India's pull on its diaspora has never been about sentiment alone — it is a genuine growth market, and the rupee's long arc means assets bought today can compound for decades. But the Income-tax Act, 2025, in force from 1 April 2026, has renumbered and tightened the rules NRIs lean on. This two-part guide rebuilds the playbook on the new statute. Part 1 settles the foundations: who is still an NRI, where money can legally sit, and how it is taxed. Part 2 takes on GIFT City, treaty relief, and the mechanics of actually moving money back out.
A note on the law before we start. The new Act came into force on 1 April 2026 and governs income from FY 2026-27 onward; income up to 31 March 2026 is still assessed under the 1961 Act. Throughout this guide I cite the new section number with the old one in brackets — for example, Section 159 (erstwhile Section 90) — so the mapping stays clear during the transition.
Residential status is not a matter of passport or PIO/OCI card — it is a day-count test in Section 6 (erstwhile Section 6), which the 2025 Act carried over largely intact. You are resident in India for a financial year if you are here for 182 days or more in that year, or for 60 days or more in the year and 365 days or more across the four preceding years. Fail both and you are a non-resident — an NRI.
Two carve-outs matter to the diaspora. For an Indian citizen leaving India for employment (or as a crew member of an Indian ship), only the 182-day test applies. And for an Indian citizen or person of Indian origin visiting India, the 60-day limb is relaxed to 182 days — unless Indian-source income exceeds ₹15 lakh, in which case the threshold drops to 120 days.
A high-earning visitor (Indian income above ₹15 lakh) who spends 120 to 181 days in India — and has been here 365+ days over the prior four years — does not become an ordinary resident. They become Resident but Not Ordinarily Resident (RNOR). Many NRIs who extend a long India stay for family or business cross this line without realising it.
There is also a deemed-resident rule in Section 6 (erstwhile Section 6(1A)): an Indian citizen with Indian-source income above ₹15 lakh who is not liable to tax in any other country — the classic "tax-nowhere" case — is treated as resident regardless of days, and slotted into RNOR. It targets the stateless-for-tax-purposes structure, not the ordinary Gulf-based professional who simply lives in a no-tax jurisdiction but spends little time in India.
Which side of the line are you on?
Assumes you are an Indian citizen or person of Indian origin visiting India. Enter your situation for the financial year:
A simplified guide to the Section 6 tests, not a determination. The Resident vs RNOR split for a 182-day stay also depends on your 10-year history (non-resident in 9 of 10 prior years, or ≤ 729 days in India over 7 prior years). Always confirm on your own facts before acting.
The status matters because Section 5 (erstwhile Section 5) ties the scope of taxable income to it. The three tiers are not shades of the same thing — they are genuinely different tax nets.
| Status | What India taxes | Foreign income |
|---|---|---|
| Non-Resident (NRI) | Income received, accruing, or deemed to accrue in India | Outside the net |
| RNOR | All Indian income | Taxed only if from a business controlled in — or profession set up in — India |
| Resident & Ordinarily Resident | All Indian income | Worldwide income taxed |
This is where a common myth needs correcting. RNOR is frequently described as a status that drags your overseas salary, foreign dividends, or foreign rent into the Indian net. It does not. Under Section 5, an RNOR's foreign-source passive income stays untaxed in India — the only exception is foreign income derived from a business controlled in, or a profession set up in, India. RNOR is, for most returning NRIs, a cushion: a transition window of up to two or three years before ordinary residence — and global taxation — kicks in.
First, the NRE-account interest exemption can stop: it depends on being a "person resident outside India" under FEMA, so once you return for good and your status flips, fresh NRE interest becomes taxable (FCNR interest, by contrast, stays exempt into your RNOR years). Second, the year you finally become Ordinarily Resident, global-asset reporting and worldwide taxation begin together — and that is the genuine planning cliff, covered in Part 2.
