NRI Director in an Indian Company: What Are the Tax Rules?
Learn NRI director tax rules in India, including salary tax, sitting fees, TDS, DTAA benefits and compliance requirements with My Startup Solution.
Can a Non-Resident Indian (NRI) become a director of an Indian company? Yes. NRIs and overseas entrepreneurs can participate in Indian businesses, take up directorships and receive remuneration, subject to applicable company law and tax rules.
However, NRI director taxation in India depends on the type of payment, residential status, place where services are performed and applicable tax treaty. Salary, director remuneration, sitting fees, commission and dividends may have different tax treatments.
For business owners and overseas entrepreneurs, understanding these rules is important to avoid incorrect TDS deductions, tax notices and compliance problems.
Another important update is that the Income-tax Act, 2025 came into force on 1 April 2026. Payments and tax compliance from this date must be checked under the new Act, while earlier transactions may remain governed by the Income-tax Act, 1961.
My Startup Solution helps businesses understand applicable tax requirements and organise their compliance before making payments to NRI directors.
1. Can an NRI Be a Director in an Indian Company?
Yes, an NRI can become a director of an Indian company, subject to the Companies Act, 2013, applicable appointment procedures and other relevant regulations.
An NRI may be appointed as a whole-time director, executive director, non-executive director or independent director, depending on the company's structure and the person's role.
Companies should consider the following requirements:
- Obtain the necessary Director Identification Number (DIN).
- Complete the required director appointment and company filing procedures.
- Check the company's Articles of Association and applicable board approval requirements.
- Ensure that the company has at least one director who meets the applicable Indian residency requirement.
- Review FEMA and RBI rules if the NRI also invests in the company or receives cross-border payments.
Under Section 149(3) of the Companies Act, 2013, every company must have at least one director who has stayed in India for at least 182 days during the financial year, subject to the applicable rules for newly incorporated companies.
Important: An NRI director does not automatically become an Indian tax resident simply by accepting a directorship. Tax residency is determined separately under the applicable income-tax rules.
2. What Are the Tax Rules for NRI Directors in India?
The tax liability of an NRI director in an Indian company depends mainly on the nature and source of income.
A person who qualifies as a non-resident is generally taxable in India on income received, accrued or deemed to accrue in India, subject to applicable provisions and tax treaties.
For example, remuneration for services performed in India may be taxable in India even when the amount is paid into a foreign bank account.
The following payments require separate consideration:
- Salary for executive or employment duties.
- Director remuneration, fees or commission.
- Sitting fees for attending board meetings.
- Dividends received from shares in the Indian company.
- Reimbursements and other benefits received in connection with the directorship.
The company should identify the correct nature of each payment before calculating tax deducted at source (TDS).
3. Income Tax on Director Remuneration for NRI
Income tax on director remuneration for an NRI depends on whether the payment is treated as salary or as non-salary director fees.
Salary paid to an NRI executive director
If the NRI director works as an employee of the Indian company and receives salary under an employment arrangement, the payment may be taxable under the head 'Salaries'.
Salary relating to services performed in India is generally taxable in India, even if it is credited to an overseas bank account.
The company must calculate salary TDS under the applicable provisions, taking into account the director's estimated taxable salary, applicable tax rates and eligible reliefs.
For payments from 1 April 2026, the salary TDS framework under Section 392 of the Income-tax Act, 2025 should be considered.
Non-executive director remuneration
A non-executive director may receive fees or commission for board responsibilities without being an employee.
Such payments are generally considered separately from salary. Their tax treatment and withholding requirements depend on the payment's nature and the applicable law.
Under the Income-tax Act, 2025, the relevant TDS provisions for non-salary payments are consolidated under Section 393.
The company should not automatically treat every director payment as salary. The appointment terms, duties and payment arrangement should be reviewed first.
4. TDS on Salary Paid to an NRI Director
TDS is one of the most important parts of Indian tax compliance for foreign-based directors.
If salary paid by an Indian company is taxable in India, the company generally needs to deduct tax at source under the applicable salary provisions.
The amount deducted is based on the estimated tax liability and relevant rules, rather than automatically applying the same rate to every director payment.
For a non-salary payment to a non-resident, the company must examine the applicable withholding provisions for payments to non-residents under Section 393 of the Income-tax Act, 2025.
Under the earlier Income-tax Act, 1961, Section 195 generally applied to payments to non-residents that were chargeable to Indian tax. The corresponding current provisions must be checked for payments made or credited from 1 April 2026.
The company should also:
- Verify the director's PAN and tax residency documents.
- Calculate the correct TDS based on the payment category.
- Deposit deducted tax within the applicable deadline.
- File the required TDS statements.
- Issue the applicable TDS certificate.
- Review whether a tax treaty or lower-deduction certificate changes the withholding requirement.
TDS is not necessarily the final tax liability. The director may need to file an Indian income tax return to report taxable income, claim eligible relief and reconcile tax already deducted.
