Tax Guide for Indians Living in Japan

NRI status 非居住インド人の地位

India uses residence-based taxation, not citizenship-based taxation. Unlike the US, which taxes its citizens regardless of where they live, India only taxes your worldwide income if you are a resident of India for tax purposes. If you qualify as a Non-Resident Indian (NRI), India only taxes your India-source income. This is the single most important distinction for Indians living in Japan.

Under Section 6 of the Indian Income Tax Act, 1961, you are a resident of India in a financial year (April 1 to March 31) if you meet either of these conditions:

• 182-day rule: You are in India for 182 days or more during the financial year.
• 60/365-day rule: You are in India for 60 days or more during the financial year AND for 365 days or more during the 4 preceding financial years.

If you do not meet either condition, you are a Non-Resident Indian (NRI). For most Indians living and working full-time in Japan, qualifying as NRI is straightforward — you will typically be in India for far fewer than 182 days or 60 days per year.

Special exceptions for Indian citizens leaving India: If you are an Indian citizen who leaves India for the purpose of employment during the financial year, the 60-day threshold in the second test is extended to 182 days. This means Indian citizens going abroad for work effectively only need to meet the first test (182 days), making it easier to establish NRI status in the year of departure.

Indian filing obligations for NRIs 非居住者のインドでの申告義務

As an NRI, you are required to file an Indian Income Tax Return (ITR) only if your India-source income exceeds the basic exemption limit (currently ₹3,00,000 under the new tax regime for FY 2024-25). India-source income for NRIs includes:

• Interest on NRO accounts: Interest earned on your NRO (Non-Resident Ordinary) savings and fixed deposits is India-source income and is taxable in India. Banks withhold TDS (Tax Deducted at Source) at 30% plus surcharge and cess on NRO interest.
• Rental income from Indian property: If you own property in India and earn rent, that rental income is taxable in India. TDS of 30% is deducted by the tenant (if above ₹50,000/month) or you must pay advance tax.
• Capital gains on Indian assets: Selling Indian property, Indian shares, or Indian mutual funds triggers capital gains tax in India (short-term or long-term, depending on the holding period and asset type).
• Dividends from Indian companies: Dividends are taxable in India. TDS is withheld at 20% for NRIs.
• Income from a business or profession in India: If you have a business or profession with operations in India, the income attributable to India is taxable.

Crucially, your Japan salary and Japan-source income are NOT taxable in India as an NRI. You do not report your Japanese salary, Japanese bank interest, or Japanese investment gains on your Indian return. You file primarily in Japan.

The Indian tax filing deadline for NRIs is July 31 of the assessment year (the year following the financial year). The Indian financial year runs from April 1 to March 31, which does not align with Japan's January-to-December tax year. In Japan, your 確定申告 is due by March 15 for the previous calendar year.

India-Japan tax treaty (DTAA) 日印租税条約

India and Japan have a Double Tax Avoidance Agreement (DTAA) that has been in force since 1989, with an amending Protocol signed in 2006. The treaty provides reduced withholding rates on cross-border income and mechanisms to prevent double taxation.

Key treaty rates for Indian nationals (India-source income):

The 10% treaty rate on interest is especially significant. Without the treaty, Indian banks withhold 30% TDS on NRO interest. By submitting the necessary treaty forms (Form 10F and Tax Residency Certificate from Japan) to your Indian bank, you can reduce this to 10%. Over time, this difference adds up substantially.

Key treaty provisions:

• Employment income: Taxed only in the country where the work is performed (with a 183-day short-stay exception). Your Japan salary is taxed only in Japan.
• Capital gains: Gains from immovable property (real estate) are taxed in the country where the property is located. Gains from shares are generally taxable in both countries, with a credit mechanism to avoid double taxation.
• Pensions: Generally taxable only in the country of residence of the recipient (Japan, for you).
• Double taxation relief: If the same income is taxed in both countries, Japan allows a foreign tax credit (外国税額控除) for Indian taxes paid, and India provides a credit for Japanese taxes paid under Section 90 of the Indian Income Tax Act.

NRO and NRE accounts NRO口座とNRE口座

Under FEMA (Foreign Exchange Management Act) regulations, NRIs must designate their Indian bank accounts as either NRO (Non-Resident Ordinary) or NRE (Non-Resident External). You cannot maintain regular resident savings accounts while living abroad. Most Indians in Japan should maintain both types.

NRO account

Your NRO account is for India-source income — rent collected from Indian property, dividends from Indian shares, pension income, interest from Indian investments, or any other income originating in India. Key features:

• Currency: Held in Indian Rupees (INR).
• Deposits: You can deposit both Indian income and foreign remittances.
• Tax in India: Interest earned on NRO accounts is taxable in India. TDS is deducted at 30% (reducible to 10% under the India-Japan DTAA with proper documentation).
• Repatriation: You can repatriate up to USD 1 million per financial year from your NRO account (after paying applicable taxes). This requires a certificate from a Chartered Accountant (Form 15CB/15CA) confirming taxes have been paid.
• Conversion: When you become an NRI, notify your bank to convert your existing resident savings account to an NRO account. This is a regulatory requirement — failure to do so can result in FEMA penalties.

