The framework, in one paragraph

OCI cardholder status by itself does not determine what tax an individual owes in India. Indian tax is determined by residency (a test of physical presence in India during the financial year), by source (income generated in India is taxable in India regardless of where the recipient lives), and by DTAA (the bilateral treaty India has with the relevant country, which can reduce the Indian tax on certain kinds of cross-border income). Sitting on top of these three is the TDS regime — a withholding system that bites at source on most non-resident income — and, on the way out, the TCS regime under the Liberalised Remittance Scheme. Every OCI's actual Indian tax position is some combination of these five layers, applied to the specific facts of their year.

Layer 1 — Residency

Residency under the Income-tax Act is a question of days in India, not of OCI status. The basic rule, as ClearTax summarises it, is straightforward:

• An individual is resident in India for a financial year if they are in India for 182 days or more during that year.
• Or — alternatively — if they are in India for 60 days or more during the year and 365 days or more in the four preceding years.

For most OCI cardholders who divide their year between their country of residence and India, the 182-day rule is the operative one. Visit India for four months — under it. Stay six and one day — over it.

The 60-day rule has been the subject of two recent changes that diaspora readers should know about:

The 120-day amendment. For an Indian citizen or person of Indian origin whose total Indian-source income exceeds ₹15 lakh in the year, the alternative-test threshold of 60 days was already extended to 120 days in Finance Act 2020. From 1 April 2026, that 120-day threshold is being clarified and reinforced, according to practitioner commentary on the 2026 changes. High-Indian-income OCIs and NRIs with sustained Indian-source income are increasingly likely to find themselves crossing the 120-day mark.

The deemed residency rule. Under section 6(1A) of the Income-tax Act, an Indian citizen whose total income (other than from foreign sources) exceeds ₹15 lakh in a year, and who is not a tax resident of any other country, is deemed to be a resident of India for that year. This rule, analysed by India Briefing, specifically targets Indian citizens living in zero-tax jurisdictions — the UAE, Saudi Arabia, Bahrain, Monaco — and earning significant Indian-source income. Note that the deemed-residency rule applies to Indian citizens, not to OCI cardholders who have given up Indian citizenship.

A resident under the 120-day test or the deemed-residency rule is, however, classified as Resident but Not Ordinarily Resident (RNOR), not as a full Ordinarily Resident. The RNOR distinction matters: an RNOR is taxed in India only on Indian-source income and on income that accrues from a business controlled in India. Foreign income, for the RNOR, remains outside the Indian tax net. Only a full Ordinarily Resident is taxed in India on worldwide income.

For the OCI living abroad most of the year, the practical position remains: NRI for tax purposes, taxed in India only on Indian-source income.

Layer 2 — Source

For an NRI for tax purposes, Indian-source income is what India can tax. The major categories:

• Rental income from property situated in India
• Capital gains from sale of Indian property, Indian shares, mutual funds, or other Indian capital assets
• Interest earned on deposits in India (with significant exceptions, see Layer 3)
• Dividend income from Indian companies
• Business income from a business or profession carried on in India
• Salary for services rendered in India, irrespective of where the payment is received
• Income from any agent or representative acting in India on behalf of the non-resident
• Pension income from a former Indian employer

Foreign-source income — salary earned in Toronto, dividends from a US-listed company, rental income from a London flat — is outside the Indian tax net for an NRI, regardless of whether the funds are subsequently remitted to India.

Layer 3 — The accounts: NRE, NRO, FCNR

Where the diaspora's money sits in India affects how it is taxed. Three account types, three positions:

• NRE (Non-Resident External) — rupee-denominated account for funds remitted to India from abroad. Interest earned on NRE deposits is tax-free in India. Principal and interest are fully repatriable abroad without limit.
• FCNR (Foreign Currency Non-Resident) — fixed deposit account maintained in a foreign currency (typically USD, GBP, EUR, AUD, CAD, JPY). Interest earned on FCNR deposits is tax-free in India. Removes exchange-rate risk on principal during the deposit tenor.
• NRO (Non-Resident Ordinary) — rupee-denominated account for Indian-source income — rental, dividends, pension, the cousin who finally repaid that loan. Interest earned on NRO deposits is fully taxable in India and subject to TDS, as ICICI Bank summarises.

This is the practical hierarchy: foreign earnings should sit in NRE or FCNR (tax-free in India); Indian earnings sit in NRO (taxable, but the destination is correct).

Layer 4 — TDS, the withholding regime

For a non-resident, TDS under section 195 of the Income-tax Act, as Cleartax explains, operates as a near-comprehensive withholding mechanism on most kinds of Indian-source income. The headline rates:

• Rental income paid to an NRI — TDS at 30 per cent plus surcharge and 4 per cent health-and-education cess, deducted by the tenant. There is no threshold; even ₹1 of rent is subject to TDS from the first rupee, as Rupeeflo notes.
• Capital gains on sale of immovable property — 20 per cent (for long-term gains acquired before 23 July 2024, with indexation) or 12.5 per cent (long-term gains on acquisitions after 23 July 2024, without indexation), plus surcharge and cess. TDS is deducted on the entire sale consideration, not the gain. Covered in detail in Part 1 of this series.
• Dividend from Indian companies — TDS at 20 per cent plus surcharge and cess, reducible via DTAA.
• Interest on NRO deposits — TDS at 30 per cent plus surcharge and cess.
• Other interest (from Indian-source debt instruments, business debt) — TDS typically at 30 per cent, modulated by DTAA.
• Long-term capital gains on listed equity / equity-oriented mutual funds — 12.5 per cent beyond the ₹1.25 lakh annual exemption.

