Exempt Income for NRIs

Not everything you assume is tax-free actually is, and not everything you assume is taxable actually is either. Here is exactly what stays exempt for NRIs, and where the common assumptions go wrong.

Residency & NRI Status

Residential Status Under the Income tax Act, 2025

Residential Status under FEMA

Permanent Account Number (PAN)

Filing Return of Income in India

Exempt Income for NRIs

Special Provisions Relating to Taxation of Income of Non-Resident Indians (NRIs)

Most of this only applies if you actually qualify as a Non Resident under the day-count rules. An RNOR or ROR loses several of these exemptions, since a wider share of worldwide income becomes taxable in India at that point.

Interest that stays exempt

NRE account interest is exempt under Section 10(4), for as long as you hold Non Resident status. The moment your status changes to Resident, this exemption stops, even on the same account.

FCNR account interest is exempt on the same basis, for as long as you qualify as a person resident outside India for that account. This is one of the reasons many NRIs deliberately keep fixed deposits in FCNR rather than NRO.

NRO account interest is not exempt. This is the single most common mix-up. NRO interest is fully taxable, with TDS typically deducted at source at 31.2 percent before you even see the money.

Foreign income

If you qualify as a Non Resident, income that is earned and received outside India stays outside the scope of Indian tax entirely. Foreign salary, foreign rental income, foreign dividends, foreign capital gains, none of it gets taxed in India, regardless of the amount.

What is commonly assumed exempt but is not

Dividends from Indian companies are taxable in the hands of the recipient at slab rate, or the DTAA rate if lower. This changed a few years back, dividends used to be exempt at the shareholder level when Dividend Distribution Tax was paid by the company, but that regime no longer applies.

Rental income from Indian property is taxable, regardless of your residential status. Where the property is located decides taxability, not where you live.

Capital gains on Indian assets are taxable for NRIs the same way they are for residents, at the applicable short or long term rate. Being an NRI does not exempt gains on Indian shares, mutual funds, or property.

Other exemptions worth knowing

Agricultural income earned in India stays exempt, the same as it does for residents
Equity long term capital gains up to 1.25 lakh rupees in a year are exempt under Section 112A, the same threshold that applies to residents
Gifts from relatives stay outside the scope of tax regardless of amount, on the same basis explained on our Gifts page

FAQs: Exempt Income for NRIs

Is interest on my NRO fixed deposit exempt like my NRE deposit?

No, NRO interest is fully taxable regardless of how similar the account feels to an NRE account. Only NRE and FCNR interest carry the exemption.

I became a Resident partway through the year. Is my NRE interest for the whole year exempt?

No, the exemption applies only for the period you genuinely held Non Resident status. Interest accruing after your status changes to Resident becomes taxable, even in the same account.

I received dividends from an Indian company I hold shares in. Is that tax-free?

No, dividends from Indian companies are taxable in your hands at slab rate or the applicable DTAA rate. This is a common point of confusion since dividends used to be exempt under an older regime.

My rental income in India is small. Is it still taxable as an NRI?

Yes, rental income from Indian property is taxable regardless of the amount and regardless of your residential status. The location of the property, not your residence, decides this.

Does the equity LTCG exemption of 1.25 lakh rupees apply separately to me as an NRI, on top of what a resident gets?

No, it is the same threshold, not an additional one. NRIs and residents share the same 1.25 lakh rupee annual exemption under Section 112A.

Last updated on 30 July 2026