NRI Taxation: DTAA, TDS and Capital Gains Guide

NRI taxation is resident taxation with four extra layers: tax is withheld on almost everything you earn in India, the treaty network changes what that withholding should be, the residency definitions can disagree with each other, and moving money out of India carries its own paperwork. Get the layers in the wrong order and you either prepay decades of unnecessary TDS or discover a treaty benefit you never claimed. This post sequences the layers — TDS by income type, the capital-gains regime, DTAA relief, residency status, and the remittance paperwork — with the rules as they stand in November 2026.

The investment routes (PIS accounts, NRE/NRO plumbing, the mutual-fund carve-outs) live in our NRI investing guide, NRI PIS post and NRE-vs-NRO comparison; this page is the tax layer on top.

TDS on everything: the withholding layer

Indian income earned by an NRI is subject to tax deducted at source under Section 195 — the payer withholds before paying, at rates that differ by income type:

• Rent from Indian property: withheld at 30% plus surcharge and cess — effectively about 31.2% — by the tenant, on the gross rent (Source: Section 195 read with the applicable rates). Worked check: ₹5 lakh of annual rent loses ₹1,56,000 at source. The treaty rate may be lower — claim it via a lower-deduction certificate or reconcile at filing.
• Dividends from Indian shares: withheld at 20% plus cess, with treaty rates potentially lower (Source: Section 195 dividend provisions).
• Interest on NRO deposits: withheld at 30% plus cess (~31.2%); NRE and FCNR(B) interest stays exempt while you remain a person resident outside India under FEMA (Source: our NRE vs NRO post).
• Capital gains on sales: the buyer or broker deducts TDS on the gain at the applicable rate — 12.5% long-term on listed shares and property held beyond the new holding periods (see below), slab-rate short-term — and for NRIs the TDS is computed on the full gain, with the annual ₹1.25 lakh equity-exemption line claimed at filing rather than at source (Source: Section 195 mechanics as applied post-July 2024; verify the exemption's filing-stage treatment with your CA).

The structural point: NRIs rarely see gross income. The system pre-collects, and your filing year is largely about reconciling TDS credits (Form 26AS and AIS carry them all) against actual liability — the refund mechanics our Form 26AS guide covers.

Capital gains: the 12.5% regime, applied to NRIs

The July 2024 reset applies to NRIs exactly as to residents: listed shares and equity mutual funds held beyond 12 months are long-term at 12.5% above the ₹1.25 lakh annual exemption; property and other assets beyond 24 months are long-term at 12.5% without indexation; short-term gains run at slab (equity) or slab (other assets). Source: Finance (No. 2) Act, 2024, as detailed in our taxation posts. Two NRI-specific wrinkles. First, the TDS stage: a property sale to an NRI sees the buyer deduct TDS on the gain (12.5% long-term plus surcharge and cess; short-term at slab rates) — and buyers historically deducted on the entire consideration, which is wrong for a long-term asset; a lower-deduction certificate under Section 197 fixes the cash-flow before the sale, not after. Second, the relief chain: Sections 54, 54EC and 54F remain available to NRIs — reinvesting property gains into another house (54), capital-gains bonds (54EC, our bonds guide covers the instrument) or the net consideration into specified assets within the timelines (54F) — the same shelters residents use, claimed at filing against the TDS already withheld.

DTAA: the treaty layer, and its new section number

India's treaty network — the full list of notified agreements lives on incometaxindia.gov.in — can reduce or eliminate Indian withholding where the treaty's article sets a lower rate: many treaties cap dividend withholding at 10-15%, interest at 10-15%, and assign capital-gains taxation rights differently. The claim mechanism runs through tax residency certificate (TRC) from your country of residence plus Form 10F and the no-PE declaration — filed once, kept current. The statute: the old Sections 90 (treaty relief), 90A (specified-association relief) and 91 (unilateral relief for non-treaty countries) have been consolidated into Section 159 of the Income-tax Act, 2025 — one unified double-taxation-relief provision effective from April 1, 2026 (Source: the 2025 Act's consolidation of Sections 90/90A/91 into Section 159, per current analyses). The principles survive the renumbering: where a treaty is more beneficial, the treaty prevails — the famous non-obstante logic — and where the Indian rate is lower, the Indian rate applies.

