh receives his rent and bank interest in his NRO account. That interest is taxable. NRE / FCNR balances would be tax-exempt.
(Section 10(4)(ii) exempts NRE interest for an individual who is a person resident outside India under FEMA, or who is permitted by the RBI to maintain the account. Section 10(15)(iv)(fa) exempts interest paid by a scheduled bank on RBI-approved foreign-currency deposits to a non-resident or a not-ordinarily-resident person.)
4. Section 195 TDS – the NRI’s pain point
When anyone in India pays an NRI, Section 195 mandates TDS at the rate applicable to the NRI’s income type (regardless of slab applicability).
| Income type to NRI | Section 195 TDS rate |
|---|---|
| Interest on NRO deposits | 30% + surcharge (if any) + cess |
| Rent paid to NRI landlord | 30% + surcharge (if any) + cess |
| Dividend on Indian shares | 20% (or treaty rate if lower) |
| Capital gain on listed equity (LTCG 112A) | 12.5% on the gain above ₹1.25 lakh |
| Short-term gain on listed equity (STCG 111A) | 20% |
| Other LTCG (property, unlisted shares) | 12.5%, no indexation |
(Rates: Part II of the First Schedule to the Finance Act 2025, which sets the “rates in force” for Section 195 in FY 2025-26 – item 1(b)(i) for a non-resident Indian. Section 195 has no threshold. The example below ignores the 4 per cent cess.)
Aniruddh’s setup:
- Tenant deducts 30% TDS on ₹6 lakh annual rent = ₹1,80,000 (filed via Form 27Q quarterly – NRI-specific TDS return).
- HDFC Bank deducts TDS under Section 195 on his NRO interest as it is credited; there is no threshold. The example takes the TDS shown against the bank’s TAN as ₹72,000 (30% of the ₹2.4 lakh FD interest).
Total TDS deducted: ₹2,52,000. This is much higher than his actual tax liability (₹13,280 under the new regime, ₹16,620 under the old – Step 9). The new-regime refund is ₹2,38,720.
Why NRIs almost always get refunds. Sec 195 TDS is rate-based (30% flat for rent / NRO interest), not slab-based. Even if the NRI’s total India income falls in the 0-₹4L slab (zero tax), 30% has been withheld at source. Filing the ITR claims the refund. The refund is claimed only through the return.
5. NRI-specific filing constraints
| Item | NRI rule |
|---|---|
| Section 87A rebate | NOT available. Section 87A applies to resident individuals only. NR taxpayers compute slab tax with no rebate. |
| 80TTA / 80TTB | 80TTA available; 80TTB not. Section 80TTA (savings-account interest, up to ₹10,000, old regime only) has no residence condition; Section 80TTB is only for a resident senior citizen. |
| 80U / 80DD | NOT available. Disability deductions for resident only. |
| Sec 54 / 54EC / 54F | Available. NRIs can claim CG exemptions on India-property gains. |
| 80C / 80D / 80E / 80G | Available, on the same conditions as for residents (for example, Section 80C tuition fees count only if paid to a university, college or school in India). |
| Schedule FA (foreign assets) | NOT mandatory for NR. Schedule FA is required only of Resident & Ordinarily Resident (ROR) filers. Schedule AL is required only where total income exceeds ₹1 crore. |
| Aadhaar | PAN is required. Section 139AA requires Aadhaar to be quoted only by a person who is eligible to obtain an Aadhaar number. |
6. What Aniruddh needs
| Document | Why |
|---|---|
| Sec 195 Form 27Q TDS certificates | From tenant + bank, confirming TDS deducted. |
| NRO statement | Bank interest credited during the year. |
| Rent agreement + tenant proofs | If ITD asks for verification. |
| PAN | Mandatory. Form 15CB / 15CA may also apply for outward remittances. |
| Passport / visa stamps | Days-in-India calculation backup. |
| 80C investment proofs | LIC, PPF, etc. |
| Indian bank account (NRO) | For refund credit. |
7. Step-by-step walkthrough
Step 1 – Sign in
Step 2 – Skip last-year import (or upload if NRI prior year)
Step 3 – Personal information
Two NRI-specific points:
- Residential Status: Select NR (Non-Resident). BharatTax’s Sec 6 wizard asks the four sub-questions; selecting “<60 days in current PY” + Indian citizen / PIO determines NR.