Almost every NRI's India footprint runs through one of three bank accounts. They are not interchangeable — they differ on currency, on whether money can be sent back abroad freely, and on whether the interest is taxed.
| Feature | NRE | NRO | FCNR (B) |
|---|---|---|---|
| Held in | Indian rupees | Indian rupees | Foreign currency (USD, GBP, EUR…) |
| Typical source | Foreign earnings remitted in | Indian income — rent, dividends, pension | Foreign earnings, as a term deposit |
| Interest taxable in India? | Exempt* | Fully taxable | Exempt* |
| Repatriable? | Freely | Up to USD 1M / year (conditions) | Freely |
| Exchange-rate risk | Yes (rupee) | Yes (rupee) | None — held in foreign currency |
The interest exemptions sit in Section 11 read with Schedule II of the 2025 Act (erstwhile Section 10(4)(ii) for NRE and Section 10(15)(iv)(fa) for FCNR). The asterisk matters: the exemption rides on your status. NRE interest is exempt only while you are a non-resident under FEMA; FCNR interest exemption extends through your RNOR years. The moment you are an ordinary resident, both lose their shelter and interest is taxed like any other.
For an NRI nervous about the rupee, FCNR is the cleanest play: the deposit is held in hard currency, the interest is tax-free in India, and both principal and interest are freely repatriable. You carry no exchange-rate risk on the corpus — the trade-off is a lower interest rate than a rupee NRE deposit.
Listed equity and mutual funds. NRIs invest in Indian shares through the RBI's Portfolio Investment Scheme (PIS) — or, for many brokers today, a non-PIS route on repatriable or non-repatriable basis. The capital-gains treatment is the headline:
- Long-term gains on listed equity / equity funds (held over 12 months) are taxed under Section 198 (erstwhile Section 112A) — the first ₹1.25 lakh a year is exempt, the balance at 12.5% without indexation, provided STT was paid.
- Short-term gains on the same assets fall under Section 196 (erstwhile Section 111A), taxed at 20%.
- For NRIs, gains are typically collected through TDS at source — which is where over-deduction and refund headaches begin. That, and the certificate to fix it, is a Part 2 topic.
Real estate — know the hard boundary. An NRI may freely buy residential and commercial property. An NRI may not buy agricultural land, plantation property, or a farmhouse without specific RBI approval — this is a FEMA restriction, not a tax one, and it does not soften with how long you have held an OCI card. Rental income is taxed under the head Income from House Property, with the standard 30% statutory deduction.
The earlier rule taxed "notional rent" on a second vacant property you owned. The position now lets an owner treat up to two house properties as self-occupied (nil annual value), so a genuinely vacant second home no longer attracts tax on rent you never received. Deemed letting-out applies only from the third property onward.
The new regime under Section 202 (erstwhile Section 115BAC) is the default. Its slabs are generous on paper:
| Total income (₹) | Rate — default regime |
|---|---|
| Up to 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
The widely-celebrated "no tax up to ₹12 lakh" comes from the rebate in Section 156 (erstwhile Section 87A) — and that rebate is available only to resident individuals. An NRI does not get it. So a resident with ₹12 lakh of income pays nothing, while an NRI with the same ₹12 lakh of Indian income pays roughly ₹62,400 (₹60,000 tax + 4% cess). Same income, very different bill — purely because of status.
Two more things round out the picture. The basic exemption of ₹4 lakh does apply to NRIs — the slab itself is status-neutral; it is only the §156 rebate that isn't. And a surcharge stacks on top once total income crosses ₹50 lakh, rising in bands — though the new regime caps the top surcharge at 25%, gentler than the old 37%.
The foundations are set. Part 2 takes on the higher-value moves: the GIFT City (IFSC) route and its specific exemptions, using DTAA and a Tax Residency Certificate to avoid being taxed twice, TDS on a property sale and the lower-deduction certificate that fixes it, the FEMA limits on getting money out, and the Black Money Act line you must not cross.
Residency timing, account structure, and the year you tip into ordinary residence are all things best decided before the calendar decides for you. See how I work with the diaspora on NRI tax & advisory, or get in touch.
References: Income-tax Act, 2025 — Sections 5 & 6 (scope of total income; residence), Section 11 with Schedule II (exempt incomes — NRE/FCNR interest), Sections 196 & 198 (capital gains on listed securities), Section 156 (rebate), Section 202 (default regime); erstwhile Sections 5, 6, 10(4)(ii), 10(15)(iv)(fa), 111A, 112A, 87A & 115BAC of the Income-tax Act, 1961; FEMA, 1999 and RBI Master Directions on acquisition of immovable property and deposit accounts. The Act is effective 1 April 2026 (FY 2026-27 onward). This article is general information current at the date of publication, not advice on any specific matter — please consult a professional on your own facts.