An NRI's Indian-source income remains taxable in India regardless of Malaysian residence, with relief against double taxation available under the India-Malaysia DTAA (revised 2012, effective 1 April 2013) on a tax-credit basis. A major, time-limited development NRIs in Malaysia should track: Malaysia's exemption on foreign-sourced income for individuals expires 31 December 2026, after which remitted foreign income becomes taxable in Malaysia at graduated rates.
Indian residential status and what remains taxable in India
An NRI's tax residential status in India is determined every year by day-count under Section 6 of the
Income-tax Act, independent of Malaysian tax residency or MM2H status. Once classified Non-Resident,
only India-source income -- rental income, capital gains on Indian property, and Indian-sourced interest,
for example -- remains taxable in India; foreign income is outside the scope of Indian tax entirely for a
genuine NRI.
The India-Malaysia DTAA
India and Malaysia's tax treaty was revised in 2012 and has been operative from 1 April 2013,
modernizing the original 1970s-era agreement. Relief against double taxation works through a tax-credit
mechanism -- tax paid in one country can be claimed as a credit against tax owed in the other on the same
income, rather than a blanket exemption. Gains from selling immovable property are taxable in the country
where the property is located, so a gain on Indian property sold by an NRI in Malaysia remains taxable in
India first, with Malaysia-side credit relief available if and when that gain is also taxable there.
Malaysia's foreign-sourced income exemption is expiring -- a genuinely time-sensitive fact
Under current rules, foreign-sourced income remitted into Malaysia by individual tax residents has
generally been exempt from Malaysian tax. That exemption is scheduled to expire on 31 December 2026;
from 1 January 2027, foreign-sourced income remitted into Malaysia becomes subject to Malaysia's
graduated individual tax rates (roughly 1% to 30%) under the Income Tax Act 1967. This matters directly
for an NRI in Malaysia who sells Indian property or otherwise remits Indian-sourced income into
Malaysia after that date -- what is currently a Malaysia-tax-free remittance may not remain so, and
Malaysian tax residency itself is separately determined by a 182-day physical-presence test, not by
MM2H or visa status. NRIs planning a significant remittance into Malaysia around this transition should
get current Malaysia-side advice well before the deadline.
