How NRIs Can Save Tax on Indian Income: What Still Works in FY 2026-27

Rakesh (name changed), a project engineer in Dubai, sent me a screenshot last February. His bank had suggested he “save tax” by opening a PPF account for his daughter and putting Rs 1.5 lakh into an NSC.

He wanted to know which one to pick.

The honest answer was neither. As an NRI he cannot open either. What made it worse was that he had been filing under the new regime for two years, where most of those deductions would not have counted anyway. He was shopping for a lock that did not fit his door.

Must Read – NRI Tax in India on Indian Income for FY 2026-27

First, Pick the Right Regime

Everything else follows from this one choice. Since the new regime became the default, it applies unless you actively opt out when filing.

Think of it like two mobile plans. The new regime is the cheaper base tariff with no add-ons. The old regime costs more per unit but lets you claim back a lot. If you have a home loan, health insurance premiums and ELSS running, the old regime often still wins for an NRI. If your only Indian income is NRO interest, the new regime is simpler and usually cheaper.

Run both numbers before you file. Not before you invest. That order matters.

Income That Is Simply Not Taxed

• Interest on NRE savings and NRE deposits, while you are a non-resident.
• Interest on FCNR(B) deposits, also while non-resident.
• Interest on notified savings certificates and specified bonds issued to non-residents.
• Long-term capital gains up to Rs 1.25 lakh a year from listed shares and equity mutual funds. Above that the rate is 12.5%. The old Rs 1 lakh threshold and 10% rate no longer apply.

Note what is missing from that list. NRO interest is fully taxable, with TDS at 30% plus surcharge and cess.

Section 80C: What an NRI Can and Cannot Use

The overall 80C cap remains Rs 1.5 lakh and applies only under the old regime.

On PPF specifically. An account you opened while resident runs to maturity. It cannot be extended in the usual five-year blocks once your status changes. Confirm the current position with your bank before making any fresh deposit, because branches apply this inconsistently.

Your Property Is Usually the Biggest Lever

Interest on a home loan gets you up to Rs 2 lakh a year on a self-occupied or vacant house under Section 24(b). If the property is let out, the full interest is deductible against rental income, though set-off against other heads is capped at Rs 2 lakh a year.

On rent, the flat 30% standard deduction and municipal taxes paid come off before tax. Many NRI landlords forget the municipal tax receipt entirely.

Sections 80EE and 80EEA are closed. Those extra first-home benefits applied to loans sanctioned within specific windows that ended on 31 March 2022. If an old article told you otherwise, it was written before the window shut.

Also read – Rental Income Rules for NRI Landlords

Selling Property: Sections 54, 54EC and 54F

• Section 54: reinvest long-term gains from a residential house into one Indian residential house, bought one year before or two years after the sale, or built within three years. The exemption is capped at Rs 10 crore of investment.
• Section 54EC: put up to Rs 50 lakh of the gain into bonds of REC, PFC or IRFC within six months. Lock-in is five years, not three. NHAI stopped issuing these bonds.
• Section 54F: for gains on assets other than a house, where the whole net sale value goes into one residential house.

Long-term gains on property are now taxed at 12.5% without indexation for non-residents. That single change makes reinvestment planning far more valuable than it used to be.

Health, Education and Giving

Section 80D allows up to Rs 25,000 for health insurance covering you, spouse and children, and another Rs 50,000 for senior citizen parents. Preventive health check-up costs sit inside those limits up to Rs 5,000. They are not an extra amount on top, which is a very common mistake.

Section 80E gives unlimited deduction on interest paid on an education loan taken from an Indian lender, for eight years. Section 80G covers donations to approved Indian charities, with a valid receipt and the institution’s registration number.

The Two Treaty Tools Most NRIs Never Use

A Tax Residency Certificate from your country of residence, plus Form 10F, can bring your Indian TDS down to the DTAA rate instead of the domestic 30%. On NRO interest that can mean 10% or 15% instead of 30%, depending on the treaty.

Second, Section 89A with Form 10-EE lets you defer Indian tax on income accruing in a foreign retirement account in a notified country until you actually withdraw. The US, UK and Canada are notified. For anyone with a 401(k) or an ISA-style pension pot, this is worth a conversation with your CA.

Mental Accounting and the March Rush

There is a behavioural habit called mental accounting: we file money into separate mental boxes and treat each box by different rules, even though rupees are identical.

Tax saving gets its own box, opened every February. Money goes into it in a hurry, usually into a policy with a 15-year commitment that gets abandoned by year four. Meanwhile the much larger box marked “my NRO deposit” is never opened at all, because it does not feel like a tax decision.

The Rs 1.5 lakh you rush is visible. The Rs 60 lakh you ignore is not. Ek baar poora hisaab dekh lijiye, phir decide kijiye.

Questions NRIs Ask Me Every Year

Can I claim 80C if I file under the new regime?
No. You have to opt out of the new regime at the time of filing to claim it.

Can I open a PPF account for my child in India?
Not while you are an NRI. Neither for yourself nor as guardian.

Is NPS still open to NRIs?
Yes. An NRI aged 18 to 70 with an NRE or NRO account can invest, and the extra Rs 50,000 under 80CCD(1B) is available under the old regime. Contributions must come from Indian rupee accounts.

Do I get the Section 87A rebate?
No. That rebate is for residents only, in both regimes.

Can I use the basic exemption limit against capital gains?
No. Residents can shelter gains under any unused exemption limit. Non-residents cannot. Mutual fund taxation details are here.

What if I am returning to India soon?
Then the biggest tax saving available to you is RNOR status, which can shelter your foreign income for two to three years. Read how RNOR works before you book the flight.

Rakesh moved his deposit, filed one form, and saved more in a single afternoon than eight years of February purchases had ever given him.

The best tax saving usually looks like paperwork, not a product.