NRI Tax Rules & ITR Filing 2026: What You Must Know Before July 31

Every year, thousands of NRIs either overpay tax - missing deductions they're entitled to - or unknowingly skip filing altogether and face notices later. For FY 2025-26, the rules carry some important updates. The Income Tax Act 2025 takes effect from April 1, 2026, but for AY 2026-27, the 1961 Act provisions still apply. This guide cuts through the complexity.

Even if your Indian income is below the exemption limit, you must still file an ITR to claim a refund on TDS already deducted - especially on NRO accounts where banks deduct 30% flat before you receive a rupee.

Step Zero: What's Your Residential Status?

This is the most critical question in NRI taxation - and it's determined purely by days spent in India during FY 2025-26, not by your passport, visa, or where you work. Get this wrong and every subsequent calculation is wrong.

Tax Slabs & TDS: What NRIs Actually Pay

Unlike residents, NRIs cannot benefit from the Section 87A rebate under either regime. The ₹12 lakh effectively-tax-free benefit does not apply to NRIs. Slab rates under the New Regime (default) apply to most income - but certain income types are taxed at flat rates regardless of which regime you choose.

DTAA: Your Shield Against Double Taxation

India has Double Taxation Avoidance Agreements with over 90 countries - including the US, UK, UAE, Canada, Singapore, and Australia. If your country of residence has a DTAA with India, you may pay a reduced TDS rate on dividends and interest, or claim a foreign tax credit for tax already paid in India. To activate DTAA benefits, you must submit a Tax Residency Certificate (TRC) from your country's tax authority and file Form 10F electronically on the Indian income tax portal before your payers (bank, tenant, company) deduct TDS.

Property Sales: The TDS Trap Most NRIs Miss

When an NRI sells property in India, the buyer is legally required to deduct TDS - not the seller. The rate is 12.5% to 20% on the sale value (not just the gain), which often results in massive over-deduction. To recover the excess, the NRI must file an ITR and claim a refund. Alternatively, NRIs can apply for a Lower Deduction Certificate under Section 197 before the sale - this caps TDS at the actual tax liability rather than the gross sale value.

Sources: Income Tax Department, CBDT, ClearTax, Tata AIA, Canara HSBC Life, NRI Tax CA, Instarem, June 2026. This article is for informational purposes. Consult a qualified CA for personalised NRI tax advice.