The withholding is gross. The actual liability, after applying applicable exemptions, deductions, and DTAA relief, is usually lower than what is withheld. The remedy is a Lower Deduction Certificate under section 197 of the Income-tax Act, applied for before the income is paid, which allows the deductor to deduct at a lower rate matching the realistic liability. Where the certificate is not obtained, the over-withheld TDS is recoverable only by filing an Indian income tax return and waiting for a refund.

The basic exemption thresholds — ₹2.5 lakh under the old regime, ₹3 lakh under the new regime — also apply to non-residents. NRIs are entitled to choose either regime year-on-year. The full slab rates and surcharge structure for FY 2025–26, as HDFC Life sets out, match those for residents — with the important caveat that the section 87A rebate that effectively zeros out tax on income up to ₹7 lakh under the new regime is not available to non-residents.

Layer 5 — DTAA, the reducer

India has Double Taxation Avoidance Agreements with most of the countries the diaspora lives in — the United States, the United Kingdom, Canada, Australia, the UAE, Singapore, Mauritius, the Netherlands, Germany, and many more. Each treaty allocates taxing rights between the two jurisdictions and, critically for the non-resident, caps the rate of Indian tax on specific kinds of cross-border income below the domestic rate.

Common DTAA-reduced rates for cross-border income from India to a treaty partner:

• Dividends — typically 5 per cent, 10 per cent, or 15 per cent depending on the treaty (against the domestic 20 per cent TDS rate)
• Interest — typically 10 per cent or 15 per cent (against domestic 30 per cent)
• Royalty and fees for technical services — typically 10 per cent or 15 per cent

To claim DTAA relief, the non-resident must furnish to the Indian deductor — usually before the income is paid:

• A Tax Residency Certificate (TRC) issued by the tax authority of the country where the recipient is resident
• Form 10F — a declaration providing additional residency particulars in the Indian-prescribed format
• A no-Permanent-Establishment declaration confirming the recipient does not have a fixed place of business in India that would change the analysis

Without the TRC and Form 10F, the Indian deductor is obliged to deduct at the higher domestic rate, and the DTAA relief must be sought subsequently via the ITR-and-refund route — a slower path.

Layer 6 — TCS, the catch on outward money

The Tax Collected at Source regime under the Liberalised Remittance Scheme (LRS) captures money flowing the other way: from India out to the foreign country. It applies to remittances by Indian residents, not to OCIs living abroad — but it applies to OCIs who have temporarily moved to India and continue to send funds abroad.

The current TCS framework, as Bookmyforex's 2026 explainer sets out, works on an annual threshold:

• The threshold is ₹10 lakh per financial year, raised from ₹7 lakh in Budget 2025
• Remittances below the threshold attract no TCS
• Remittances above the threshold, for education funded by an approved education loan, attract 0 per cent TCS (full exemption)
• For other education and medical remittances above the threshold, the rate is 2 per cent
• For overseas tour packages, the rate is 2 per cent (a unified rate)
• For all other purposes above the threshold — including investments in foreign equities, foreign property purchase, or general remittance — the rate is 20 per cent

All TCS is reclaimable. The remitter can either offset it against their year-end income tax liability or claim it as a refund by filing the annual ITR. The TCS is not a final tax; it is a cash-flow drag.

Reporting on both sides

For an OCI living abroad, Indian tax compliance typically involves:

• A Permanent Account Number (PAN) — required for any significant financial transaction in India. Apply through any authorised agent; the process is straightforward.
• An annual Income Tax Return (ITR) in India where there is Indian-source income exceeding the basic exemption threshold, or where Indian TDS has been deducted that needs to be reclaimed or finalised. The relevant return forms for non-residents include ITR-2 and ITR-3 depending on the income mix.
• Where applicable, Form 67 to claim foreign tax credit on the Indian return for taxes paid abroad on income that is also being taxed in India.

For OCIs resident in the United States, separate reporting obligations apply on the US side:

• FBAR (FinCEN Form 114) — annual reporting of all foreign financial accounts where aggregate balance exceeds US$10,000 at any point in the year. Applies to NRE, NRO, FCNR accounts.
• FATCA Form 8938 — reporting of specified foreign financial assets beyond certain thresholds, attached to the Federal income tax return.

For OCIs in the UK, EU, Canada, and Australia, equivalent foreign-account reporting obligations exist under the respective domestic regimes, with thresholds and forms specific to each. Diaspora families with Indian accounts and assets should not assume that "out of sight, out of mind" — the Common Reporting Standard (CRS) under which India is a signatory means Indian bank accounts are reported to foreign tax authorities automatically.