NRE account

Your NRE account is for foreign earnings — money you earn in Japan and remit to India. This is the account most NRIs should actively use for savings. Key features:

• Currency: Held in INR, but funded with foreign currency that is converted at the time of deposit.
• Deposits: Only foreign currency (earned outside India) can be deposited. You cannot deposit Indian income into an NRE account.
• Tax in India: Interest earned on NRE accounts is completely tax-free in India. This is a major benefit — NRE fixed deposits currently offer 6-7% interest rates with zero Indian tax.
• Repatriation: Both principal and interest are fully and freely repatriable. No limits, no CA certificates needed. You can transfer the money back to Japan or anywhere else at any time.
• Japan tax: While NRE interest is tax-free in India, it is taxable in Japan as worldwide income. You must report NRE interest on your Japanese 確定申告.

Remittances from India (LRS) インドからの送金

If you need to send money from India to Japan (from your NRO account, for example), you need to understand India's Liberalised Remittance Scheme (LRS) and the Tax Collected at Source (TCS) that applies.

LRS overview

The LRS allows Indian residents to remit up to USD 250,000 per financial year for permitted purposes (investment, education, travel, gifts, maintenance of relatives abroad, etc.). While LRS technically applies to "residents" of India, the NRO repatriation rules (USD 1 million cap) function similarly for NRIs sending India-source income abroad.

TCS on remittances

Since October 2023, India imposes Tax Collected at Source (TCS) on outward remittances under LRS:

• Rate: 20% TCS on remittances exceeding ₹7 lakh (approximately ¥1.2 million) in a financial year. Remittances for education and medical treatment have lower rates (5% above ₹7 lakh; 0.5% if funded by an education loan).
• Not a tax — a pre-collection: TCS is not an additional tax. It is collected at the time of remittance and can be claimed as a credit against your Indian tax liability when you file your ITR. If your total Indian tax liability is less than the TCS collected, you receive a refund.
• NRI impact: TCS primarily applies to LRS remittances by Indian residents. For NRIs repatriating from NRO accounts, TCS may not apply (since it is a FEMA repatriation, not an LRS remittance), but practices vary by bank. Clarify with your bank whether TCS will be charged on your NRO repatriation.

Sending money from Japan to India is simpler. There is no Japanese tax on outbound remittances, and depositing into your NRE account is straightforward through services like Wise, Remitly, or your bank's wire transfer. The money arrives in INR and earns tax-free interest (in India) in your NRE account.

Indian property while living in Japan 日本在住中のインドの不動産

Many Indians in Japan own property in India — either inherited, purchased before moving, or bought as an investment. Here is how Indian property is taxed:

Rental income

Rental income from Indian property is taxable in India. As an NRI, your tenant (if paying rent above ₹50,000/month) must deduct TDS at 30% before paying you. The tenant deposits this TDS with the government. You then:

• File an Indian ITR reporting the rental income (after standard deduction of 30% for repairs and maintenance).
• Claim credit for TDS already deducted. If TDS exceeds your actual tax liability, claim a refund.
• Report the same rental income on your Japanese 確定申告 and claim a foreign tax credit (外国税額控除) for Indian tax paid.

Selling Indian property

Selling property in India as an NRI triggers significant tax and compliance requirements:

• TDS by buyer: The buyer must deduct TDS at 20% (for long-term capital gains) or 30% (for short-term) on the total sale consideration (not just the gain). This often results in over-withholding, requiring you to file for a refund or apply for a lower/nil TDS certificate under Section 197.
• Long-term capital gains (LTCG): If held for more than 2 years, LTCG is taxed at 12.5% (from FY 2024-25 onwards) with indexation benefits. Previously, the rate was 20% with indexation.
• Short-term capital gains (STCG): If held for 2 years or less, gains are taxed at your applicable slab rate.
• Repatriation of sale proceeds: To send the sale proceeds out of India, you need Form 15CA/15CB (a CA certificate confirming taxes have been paid) and the transaction must be within the NRO repatriation limits (USD 1 million per FY). Sale proceeds from up to 2 residential properties can be repatriated.
• Japan reporting: Report the capital gain on your Japanese 確定申告 with a foreign tax credit for Indian tax paid.

India-Japan CEPA social security (limited) 日印社会保障協定（限定的）

India and Japan signed a Social Security Agreement (SSA) as part of the India-Japan Comprehensive Economic Partnership Agreement (CEPA), effective October 2016. However, this agreement is significantly more limited than Japan's agreements with countries like the US, UK, or Australia.

What the agreement covers

• Double coverage prevention: The agreement prevents you from paying social security contributions in both countries simultaneously. If you are employed in Japan by a Japanese company, you pay into Japan's pension system (厚生年金) and are exempt from India's Employees' Provident Fund (EPF) or Employees' Pension Scheme (EPS). If your Indian employer temporarily posts you to Japan (for up to 5 years), you can remain in the Indian system and be exempt from Japanese 厚生年金.

