NRI Tax Filing in India: Residency Rules, NRE/NRO Interest, and What Changes When You Move Abroad

Does moving abroad automatically make you a non-resident for tax purposes?

No. Indian tax residency is determined by counting the actual number of days you were physically present in India during a specific financial year, not by your visa status, citizenship, or where you consider "home." You could move abroad partway through a year and still be a resident for that year if you'd already spent enough time in India before leaving. For the residency test as it applies to someone who hasn't moved abroad, see resident tax status and how interest income gets taxed.

The residency test, in plain terms

Under Section 6 of the Income Tax Act, you're a resident for a financial year if either of these is true:

• You were in India for 182 days or more during that year, or
• You were in India for 60 days or more during that year, and 365 days or more across the four years before it.

If neither condition applies, you're a non-resident for that year. (There's a modified 60-day threshold, extended to 182 days, for Indian citizens or persons of Indian origin who leave India specifically for employment, a detail worth checking against your own situation if it applies.)

A practical example: someone who moved abroad in early February of a financial year would likely still have been a resident that year, having spent roughly ten months in India before leaving. Residency status only shifts to non-resident starting the following financial year, assuming no extended return trips.

One detail people often get wrong: a short visit back to India doesn't automatically make you resident again. A month-long trip home, for instance, adds only that many days to the count for the year, nowhere near the 182-day threshold on its own, and typically nowhere near the 60-day threshold either if the rest of the year was spent abroad.

Why residency status changes how NRE and NRO interest gets taxed

This is where the distinction has real financial consequences, not just a label on a form.

NRE (Non-Resident External) account interest is exempt from Indian income tax under Section 10(4)(ii), but only if you genuinely qualify as a non-resident for that financial year, and the account is a properly designated NRE account under FEMA rules. If you're still a resident for tax purposes (even though you might colloquially think of yourself as having "moved"), that same interest is not automatically exempt.

NRO (Non-Resident Ordinary) account interest is always fully taxable, regardless of residency status, and banks are required to deduct TDS on it, commonly around 30% plus surcharge and cess, though a Double Taxation Avoidance Agreement (DTAA) between India and the country of residence may allow a lower rate with the right documentation (typically a Tax Residency Certificate and Form 10F).

What to update when residency status actually changes

Updating status on the income tax e-filing portal is necessary, but it's only one of several things that need attention:

• Bank accounts: any resident savings account or fixed deposit should be converted to NRO. A dormant resident account left unconverted is still a compliance gap under FEMA, even if it's not actively used.
• Broker and demat accounts: KYC status should be updated to reflect NRI status. This matters beyond paperwork, since certain trading activities, notably futures and options (F&O), face restrictions for NRIs under FEMA that don't apply to residents.
• Mutual fund folios: update residential status with each fund house or through registrar platforms like CAMS or KFintech, since it affects TDS treatment on redemptions.
• PPF accounts: an existing PPF account opened while a resident can continue receiving contributions until its original maturity, but it generally cannot be extended in further blocks once NRI status applies, and new PPF accounts can't be opened as an NRI.

The gap that catches people out: broker TDS after moving

If a broker's records still show resident status after the actual move, they may not deduct the TDS that applies to a non-resident's capital gains under Section 195. This doesn't reduce what's actually owed, since the tax rates on listed equity capital gains are the same for residents and non-residents. It just means the tax wasn't collected at source. That shortfall would need to be paid as self-assessment tax when filing, and depending on timing, interest may also be owed for not paying advance tax during the year.

Which ITR form applies to NRIs?

Most NRIs with salary, capital gains, or interest income (and no business/profession income) file ITR-2. Business or professional income, including trading activity like futures and options, which is classified as business income, requires ITR-3 instead, and NRIs face specific restrictions on F&O trading that are worth checking with a broker directly, since these are governed by FEMA rather than income tax rules.

A quick residency self-check before filing

Before assuming residency status either way, actually count the days spent in India for the specific financial year being filed for, not the calendar year, and not a general sense of "how much time I've spent here lately." If the count is close to either threshold, this single number can change whether meaningful chunks of interest income are exempt or taxable, so it's worth getting precisely right rather than estimating. And before assuming a full filing is even needed, it's worth checking who actually needs to file an ITR in the first place.