“As cross-border taxpayers, NRIs must align their Indian income tax compliance with evolving domestic laws and international reporting standards. Professional foresight ensures legal safety and financial efficiency.”
The tax regime applicable to Non-Resident Indians (NRIs) has undergone significant transformation, especially after Budget 2021 and subsequent amendments in Finance Act, 2025. Many NRIs who earlier escaped the tax radar due to minimal income in India must now revisit their compliance obligations, especially when dealing with Unit Linked Insurance Plans (ULIPs), NRO interest, professional income, and capital gains from Indian real estate.
In this article, we deep-dive into a real-world case study and evaluate the income tax treatment and compliance roadmap for an NRI (now a U.S. citizen) earning income in India during FY 2025–26 (AY 2026–27). This analysis will be of use to tax professionals, NRIs, and wealth advisors looking to structure tax-efficient Indian income streams.
Case Profile: Taxpayer Overview
| Particulars | Details |
|---|---|
| Residential Status (as per I.T. Act) | Non-Resident (NRI) – outside India since 2005 |
| Citizenship | U.S. Citizen |
| ITR Filing History | Not filed in recent years – no taxable income |
| FY 2025–26 Indian Income Sources | 1. ULIP withdrawal 2. NRO savings interest 3. Teaching honorarium 4. Planned property sale |
Step 1: Residential Status Evaluation – Section 6
As per Section 6 of the Income-tax Act, 1961, the individual qualifies as a Non-Resident for AY 2026–27 due to absence from India for more than 182 days.
Implication: Only income that accrues or arises in India, or is received in India, is taxable in India for NRIs. Global income is not taxable in India.
Step 2: Taxability of ULIP Withdrawal (₹5,00,000)
Background:
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ULIP issued after 1st February 2021.
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Annual premium exceeds ₹2.5 lakhs.
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Partial withdrawal made in April 2025: ₹5,00,000.
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Capital gain element: ₹2,50,000.
Relevant Provisions:
| Law / Section | Applicability |
|---|---|
| Section 10(10D), Proviso | Exemption not available for ULIPs issued post-01.02.2021 with premium > ₹2.5L |
| Section 45(1B) | Capital gains deemed to arise on such ULIP withdrawals |
| Section 112A | LTCG over ₹1L on equity-oriented units taxed @10% without indexation |
| Section 194DA | TDS @5% on net gain (payout – total premiums), if exemption under 10(10D) not available |
Tax Computation:
| Description | Amount (₹) |
|---|---|
| Withdrawal Amount | 5,00,000 |
| Premium Paid (Assumed) | 2,50,000 |
| Capital Gains (LTCG) | 2,50,000 |
| Exempt LTCG u/s 112A | 1,00,000 |
| Taxable LTCG | 1,50,000 |
| Tax @10% u/s 112A | 15,000 |
Compliance Notes:
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Check whether Form 26AS reflects TDS u/s 194DA.
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If TDS not deducted, advance tax is payable in instalments (refer below).
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ULIP transactions to be declared under Schedule CG in ITR-2.
Step 3: Interest Income from NRO Account
Legal Framework:
| Law / Treaty | Provision |
|---|---|
| Section 9(1)(v) | Interest from Indian bank account is deemed to accrue in India |
| Section 195 | TDS @30% (plus applicable cess) on NRO account interest |
| India–U.S. DTAA (Article 11) | Interest taxed in source country (India) at max 15% if beneficial DTAA invoked |
Tax Compliance:
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Verify TDS @30% under Form 26AS.
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Include income under “Income from Other Sources” in the return.
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Claim DTAA benefit in U.S. using Form 1116 (foreign tax credit).
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For refund or tax computation, filing ITR in India is recommended even if income < ₹2.5L.
Step 4: Occasional Teaching Honorarium from Indian Institutions
Assumptions:
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Short-term online/visiting faculty.
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Considered professional income.
