An NRI's Indian-source income remains taxable in India regardless of Sri Lankan residence, with relief against double taxation available under the India-Sri Lanka DTAA, originally signed 27 January 1982 and strengthened by a new anti-abuse Protocol that entered into force 19 June 2026 (effective from FY 2027). Sri Lanka applies its own separate 183-day physical-presence residency test, so an NRI should confirm their Sri Lankan tax position independently rather than assuming Indian NRI status settles it.
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 Sri Lankan tax residency or visa 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-Sri Lanka DTAA -- an old treaty with a newly strengthened anti-abuse framework
India and Sri Lanka's tax treaty was originally signed on 27 January 1982 and notified in India on 19
April 1983. An amending Protocol was signed 16 December 2024 and entered into force on 19 June 2026,
effective from the financial year beginning 1 April 2027 -- it adds a Principal Purpose Test (aligned with
OECD BEPS standards) aimed at preventing treaty shopping, alongside a revised preamble. Relief against
double taxation generally works through a tax-credit mechanism, and 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 Sri Lanka remains taxable in India first.
Sri Lanka's own tax residency test -- separate from Indian NRI status
Under Section 79 of Sri Lanka's Inland Revenue Act, an individual is Sri Lanka tax-resident for a
year of assessment if physically present in Sri Lanka for 183 days or more in that year. A person who has
been resident for two or more consecutive years remains resident until an unbroken 365-day absence from
Sri Lanka (short visits of up to 30 days total during that period are disregarded). Nationality and
domicile are explicitly not factors. Sri Lankan tax residents are taxed on worldwide income; non-residents
only on Sri Lanka-sourced income. An NRI who is also present substantially in Sri Lanka should get
Sri Lanka-side advice on this test rather than assuming Indian non-resident status by itself settles the
Sri Lankan tax position.
