NRI Income Tax Rules in India (2026–27): Income Tax Act 2025, Slabs, 120-Day Rule & Deemed Residency

The Income Tax Act 2025 in a nutshell

The Income Tax Act 2025 replaced the Income-tax Act 1961 from 1 April 2026. The new law is shorter and uses simpler language, but it largely keeps the substance of the old rules for NRIs. The most visible change is terminology: the old pairing of previous year and assessment year has been replaced by a single tax year, so income earned between 1 April 2026 and 31 March 2027 is taxed for tax year 2026–27.

Section numbers have changed. Many articles still refer to the old numbering (for example section 6 for residency, 80C for deductions or 195 for TDS on payments to non-residents). Throughout this guide we use the familiar names and note where the concept has moved.

How residency is decided

Your tax in India depends on your residential status for each tax year, not on your citizenship or visa. There are three statuses: Non-Resident (NR, commonly called NRI), Resident but Not Ordinarily Resident (RNOR) and Resident and Ordinarily Resident (ROR).

Indian citizens leaving India for employment abroad, or as crew of an Indian ship, are treated as resident only if they spend 182 days or more in India that year.

The 120-day rule explained

The 120-day rule was introduced in 2020 to stop high earners from spending large parts of the year in India while remaining non-resident. It applies only if your total income from Indian sources (salary for work in India, rent from Indian property, Indian interest and capital gains) exceeds ₹15 lakh. Foreign income is not counted in that figure.

• Indian income ₹15 lakh or less: you can spend up to 181 days in India and remain NRI.
• Indian income above ₹15 lakh: 120 days or more in the year plus 365 days in the previous four years makes you resident.
• Anyone made resident by the 120-day rule is RNOR, so foreign income stays outside Indian tax.
• Arrival and departure days both count.

Section 6(7) deemed residency for UAE and Gulf NRIs

An Indian citizen whose Indian income exceeds ₹15 lakh and who is not liable to tax in any other country because of domicile or residence is deemed to be resident in India, regardless of days spent here. This mainly affects Indians living in the UAE, Saudi Arabia, Bahrain, Qatar, Oman and Kuwait, and those who move between countries without becoming tax resident anywhere.

Deemed residents are RNOR, so their foreign salary is still not taxed in India. However, being resident means they lose certain NRI-specific treatment and become subject to resident reporting rules. CBDT clarified that the rule targets stateless income, and that Indian citizens who are bona fide workers in other countries are not meant to be taxed on foreign income.

• Get a Tax Residency Certificate from the UAE Federal Tax Authority each year; the UAE now issues TRCs to individuals who meet its 183-day or other residency criteria.
• Keep your Indian income below ₹15 lakh where you can, for example by spreading property sales across years.
• Document your foreign employment and residence visa.

What income NRIs pay tax on

NRIs must file a return in India if their total Indian income exceeds the basic exemption limit, or to claim a refund of excess TDS.

Tax slabs for 2026–27

A 4% health and education cess applies on top, plus surcharge at 10% above ₹50 lakh, 15% above ₹1 crore and 25% above ₹2 crore (new regime cap). Special rates apply to capital gains: 12.5% on long-term gains and 20% on short-term gains from listed equity, 12.5% on long-term gains from property.

Why NRIs do not get the 87A rebate

The section 87A rebate makes income up to ₹12 lakh effectively tax-free for resident individuals under the new regime. It is available only to residents. An NRI with ₹10 lakh of Indian income pays tax on the slabs above ₹4 lakh, even though a resident with the same income pays nothing. Similarly, NRIs cannot claim the higher basic exemption that resident senior citizens get under the old regime.

• Choose the old regime only if you have significant deductions such as 80C investments, home-loan interest on let-out property or 80D health premiums.
• Remember that special-rate incomes like capital gains cannot use the basic exemption beyond what is unused by other income for NRIs.
• Claim DTAA relief where the treaty rate is lower than the Indian rate.