Relevant Sections:
| Law / Section | Explanation |
|---|---|
| Section 9(1)(ii) | Income for services rendered in India – taxable in India |
| Section 194J | TDS @10% if professional payment > ₹30,000/year |
Compliance:
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Declare under “Income from Profession” if recurring.
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If one-off and < ₹50,000, may be shown as “Other Sources”.
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If TDS deducted, verify Form 26AS.
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Consider use of Presumptive Scheme (u/s 44ADA) if income > ₹50,000.
Step 5: Proposed Sale of Property in India (During FY 2025–26)
Key Considerations:
| Aspect | Details |
|---|---|
| Type of Asset | Immovable property (assumed LTCG – held > 2 years) |
| Section 45 | Capital gain tax on transfer of capital asset |
| Section 195 | Buyer must deduct TDS – typically 20% + surcharge/cess on LTCG |
| Section 54 / 54EC | Exemptions available if new asset/bonds purchased |
| Section 13 of Income Tax Rules | Apply to AO for lower/NIL TDS certificate via Form 13 |
Required Documents:
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Copy of Sale Deed
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Purchase Agreement & Cost Proof
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Indexation Calculation using CII
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Brokerage, stamp duty, and improvement invoices
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PAN & NRI status proof
Note: TDS @20% is on full sale consideration unless Form 13 is obtained in advance.
Advance Tax Liability for NRIs
When Is It Applicable?
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As per Section 208, if total tax liability > ₹10,000 (after TDS), advance tax is mandatory.
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For ULIP gains and professional income (not subject to TDS), advance tax must be paid quarterly.
Due Dates for FY 2025–26:
| Due Date | Minimum % of Total Tax Payable |
|---|---|
| 15th June 2025 | 15% |
| 15th Sept 2025 | 45% |
| 15th Dec 2025 | 75% |
| 15th Mar 2026 | 100% |
ITR Filing for AY 2026–27 – Forms, Deadlines, Disclosures
| Particulars | Details |
|---|---|
| Return Form | ITR-2 (if no business) or ITR-3 (if teaching is significant) |
| Due Date (Original) | 31st July 2026 |
| Due Date (Belated) | 31st December 2026 |
| Income Disclosure | ULIP under Schedule CG, NRO interest under Other Sources, honorarium under Profession, capital gains under CG |
Final Compliance Checklist for FY 2025–26
| Item | Action Required |
|---|---|
| Confirm NRI Status | ✅ Based on Section 6 |
| ULIP Capital Gains | ✅ Taxable under Section 45(1B), LTCG u/s 112A |
| NRO Interest | ✅ TDS u/s 195; disclose as “Other Income” |
| Honorarium Income | ✅ Declare as “Profession” or “Other Sources” |
| Property Sale | ✅ Apply Form 13, ensure TDS compliance u/s 195 |
| Advance Tax | ✅ If liability > ₹10,000 (for ULIP/teaching) |
| ITR Filing | ✅ File ITR-2 or ITR-3 by 31st July 2026 |
| Form 26AS & AIS Verification | ✅ Reconcile all TDS entries and reported incomes |
| DTAA Planning | ✅ Claim foreign tax credit in U.S. return via Form 1116 |
Conclusion: Professionalism Is the Best Compliance Strategy
As NRIs increasingly engage with India through financial investments, real estate, or professional services, proactive tax planning is no longer optional. Starting with timely filing of returns, evaluating TDS positions, and leveraging exemptions, NRIs must align their Indian tax strategy with global disclosure requirements—particularly under FATCA and CRS.
For high-value transactions such as ULIP withdrawals and property sales, working with a professional tax advisor ensures not just accuracy, but also legal defensibility under Indian and international law.
“Avoiding taxation is risky; avoiding non-compliance is prudent.”
Author Note:
This article is based on the provisions of the Income Tax Act, 1961, Finance Act, 2025, and latest CBDT circulars and judicial pronouncements as of May 2025. This is meant for general guidance. For case-specific advice, please consult your Chartered Accountant or International Tax Advisor.