Worked flow, checked: a US-based NRI receives ₹5 lakh of NRO deposit interest. Domestic withholding: ~31.2% (₹1,56,000). The India-US treaty caps interest withholding at 15%: the treaty rate applies with a TRC and Form 10F on file, reducing the tax to ₹75,000, and the excess withholding returns at filing. The same logic runs on rent (many treaties cap it at 15% versus the 31.2% domestic rate), dividends and even capital gains — the treaty schedule is the first document to read before any Indian income decision.

One timing rule saves the most: the Section 197 lower-deduction certificate takes weeks to issue, so a property sale or a rental year with treaty relief available should begin with the certificate application, not with the sale deed. And the NRE interest exemption is conditional on your FEMA residency — a returning NRI who becomes resident in India under FEMA loses it from that date, which is one of the account-conversion decisions our NRI guide sequences.

Residency: the two definitions, and the RNOR window

The definitions disagree by design, and our NRI investing guide covers them fully — the short version for the tax layer: under the Income-tax Act you are resident at 182 days in India, or 60 days with 365 days across the preceding four; Indian citizens and persons of Indian origin with India-sourced income above ₹15 lakh face a 120-day threshold, and such visitors staying 120-181 days become deemed residents — always taxed as RNOR, not ordinary resident (Source: Income Tax Department residential-status page, updated May 27, 2026, as cited in our NRI guide). The RNOR (Resident but Not Ordinarily Resident) status is the returning NRI's bridge: foreign income stays out of Indian tax (except income accruing from a business controlled in India), the two-year lookback keeps recent foreign assets outside the map, and it runs a few years before full residency returns. Returning NRIs should sequence account conversions and foreign-asset decisions inside that window — our NRI guide's returning-to-India section covers the moves.

Moving money out: Forms 15CA and 15CB

Remitting money out of India after an NRO-credited sale, rent or interest requires the Form 15CA/15CB pair: 15CB is the chartered accountant's certificate that the remittance complies with the tax deduction rules, and 15CA is your declaration to the bank keyed to it. Source: Income Tax Department's Form 15CA/15CB framework; the mechanics as summarised in our NRI guide. NRE and FCNR(B) balances repatriate freely without the pair — which is exactly why the account architecture (our NRE-NRO-FCNR post) matters before the income arrives, not after. The ₹1 million per financial year NRO repatriation facility carries its own forms and tax-clearance evidence — our NRI guide walks it.

What goes wrong in NRI taxation

• Ignoring lower-deduction certificates. Rent and capital-gains TDS at full domestic rates with treaty relief unclaimed is the single biggest NRI cash-flow leak — Section 197 certificates fix the rate before the income lands.
• Wrong-account interest. Earning Indian rent into an NRE account (it belongs in NRO) or assuming NRO interest is exempt (only NRE/FCNR is) — the account post's table is the fix.
• The buyer's TDS shock on property sales. TDS computed on the entire consideration instead of the gain, at rates that ignore the 2024 reset — a lower-deduction certificate under Section 197 before the sale prevents the year-long refund wait.
• Unclaimed treaty benefits. No TRC on file means treaty rates never applied — the ₹1.56 lakh rent withholding stays 1.56 lakh instead of becoming ₹75,000.
• The deemed-resident surprise. High-earning India visitors crossing 120 days become RNOR taxpayers by statute — plan the stay's length and the India-sourced income before the flight, not after.
• Missing the RNOR window's work. Returning NRIs who convert accounts and sell foreign assets after the window closes face full-residency taxation on income the RNOR years would have sheltered.

The verdict

NRI taxation is layered, not opaque: Section 195 withholds on everything (31.2% on NRO interest and rent, 20% on dividends, 12.5% long-term on gains), the treaty network lowers those rates with a TRC and Form 10F, the capital-gains regime matches residents' post-2024 rates with the 54-family shelters intact, double-taxation relief now lives in Section 159 of the 2025 Act, and the 15CA/15CB pair governs the money's exit from NRO. Sequence the accounts before the income, the certificates before the sale, and the residency planning before the return — the NRI investing guide maps the routes, the NRE-NRO post the plumbing, and this page the tax on top. not investment advice. Consult a chartered accountant for NRI-specific tax positions, and a SEBI-registered adviser for investment decisions.

This is educational content, not investment advice. Consult a SEBI-registered adviser for decisions specific to your situation.