How the ATO Taxes Your Indian Assets: Foreign Income, CGT, and the Temporary Resident Shield

Most cross-border tax stories are about obligations people didn't know they had. The Australia–India corridor has the opposite problem: a genuinely generous exemption most Indian arrivals don't know they're holding, and a hard cliff on the day it ends. Whether the ATO can touch your Mumbai flat's rent or your NRE deposit's interest turns almost entirely on one question — are you a temporary resident — and the answer changes forever the day your permanent residency is granted.

First, whose rulebook you're under

Australian tax residency has nothing to do with your visa label. The primary test is the resides test — do you actually live here — backed by three statutory tests: domicile, the 183-day test, and a Commonwealth superannuation test that only matters for government employees posted abroad. If you've moved to Sydney on a 482 visa with your family and a lease, you almost certainly became an Australian tax resident the week you landed. That sounds alarming, and for most countries' arrivals it would be, because Australian residents must declare their worldwide income — every rupee of rent, interest, and dividends, converted to dollars.

The classic corridor trap lives right here. NRE deposit interest is exempt from Indian income tax — that's the product's entire pitch, as we cover in the NRE vs NRO vs FCNR guide. Australia does not care what India exempts. For an ordinary Australian resident, that interest is assessable income at marginal rates, and because India took no tax on it, there is no foreign tax to credit. A ₹40 lakh NRE deposit at 7.5% throws off ₹3 lakh a year — roughly A$5,300 — and a resident on a 37% marginal rate owes about A$1,960 — closer to A$2,070 with the 2% Medicare levy — on income they believed was tax-free. It was. In the wrong country.

The temporary resident shield

Here is the single biggest Australia-specific planning fact, and it's on the ATO's own page: you are a temporary resident if you hold a temporary visa and neither you nor your spouse is an Australian resident within the meaning of the Social Security Act 1991 — that is, neither of you is a citizen, a permanent resident, or a protected New Zealand Special Category visa holder.

A temporary resident can be a full Australian tax resident and still only declare income derived in Australia, capital gains on taxable Australian property (broadly, Australian real estate, certain interests in land-rich entities, and assets of a business run through an Australian permanent establishment), and in some circumstances income from employment or services performed overseas. Everything else — most foreign income is simply not taxed in Australia. Your Indian rent, your NRE and NRO interest, your dividends and mutual fund distributions: outside the Australian net entirely. Sell the Indian flat or the mutual fund units while you're still a temporary resident and the capital gain isn't taxable in Australia either, because it isn't taxable Australian property. The ATO's own worked example involves a temporary resident selling a New Zealand house with no Australian CGT at all.

Indian income	Temporary resident	Australian resident (PR or citizen)
Rent from a Mumbai flat	Not taxed in Australia	Taxed; credit for Indian tax via FITO
NRE deposit interest	Not taxed in Australia	Fully taxable, no offsetting Indian tax
Sale of Indian property or funds	No Australian CGT	CGT, with the 50% discount if eligible

Two fine-print clauses matter enormously. Marrying an Australian citizen or permanent resident ends your temporary resident status — the spouse condition is part of the definition. And the door is one-way: the ATO states that anyone who has been an Australian resident without being a temporary resident at any time after 6 April 2006 can never qualify as a temporary resident again, even back on a temporary visa.

The day the shield drops

Permanent residency flips every switch at once. From the grant date you're taxed on worldwide income like anyone else. But the tax law softens the landing with a deemed acquisition rule: when you stop being a temporary resident while remaining an Australian resident, you are taken to have acquired your CGT assets that are not taxable Australian property at their market value on that day — the same reset (section 768-950 for the temporary-resident case, mirroring section 855-45's rule for anyone becoming a resident outright). The ATO's own example is a man whose overseas apartments and share portfolio get their Australian cost base set at market value on the date his PR was granted. Every rupee of gain before that date is permanently outside Australia's reach; everything after it is in. A Pune flat bought for ₹60 lakh in 2015 and worth ₹1.5 crore on your PR grant date enters the Australian system at ₹1.5 crore — roughly A$265,000 — and the ₹90 lakh that accrued before the grant is never Australia's business.

Three practical consequences. Get valuations dated to the grant day — a registered valuer's report for property, statements for demat and mutual fund holdings — because you'll be defending that cost base years later. The reset also restarts the clock: the asset is treated as acquired that day, so the CGT discount's holding period starts from zero. And your NRE interest becomes assessable from that day forward, mid-financial-year, which makes the transition-year return genuinely fiddly. This specific year is worth a paid session with a registered tax agent; it is not a myTax-on-a-Sunday job.