Five practical pitfalls

In order of how often they catch diaspora families:

1. Conflating OCI status with tax residency. OCI status by itself is irrelevant to Indian tax. Where the OCI is physically present for 182 days, and what their Indian-source income totals, are the operative facts.

2. Letting NRO TDS crystallise without claiming DTAA relief. The 30 per cent NRO interest TDS is high; DTAA relief frequently reduces it. The TRC + Form 10F submission to the bank, before the interest is paid, is the route. Done in arrears, the recovery is via ITR refund — months, sometimes years, late.

3. Treating NRE and NRO interchangeably. Indian-source income (rent, dividends, pension) cannot be credited to an NRE account; it must go through NRO. Foreign-source funds remitted in cannot be credited to NRO; they go to NRE. Banks reject mis-credited transactions; mis-credit creates audit risk.

4. Forgetting the Lower Deduction Certificate before a major asset sale. Buyers default to the full statutory TDS — 20 per cent or 30 per cent on the entire sale consideration. The Lower Deduction Certificate, obtained before the sale, brings the deduction down to the realistic liability. Recovering the over-withholding without the certificate requires a full ITR cycle.

5. Filing US/UK/Canada tax returns without disclosing Indian accounts. FBAR penalties for non-disclosure are draconian — civil penalties can equal the account balance. The CRS data exchange means Indian bank accounts are visible to the IRS, HMRC, and the CRA. Diaspora families should not assume the Indian side is invisible to the foreign side.

The bottom line

For the OCI cardholder, the Indian tax position is shaped by residency, source, accounts, TDS, DTAA, and TCS — six layers that interact in specific ways for specific income types. The framework is comprehensive; the rates are not particularly punitive once DTAA relief is properly claimed; the compliance is manageable with a competent Indian CA on retainer.

The work is in the discipline: PAN in place, TRC and Form 10F filed with the bank early in the year, Lower Deduction Certificate applied for before any significant capital event, annual ITR filed even when no liability remains, and the reciprocal foreign-side disclosure done in time and in full.

The diaspora family that treats Indian tax as a once-a-year scramble in April pays in convenience and often in cash. The one that treats it as a year-round documentation regime — supported by an Indian CA who knows the diaspora's specific shape — does not.

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Annexure — Sources

Primary law and regulations

1. Income-tax Act, 1961 — the operative statute governing personal taxation in India, including sections 6 (residency), 9 (Indian-source income), 90 (DTAA relief), 195 (TDS on payments to non-residents), 197 (Lower Deduction Certificate), and 206C (TCS).
2. Finance Act, 2020 — introduced the 120-day amendment to the 60-day residency test for high-Indian-income individuals and the deemed-residency rule under section 6(1A).
3. Finance Act, 2024 — overhauled the long-term capital gains regime for property and the new tax regime structure under section 115BAC.
4. Finance Act, 2025 — raised the LRS TCS threshold from ₹7 lakh to ₹10 lakh and reduced TCS rates on education and medical remittances above the threshold.
5. Foreign Exchange Management Act, 1999 (FEMA) — governs the NRE / NRO / FCNR account framework and the Liberalised Remittance Scheme.
6. Income Tax Department of India — Non-Resident Individual portal (AY 2026–27).

Government and regulator portals

1. Reserve Bank of India — Liberalised Remittance Scheme FAQs.
2. Indian Income Tax Department — File ITR portal.
3. Central Board of Direct Taxes — Circulars and Notifications.

Treaties

1. Double Taxation Avoidance Agreements (DTAA) — India's treaty network is published by the Income Tax Department. Major partners include the United States, United Kingdom, Canada, Australia, UAE, Singapore, Mauritius, Netherlands, Germany. Each treaty's withholding rates are linked at Income Tax Department — DTAA portal.

Practitioner guidance and commentary

1. ClearTax — NRI Taxation and Residency Rules Under the Income-tax Act.
2. ClearTax — Section 195 of Income Tax Act: TDS Applicability for NRI.
3. India Briefing — Understanding the New Tax Residency Rules for NRIs.
4. HDFC Life — NRI Taxation in India FY 2025–26: Income Tax Rules & Slabs.
5. ICICI Bank — Understanding NRI Fixed Deposits in India.
6. Rupeeflo — TDS Rules for NRIs on Interest, Rent & Capital Gains (FY 2025–26).
7. Bookmyforex — TCS on Foreign Remittances: New Rates From Budget 2026.
8. NRI CA Services — NRI Tax Residency Rules Changing from April 2026.

Cross-references within this series

1. The OCI's Guide to India — Part 1: Property rights for OCI cardholders.
2. The OCI's Guide to India — Part 2: Premier Indian institutes for diaspora children.

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Editorial note: This article is journalism, not tax advice. The Indian tax framework is amended substantially in most Finance Acts, and the specific position for an individual OCI cardholder turns on facts unique to the taxpayer — including country of residence, total Indian-source income, the DTAA in force, the choice between old and new tax regimes for the year, the source and ownership of specific assets, and the timing of cross-border transactions. Diaspora families should engage a qualified Indian chartered accountant familiar with non-resident taxation, and a tax adviser in the country of residence, before acting on any of the framework set out above.