- Address: Foreign address allowed. Country = United Arab Emirates. Pincode field is forgiving for foreign addresses.
NRO bank for refund. Aniruddh gives his NRO account IFSC and account number. ITR-2’s bank-details section also has fields for a foreign bank account (SWIFT code, IBAN, country).
Step 4 – Questionnaire
- Type of assessee: Individual.
- Residential status: Non-Resident (NR).
- Sources of income: ☑ House Property (rent), ☑ Other Sources (NRO interest). NOT salary (UAE salary not taxable in India).
- Director / Unlisted / etc.: No.
Step 5 – House Property (rental income)
ITR-2 supports up to multiple HPs. Click on the House Property card.
- Property: Mumbai 2BHK
- Type: Let-out (LOP)
- Annual rent received: ₹6,00,000
- Municipal taxes paid: ₹18,000
- Standard deduction u/s 24(a): 30% of NAV (auto-applied)
- Interest on home loan u/s 24(b): ₹0 (no loan)
- Tenant TAN: for the Sec 195 TDS row
- Tenant TDS u/s 195: ₹1,80,000 (will surface from 26AS)
Net taxable HP income: ₹6,00,000 − ₹18,000 (municipal) = NAV ₹5,82,000. Less 30% Sec 24(a) standard deduction = ₹4,07,400. No interest deduction. HP income ₹4,07,400 (Section 24(a): 30 per cent of annual value).
Step 6 – Other Sources (NRO interest)
- Savings account interest (NRO): ₹8,000
- FD interest (NRO): ₹2,40,000
- TDS already deducted by bank u/s 195: ₹72,000 (entered in Schedule TDS-2, section 195 – distinct from regular 194A)
80TTA is available; 80TTB is not. Section 80TTA allows up to ₹10,000 on savings-account interest to any individual (old regime only), so Aniruddh can deduct his ₹8,000 NRO savings interest. Section 80TTB is only for a resident senior citizen. The FD interest is fully taxable.
Step 7 – Chapter VI-A (limited NRI eligibility)
- 80C: Aniruddh has ₹80,000 LIC + ₹50,000 PPF. Total ₹1,30,000.
- 80TTA: ₹8,000 (NRO savings interest).
NRI 80C eligibility nuances.
- ELSS / LIC: Can subscribe / pay premiums as NRI.
- Tuition fees: Eligible only if paid for an Indian educational institution.
- Home loan principal: Eligible.
Step 8 – Schedule TI / TTI
| Line | New regime | Old regime |
|---|---|---|
| HP income (after Sec 24) | ₹4,07,400 | ₹4,07,400 |
| OS (NRO interest) | ₹2,48,000 | ₹2,48,000 |
| Gross Total Income | ₹6,55,400 | ₹6,55,400 |
| Less: Chapter VI-A | – | ₹1,38,000 |
| Total Income (Sec 288A) | ₹6,55,400 | ₹5,17,400 |
Step 9 – Compute and compare
| New regime | Old regime | |
|---|---|---|
| Tax on slab | ₹12,770 | ₹15,980 |
| Section 87A rebate – NOT AVAILABLE for NR | ₹0 | ₹0 |
| Cess 4% | ₹511 | ₹639 |
| Total tax (rounded under Sec 288B) | ₹13,280 | ₹16,620 |
| TDS on rent (Sec 195) | ₹1,80,000 | ₹1,80,000 |
| TDS on NRO interest (Sec 195) | ₹72,000 | ₹72,000 |
| Total TDS credit | ₹2,52,000 | ₹2,52,000 |
| Net result | Refund ₹2,38,720 | Refund ₹2,35,380 |
(Section 87A is confined to an “individual resident in India”, and the ITR-2 validation rules for AY 2026-27 (rule 533) refuse the rebate to a non-resident.)
Why such a big refund? Sec 195 TDS is 30% flat. Aniruddh’s actual tax is about 2% of his India income (slab basis). Difference = refund. NRIs almost always face this over-withholding pattern.
New still wins, by ₹3,340. Even with ₹1.38 lakh of 80C and 80TTA under the old regime, the new regime’s ₹4 lakh nil band leaves less tax.
Step 10 – Confirm regime, file, e-verify
Download JSON, upload to incometax.gov.in. NRI e-verification:
- Aadhaar OTP: if previously linked when resident.