CGT on Indian assets once you're a resident

As a resident you get the 50% CGT discount on assets held at least 12 months — it applies to foreign assets exactly as to Australian ones, and for property the CGT event is the contract date, not settlement. The arithmetic all happens in dollars: foreign amounts are translated at the exchange rate at the time of each transaction, or an average rate where permitted, the ATO's published rates being the usual (though not the only acceptable) source. Cost base at the rupee-dollar rate on your acquisition (or deemed acquisition) date, proceeds at the rate on the contract date. Because the rupee has historically drifted down against the dollar, an asset can gain handsomely in rupees and show a much smaller — occasionally negative — gain in AUD. The currency is silently part of your return.

Selling Indian property: both countries take a swing

Under the Australia–India tax treaty, gains from Indian real estate may be taxed in India (Article 13), rent may be taxed where the property sits (Article 6), and Article 24 obliges Australia to credit the Indian tax. India collects upfront: the buyer must withhold tax on payments to a non-resident seller under Section 195, reported through the Form 15CA/15CB machinery, though you can apply for a lower or nil withholding certificate before the sale.

On the Australian side, the credit arrives as the foreign income tax offset — FITO. You can claim it only for foreign tax actually paid, on income included in your Australian return. Up to A$1,000 you claim the amount directly; above that you must calculate an offset limit — broadly, the Australian tax attributable to your foreign income — and anything over the limit is neither refunded nor carried forward. It's simply gone. This cap bites hardest on property, because the 50% discount halves your Australian gain while India taxed the whole thing: Indian tax can easily exceed the Australian tax on the discounted gain, stranding the excess. The same both-sides pattern applies to rent (India taxes first, Australia taxes with a FITO) and to NRO interest, where the treaty caps Indian tax on interest and dividends at 15% — worth claiming, since Article 24 only credits tax charged in accordance with the treaty. The DTAA guide walks through claiming those rates from the Indian side.

One deliberate omission: superannuation. How your super stacks up against keeping money invested in India is its own decision with its own mechanics, covered in our superannuation vs Indian investments comparison.

The honest summary is that the temporary-resident years are the simplest cross-border tax situation an NRI can have anywhere — and the PR transition year is one of the most intricate. If you hold Indian assets and your PR is approaching, spend the money on a registered tax agent who has done a temporary-to-permanent transition before. The valuation you commission that week will matter for a decade.

Indian dividends and mutual funds: no franking, no monster

Dividends from Indian shares arrive in your Australian return stripped of the one thing Australian investors take for granted. Franking credits attach only to Australian company tax — a dividend from Infosys or HDFC Bank is simply unfranked foreign income, assessable at your marginal rate with nothing pre-paid on the Australian side. What India withheld is a different matter. Since India abolished its dividend distribution tax in April 2020, dividends are taxed in the shareholder's hands, and for a non-resident the company withholds at 20% plus surcharge and cess — unless you've filed a Tax Residency Certificate to claim the treaty's 15% cap. That Indian tax comes back to you through FITO, with the same catch that runs through this whole article: Australia credits only tax charged in accordance with the treaty, so if you let India withhold at the domestic 20%-plus rate, the slice above 15% must be recovered from the Indian tax department as a refund, not from the ATO as an offset.

The genuinely good news is what Australia doesn't do to Indian mutual funds. There is no Australian equivalent of the punitive US PFIC regime that makes Indian funds nearly uninvestable for US residents — Australia repealed its foreign investment fund rules in 2010, and for an ordinary individual investor, units in an Indian mutual fund are just CGT assets. A growth-option fund compounds untaxed in Australia until you redeem; the gain on redemption gets the 50% discount if you've held the units at least 12 months from your acquisition — or deemed acquisition — date. Distributions from dividend-payout options are assessable as income in the year they're paid. Whatever tax India collects on redemption — currently 12.5% on long-term equity fund gains above the exemption threshold, though check the rate current at your sale — feeds into the FITO calculation, subject to the same offset limit as everything else.

Your Indian home and the main residence exemption

The main residence exemption is not geographically fenced. If the Bengaluru flat was genuinely your home before you migrated — you lived in it, it was your base — it can qualify as your main residence for Australian CGT purposes, because the exemption looks at how a dwelling was used, not which country it sits in. Better still, the absence rule lets you keep treating a former home as your main residence after you move out: indefinitely if it stays vacant or a family member uses it, and for up to six years at a time while it earns rent. For an arrival who rents in Sydney while the old flat in India is let out, choosing to treat the Indian flat as the main residence can shelter its entire post-PR gain — the choice is made simply by how you prepare the return for the year you sell.