What the agreement does NOT cover

• NO totalization of pension periods: Unlike the US-Japan, UK-Japan, and Australia-Japan agreements, the India-Japan SSA does NOT allow you to combine contribution periods between the two countries. Your Indian EPF/EPS years do not count toward Japan's pension minimum. Your Japanese 厚生年金 years do not count toward Indian pension eligibility.

This is a significant limitation. Japan requires a minimum of 10 years of pension contributions to qualify for the old-age pension (老齢年金). If you plan to stay in Japan for fewer than 10 years, your Japanese pension contributions may only be recoverable through the pension refund (脱退一時金) when you leave Japan. Unlike Indians from countries with full totalization agreements, you cannot supplement your Japanese contribution years with Indian ones.

NISA for Indians インド人のためのNISA

Japan's NISA (少額投資非課税制度) is an excellent investment tool for Indians living in Japan, with none of the complications that US citizens face.

• No PFIC issues: India does not have US-style "Passive Foreign Investment Company" rules. You can invest in Japanese mutual funds (投資信託) through NISA without any complications on the Indian tax side. Popular funds like eMAXIS Slim, SBI V Series, and Nikko AM index funds are perfectly fine.
• Genuinely tax-free: As an NRI, India does not tax your Japan-source income. NISA gains are tax-free in Japan, and India has no claim to tax them. You pay zero tax on NISA gains from both sides.
• Full access to both NISA types: You can use both the つみたて投資枠 (¥1.2M/year for accumulation investing) and the 成長投資枠 (¥2.4M/year for growth investing), up to the ¥18M lifetime cap.
• Better than Indian mutual funds: Indian equity mutual funds are subject to LTCG tax of 12.5% on gains above ₹1.25 lakh per year, plus exit loads and expense ratios. NISA offers truly tax-free growth with no caps on the tax-free gains.

If you leave Japan: Your NISA account will be frozen (no new contributions). Existing investments can remain, but depending on your brokerage, you may eventually need to sell. Capital gains that accrued within NISA during your Japanese residency remain tax-free in Japan. India would generally not tax gains that accrued while you were an NRI, but consult a tax advisor when planning your departure.

Frequently asked questions よくある質問

I have not converted my Indian savings account to NRO. Am I in trouble?

Under FEMA regulations, you are required to convert your resident savings account to an NRO account upon becoming an NRI. Many Indians living abroad delay this — which is technically a FEMA violation. The penalties can be significant (up to three times the amount involved). Contact your Indian bank and convert your account as soon as possible. Most banks can do this with minimal paperwork. You should also open a separate NRE account for depositing your Japan earnings.

Can I invest in Indian mutual funds from Japan?

NRIs can invest in most Indian mutual funds, but with restrictions. NRIs from certain countries face additional compliance requirements, and some AMCs (Asset Management Companies) do not accept investments from NRIs in specific countries. Japan is generally not a restricted country, but verify with your specific fund house. You will need a PAN card, KYC compliance, and an NRO or NRE account for transactions. Note that investments made from an NRE account are fully repatriable, while investments from an NRO account have repatriation limits.

Do I need to file both Indian and Japanese tax returns?

You always file a Japanese 確定申告 if required (based on your Japan income and employment type). You file an Indian ITR only if your India-source income exceeds the basic exemption limit (₹3 lakh) or if you want to claim a TDS refund. If you have no India-source income (no NRO interest, no Indian rental income, no Indian investments), you may not need to file in India at all.

What about my EPF (Employees' Provident Fund) balance?

Your EPF balance from previous Indian employment continues to earn interest (currently around 8.25%). As an NRI, you can withdraw your EPF balance after 2 months of leaving employment in India. There is no requirement to wait until retirement age. However, if you withdraw before 5 years of continuous service, TDS of 10% is deducted (30% if PAN is not provided). The withdrawal is also taxable in Japan as worldwide income — claim a foreign tax credit for Indian TDS. If you do not need the money immediately, leaving it in EPF to earn interest is a reasonable strategy, but monitor annual statements to ensure contributions are being credited correctly.

My parents send me money from India. Is there a tax impact?

Gifts from relatives (parents, siblings, spouse) are not taxable in India regardless of amount under Section 56 of the Income Tax Act (gifts from specified relatives are exempt). In Japan, gifts received may be subject to Japanese gift tax (贈与税) if the total gifts received in a calendar year exceed ¥1.1 million. However, since your parents are sending from their own after-tax funds, the remittance itself is not "income" — it is a gift. The main concern is the LRS/TCS implications on the Indian side for your parents (20% TCS on amounts above ₹7 lakh). Consult a tax advisor for large gift amounts.

I am planning to return to India permanently. What should I prepare?

File your final Japanese 確定申告 (or appoint a 納税管理人 to file after you leave). Claim the pension refund (脱退一時金) if you contributed to 厚生年金 or 国民年金 for at least 6 months — this refund is taxable in India under the RNOR/resident rules. Convert your NRE account back to a resident account (your bank will do this automatically upon notification). Sell or transfer your NISA investments. Take advantage of RNOR status for up to 2-3 years after returning — during this period, your foreign income (including any Japan-source income) is not taxed in India. See our Leaving Japan tax guide for the complete checklist.