- Net banking: of NRO-enabled bank.
- DSC: Class 3 DSC tied to PAN.
- ITR-V mailed to CPC Bengaluru within 30 days (slow, but works if no other option).
NRI Aadhaar-OTP often fails because Aadhaar mobile is now an overseas number. Net banking or DSC are more reliable for NRIs.
8. Common mistakes for NRI filers
- Filing ITR-1 instead of ITR-2. ITR-1 is only for a resident and ordinarily resident individual. ITR-2 (or ITR-3 with business income) applies.
- Reporting UAE salary. Salary earned and received abroad is NOT taxable in India for NRI. It is left out of the return.
- Claiming 80TTB / 80U / 80DD. These are for residents only (80TTA, by contrast, is open to a non-resident).
- Schedule FA – mandatory or not? Schedule FA is mandatory ONLY for Resident & Ordinarily Resident (ROR). For NR (and RNOR), Schedule FA need NOT be filled. Schedule AL applies only where total income exceeds ₹1 crore.
- Wrong residential status flag. Selecting Resident when you are NR triggers tax on worldwide income – a costly mistake. Confirm the days count via passport stamps before locking in.
- Bank account type for refund. The refund goes to the bank account given in the return. ITR-2’s bank-details section also has fields for a foreign bank account (SWIFT code, IBAN, country).
- Missing 27Q TDS-2 entries. Tenant’s Sec 195 TDS shows in 26AS under the tenant’s TAN with section “195”. Add it to Schedule TDS-2 – not Schedule TDS-1 (which is salary-only).
9. FAQs
Q: I became NRI mid-year (relocated September 2025). Am I NR for FY 2025-26? A: Days-in-India test is for the whole FY not just post-relocation. If you spent April-September in India (> 182 days) you’re Resident for FY 2025-26 – worldwide income taxable. Status changes only when the day count drops below the threshold for the full year.
Q: I have NRE FDs earning ₹3 lakh interest. Tax? A: NRE deposits are exempt under Sec 10(4)(ii) for NRIs. ₹3 lakh NRE interest = ₹0 tax. It does not go in the OS schedule. Bank does NOT deduct TDS on NRE interest.
Q: I sold my Indian property as NRI. How is LTCG handled? A: A long-term gain is taxed under Section 112 at 12.5 per cent without indexation. The option to compute with indexation at 20 per cent for land or buildings acquired before 23 July 2024 is given only to a resident individual or HUF (second proviso to Section 112(1)(a)). The buyer deducts tax under Section 195 at 12.5% on a long-term gain, or 30% on a short-term gain, plus surcharge and cess. You can apply for a lower withholding certificate under Sec 197 if expected liability is lower than the standard 195 rate.
Q: Can I claim the standard deduction on rental income? A: Yes – the 30% standard deduction under Section 24(a) on NAV is available regardless of residential status. Same as for residents.
Q: I earn dividend on Indian shares. Tax? A: Dividend is taxable in India for NRIs. TDS u/s 195 at 20% (or DTAA rate). Add to OS schedule. A treaty rate needs a Tax Residency Certificate (Section 90(4)) and the further particulars prescribed under Section 90(5) (Form 10F).
Q: I have a Demat account in India earning capital gains. Same as resident filing? A: Yes for the gain computation (111A 20%, 112A 12.5%). But the broker deducts Sec 195 TDS on every sale, not just at year-end. You claim the TDS credits in Schedule TDS-2.
Q: I bought NCDs (Non-Convertible Debentures) of an Indian company. Tax on interest? A: Interest on NCDs is taxable. TDS under Section 195 is at 30% (“other income”), or 20% where it is investment income from a foreign exchange asset, plus surcharge and cess – or the treaty rate where lower. Section 195 has no threshold. Add to OS schedule.
Q: I’m an NRI partner in an Indian LLP. Where do I report? A: Interest, salary, bonus, commission or remuneration from the firm or LLP is business income (Section 28(v)), which takes the return to ITR-3. A share of profit alone is exempt under Section 10(2A).
Q: My passport says I was in India 65 days, but I have proof of 3-day overseas trips that the immigration record didn’t capture. What count is right? A: Section 6 counts the days actually spent in India. Passport stamps and immigration records are the usual evidence of those days; a different count needs its own evidence, such as tickets and boarding passes.