NRI Taxation Guide for USA -- Residential Status, DTAA & Filing

How residential status is decided -- the day-count rules

Per the Income Tax Department's own guidance, an individual is a Resident of India in a tax year if they meet either of two tests: (a) present in India for 182 days or more in that year, or (b) present for 60 days or more in that year AND 365 days or more across the preceding four years. Anyone who fails both tests is a Non-Resident (NRI) for that year.

Special relaxations that matter for people based in the USA

• Indian citizens leaving India for employment abroad (or as crew) are tested only against the 182-day rule for that year -- the 60-day alternative does not apply to them.
• Indian citizens/PIOs visiting India (i.e., based abroad, visiting) are also generally tested against 182 days, EXCEPT that a 120-day rule applies instead of 60 days if the person's total Indian-sourced income (excluding foreign income) exceeds ₹15 lakh in that year.
• Deemed Resident: an Indian citizen with more than ₹15 lakh of Indian-sourced income who is not liable to tax in ANY other country or territory is deemed an Indian resident regardless of days spent in India -- a provision specifically aimed at closing a “stateless for tax purposes” gap, and not something that affects genuine US tax residents.

Resident but Not Ordinarily Resident (RNOR)

Even if the day-count tests make someone a Resident, they may still qualify as “Not Ordinarily Resident” (a lighter tax status, closer to NRI treatment for foreign income) if they were a non-resident in 9 of the preceding 10 years, or were present in India for 729 days or less over the preceding seven years. This commonly applies to NRIs returning to India after many years abroad, in the first year or two after their return.

What is actually taxable in India as an NRI

As a Non-Resident, Indian tax applies only to income that arises or is received in India: rental income from Indian property, capital gains on Indian assets, interest on NRO accounts (interest on NRE/FCNR accounts is tax-exempt while non-resident status is maintained), and any Indian business/professional income. Salary or business income earned and received entirely in the USA is not taxable in India merely because the person is an Indian citizen or OCI holder.

The India-USA DTAA -- avoiding being taxed twice on the same income

India and the USA have a bilateral Double Taxation Avoidance Agreement. Where the same income (for example, Indian rental income also reportable on a US return, since the US taxes citizens/residents on worldwide income) could otherwise be taxed in both countries, the DTAA -- combined with the US foreign tax credit mechanism -- lets the NRI claim credit in the USA for tax already paid in India on that income (or vice versa, depending on the income type and the DTAA's specific article for that category). To claim DTAA relief in India, an NRI typically needs a Tax Residency Certificate (TRC) from the US tax authority and to file Form 10F.

Filing an Indian tax return as an NRI

An NRI must file an Indian Income Tax Return if their total Indian income exceeds the basic exemption limit, or in certain other specified situations (large deposits, foreign travel expenditure thresholds, etc., under the return-filing rules). NRIs typically use ITR-2 or ITR-3 depending on the nature of their Indian income, and should check the current assessment year's exemption limit and filing rules before filing, since these are revised periodically.