Exempt Income for NRIs in India — Section 10 | Savlana Init

NRI Taxation · Exempt Income

Exempt Income for NRIs — What India Does Not Tax.

NRE interest, FCNR deposits, specified bonds and reinvestment reliefs are genuinely exempt. NRO interest, rent and dividends are not. We separate the two and structure accordingly.

Some Indian income of a non-resident is exempt outright, and the exemptions are worth more than most people realise. Interest on a Non-Resident (External) account is exempt under Section 10(4)(ii) so long as the account holder is a person resident outside India under the exchange control law, or is otherwise permitted to maintain the account. Interest on a Foreign Currency Non-Resident deposit is exempt under Section 10(15)(iv)(fa). In both cases the exemption is complete — no tax, no deduction at source, and no obligation to bring the income into the return.

The boundary matters more than the exemption. Interest on a Non-Resident Ordinary account is fully taxable and suffers deduction at thirty per cent plus surcharge and cess, with treaty relief available only on production of the proper documentation. Rent from Indian property is taxable in the ordinary way. Dividends from Indian companies have been taxable in the hands of shareholders since the financial year 2020-21, with deduction at source on payment to non-residents. Capital gains on Indian assets are taxable whatever the funding source. The exemption attaches to the specific instrument, not to the person.

Beyond these, the Act carries a set of reliefs that operate on reinvestment or on character. Long-term capital gains on residential property may be sheltered under Section 54, on other long-term assets under Section 54F, and by investment in specified bonds under Section 54EC. Chapter XII-A allows a non-resident to reinvest the net consideration from a specified foreign exchange asset and claim relief under Section 115F. Agricultural income remains exempt under Section 10(1), and gifts from specified relatives fall outside Section 56(2)(x). We map which of these you can actually use and restructure holdings where the same money is sitting in a taxable wrapper for no reason.

Our Exempt Income Services

NRE and FCNR Exemption Advisory

Confirmation that your accounts and deposits qualify for exemption, and correction of deduction where a bank has withheld tax on exempt interest.

Account Structuring

Rebalancing funds between NRE, NRO and FCNR so that exempt-eligible money is not parked in a taxable wrapper by default.

Taxable Income Identification

A clear line-by-line statement of which of your Indian income streams are exempt, which are taxable, and at what rate each is deducted.

Capital Gains Exemption Planning

Structuring reinvestment under Sections 54, 54EC and 54F within the statutory time limits, including capital gains account scheme deposits.

Section 115F Reinvestment Relief

Relief on long-term gains from specified foreign exchange assets where net consideration is reinvested in specified assets under Chapter XII-A.

Specified Bond and IFSC Advisory

Guidance on instruments carrying statutory exemption, including specified infrastructure bonds and units in International Financial Services Centre funds.

Refund of Tax on Exempt Income

Recovery through the return where tax has been deducted on interest or income that was exempt in the first place.

Status-Change Impact Review

Review of what happens to each exemption when you cease to be a non-resident, and the account conversions that must follow.

Our Process

Holding Inventory

We list every Indian account, deposit, security and property you hold, with the funding source and the account type through which it is held.

Exemption Mapping

Each stream is tested against the specific exempting provision, and the ones that are exempt in law but taxed in practice are flagged.

Restructuring Plan

Where funds sit in a taxable wrapper unnecessarily, we set out the permitted route to move them and the exchange control conditions that apply.

Documentation and Bank Instruction

Declarations, treaty documents and account instructions are prepared so that deduction stops at source rather than being recovered later.

Return Treatment

Exempt income is reported correctly in the return where disclosure is required, and refunds are claimed where tax was wrongly deducted.

Why It Matters

✓NRE and FCNR interest confirmed exempt — no tax, no deduction

✓Wrongly deducted tax on exempt interest identified and recovered

✓Funds moved out of taxable wrappers where the law permits it

✓Reinvestment reliefs under Sections 54, 54EC and 54F planned in time

✓Section 115F relief on foreign exchange assets assessed properly

✓Clear separation of exempt income from merely low-taxed income

✓Exempt income disclosed correctly where the return requires it

✓Consequences of a status change mapped before it happens

Frequently Asked Questions

No. Interest credited to a Non-Resident (External) account is exempt under Section 10(4)(ii) provided the account holder is a person resident outside India under the exchange control law, or is otherwise permitted by the Reserve Bank to maintain the account. Because the income is exempt, no tax is deducted at source on it. The exemption ends when you cease to qualify, at which point the account must be redesignated.

No. Interest on a Non-Resident Ordinary account is fully taxable and tax is deducted at thirty per cent plus applicable surcharge and cess. A lower treaty rate may be available where a Tax Residency Certificate and Form 10F are furnished to the bank before credit. Any excess deducted over the final liability is recoverable only by filing a return.

Not any longer. Dividends were exempt in the hands of shareholders while dividend distribution tax was in force, but from the financial year 2020-21 they are taxable in the hands of the recipient. Dividends paid to a non-resident are subject to deduction at source under Section 195, and the rate may be reduced under the applicable treaty on production of the required documentation.

No. Interest on a Foreign Currency Non-Resident deposit is exempt under Section 10(15)(iv)(fa) for a person who is a non-resident, or a resident but not ordinarily resident, under the Income Tax Act. Because the deposit is denominated in foreign currency, it also removes exchange-rate risk. The exemption is tied to status, so it does not survive a return to ordinary residence.

Exemptions tied to non-resident status do not continue indefinitely. NRE accounts must be redesignated as resident accounts or converted to a Resident Foreign Currency account on return, and interest thereafter is taxable. FCNR deposits may generally be held until maturity, with interest remaining exempt while you qualify as resident but not ordinarily resident. Planning the sequence before you return preserves value that is otherwise lost.

Agricultural income as defined in Section 2(1A) is exempt under Section 10(1) irrespective of the recipient’s residential status, though it is aggregated for rate purposes where other taxable income exists. Note separately that a non-resident cannot purchase agricultural land in India under the exchange control rules, so such land is ordinarily held only where it was inherited or held before becoming non-resident.

Want to know which of your Indian income is actually exempt?

Send us a list of your Indian accounts, deposits and investments. We will separate exempt from taxable, recover tax wrongly deducted, and restructure what sits in the wrong place.