5. Tax on Sitting Fees Paid to NRI Directors
Sitting fees are payments made to directors for attending board or committee meetings.
For an NRI director, the tax treatment depends on the nature of the fees, the applicable domestic law and any relevant tax treaty.
A key distinction is that sitting fees paid to a non-resident should not automatically be processed under the TDS rules applicable to resident directors.
For payments made or credited from 1 April 2026, the company should review Section 393 of the Income-tax Act, 2025 and the relevant table entry for payments to non-residents.
For payments governed by the earlier Act, Section 195 may apply where the amount is chargeable to tax in India.
Before paying sitting fees, the company should confirm the director's residential status, the location and nature of the duties, and whether treaty relief is available.
6. Do NRI Directors Have to Pay Tax on Dividends?
Yes, dividends received from an Indian company may be taxable in India for an NRI shareholder-director.
However, dividend income is different from director remuneration. Salary and fees relate to work or board responsibilities, while dividends arise from share ownership.
The Indian company generally has to deduct applicable TDS on dividends paid to a non-resident shareholder. The rate may depend on domestic tax provisions, the shareholder's eligibility for treaty benefits and the relevant documentation.
An NRI who is both a director and a shareholder should therefore review salary, sitting fees and dividends separately.
Owning shares or receiving dividends does not, by itself, determine the tax treatment of remuneration earned for directorial duties.
7. Can NRI Directors Claim DTAA Benefits in India?
Yes, an eligible NRI director may be able to claim relief under the Double Taxation Avoidance Agreement (DTAA) between India and the country of tax residence.
A DTAA is designed to reduce double taxation and allocate taxing rights between countries. However, the available relief depends on the specific treaty and the category of income.
For example, the treaty may contain separate provisions for employment income, directors' fees and dividends. These provisions should not be treated as interchangeable.
To support a treaty claim, the director may need to provide:
- A valid Tax Residency Certificate (TRC) from the foreign tax authority.
- Form 10F, where required.
- PAN or other prescribed identification details.
- Supporting documents relating to beneficial ownership or other treaty conditions, where applicable.
- Details of the income and the relevant tax period.
The company should verify the treaty provisions before applying a reduced withholding rate. A TRC alone does not guarantee that every type of director payment qualifies for treaty relief.
The NRI may also be eligible to explore foreign tax credit in the country of residence, subject to that country's rules and documentation requirements.
8. Indian Tax Compliance for Foreign Directors
NRI directors and Indian companies should maintain proper records to reduce the risk of tax errors.
Key compliance steps include:
- Confirm tax residency: Determine whether the director is resident or non-resident under the rules applicable to the relevant tax year.
- Classify remuneration: Separate salary, director fees, sitting fees, commission, dividends and reimbursements.
- Check TDS requirements: Apply the correct provisions and rate based on the payment type and recipient.
- Maintain records: Keep appointment letters, board resolutions, remuneration agreements, payment records and tax documents.
- Review return filing: Check whether an Indian income tax return is required and whether any exemptions or treaty relief apply.
- Check cross-border rules: Review FEMA, RBI and applicable foreign investment requirements where the director also holds shares or receives international remittances.
From 1 April 2026, companies should also ensure their payroll and tax systems use the updated provisions and forms under the Income-tax Act, 2025.
9. Common Tax Mistakes NRI Directors Should Avoid
Some common mistakes can result in additional tax, interest or compliance notices.
- Assuming that remuneration is tax-free because the director lives abroad.
- Treating sitting fees and salary as the same category of income.
- Applying resident-director TDS provisions to a non-resident without checking the law.
- Claiming DTAA benefits without the required documents.
- Ignoring Indian income tax return filing requirements.
- Overlooking tax on dividends or other Indian-source income.
- Using outdated TDS section numbers for payments made after 1 April 2026.
A careful review before payment is usually easier than correcting a tax deduction or filing error later.
10. How My Startup Solution Can Help NRI Directors
Managing an Indian company from overseas involves company law, tax compliance and cross-border documentation. My Startup Solution can help business owners and overseas entrepreneurs understand the applicable requirements and plan their compliance.
Support may include reviewing director remuneration arrangements, identifying relevant tax documentation, understanding TDS obligations, checking return filing requirements and coordinating tax compliance with qualified professionals.
If you are appointing an NRI director, paying remuneration from India or planning an overseas investment, professional guidance can help you make informed decisions and avoid preventable compliance issues.
Contact My Startup Solution to discuss your company's requirements and get assistance with Indian business and tax compliance.
Conclusion
The tax rules for an NRI director in an Indian company depend on the director's residential status, the type of remuneration, where the services are performed and the relevant DTAA.
Salary, sitting fees, non-salary director remuneration and dividends may follow different tax and TDS rules. Companies must also account for the Income-tax Act, 2025, which became effective on 1 April 2026.
Before making payments to an NRI director, verify the applicable withholding provisions, collect the required documents and review the director's Indian tax obligations. My Startup Solution can help businesses understand these requirements and plan their compliance more confidently.