The constraint is that you, and your spouse, get one main residence between you at a time. The moment you buy the house in Melbourne and nominate it — or simply live in it — the Indian flat's shelter ends, and any later sale involves apportioning the gain between exempt and non-exempt days. That apportionment, layered on top of a PR-day market-value reset and rupee-to-dollar translation, is squarely specialist territory; the point to hold onto is narrower and more useful: don't assume the Indian property is automatically an investment property. If it was ever your home, there may be a choice available worth tens of thousands of dollars, and it's exercised — or forfeited — in the year of sale.

Leaving Australia: the exit has its own CGT event

The residency door swings both ways, and the exit is armed. When you stop being an Australian resident — say, on a permanent return to India — CGT event I1 deems you to have disposed of every CGT asset that isn't taxable Australian property at its market value on departure day. Your Indian flat, your mutual funds, your Australian shares: all deemed sold, with tax payable on paper gains you haven't banked. The law offers an escape — you can choose to disregard the deemed disposal, in which case those assets are treated as taxable Australian property and stay in the ATO's net until you actually sell them, even years later as an Indian resident. The choice is genuinely two-sided: pay now on a valuation, or stay tethered to the Australian system indefinitely, knowing that the 50% discount is pro-rated away for periods you spend as a foreign resident after May 2012.

Two groups get very different exits. If you leave while still a temporary resident, nothing happens to your Indian assets — they were never in the Australian net, so there is nothing to deem disposed. And whichever group you're in, the family home needs sequencing: since mid-2020, a foreign resident at the time of sale gets no main residence exemption at all on an Australian home, outside a narrow life-events window in the first six years abroad. Selling the Sydney house before your residency ends preserves an exemption that selling it a year later from Chennai destroys. On the Indian side of the same move, your first two-to-three years back typically qualify for RNOR status, which keeps most foreign income outside India's net while you unwind — and your accounts need re-designating on return regardless of what the ATO thinks of you.

Two tax years that refuse to line up

India's financial year runs April to March; Australia's runs July to June. Every document India produces — the rent ledger, the bank's interest certificate, Form 26AS and the Annual Information Statement showing TDS — is cut to the Indian year, and none of it maps onto the return you lodge with the ATO. You have to re-slice: the rent received between July and June, each receipt translated at the RBA rate for its date (or a permitted average), regardless of how the Indian paperwork groups it. This is tedious rather than difficult, but it rewards a system — a simple ledger recording each Indian credit with its date, rupee amount, and dollar translation will save you reconstructing two overlapping years from bank statements every October.

The mismatch also bends FITO timing. You claim the offset in the Australian year the income is assessable, but the Indian tax on that income may not be finally paid until you file the Indian return months later — self-assessment tax on a property sale is the classic case. The system anticipates this: you can amend the Australian return once the foreign tax is actually paid, and the amendment window for FITO claims runs from the date you pay the foreign tax, not from your original assessment. Keep the Indian tax return, the challan or TDS certificate, and Form 26AS for every year — the ATO credits foreign tax you can evidence, and the evidence is all on the Indian side of the corridor.

Frequently asked questions

Does Australia have anything like the FBAR or T1135 for Indian assets?

No. Unlike the US, which demands an FBAR once foreign balances cross $10,000, or Canada with its T1135, Australia has no standalone foreign-asset disclosure form for individuals — the return asks only a yes/no question about holding overseas assets worth A$50,000 or more; you declare foreign income, not a schedule of holdings. Don't mistake that for invisibility: Indian banks report NRI account details to the ATO under the Common Reporting Standard, and the ATO's data-matching regularly surfaces undeclared NRE interest. The absence of a form reduces your paperwork, not the ATO's knowledge.

Is my NRE interest really taxable in Australia when India exempts it?

If you're an ordinary Australian resident — a PR holder or citizen — yes, in full, at your marginal rate, with no FITO because India took nothing to credit. India's Section 10 exemption binds only India. The exception is the temporary resident: on a 482 or student visa with no PR and no Australian-resident spouse, your NRE and NRO interest sits entirely outside the Australian net. The day your PR is granted, the interest becomes assessable from that day forward.

If I sell Indian property while still a temporary resident, does Australia tax the gain?

No — an Indian flat is not taxable Australian property, and a temporary resident's gains on everything else are disregarded. India will still tax the sale under its own rules, with the buyer withholding under Section 195, but Australia's side of the ledger is zero. This is why timing matters so much when PR is on the horizon: a sale that completes before the grant date is outside the Australian system forever; the same sale a month after grant is inside it, measured from the PR-day market value.

How do I prove my cost base after the PR-day reset?

With evidence dated to the grant day itself. For property, commission a registered valuer's report — a broker's opinion or a screenshot from a listings portal will not survive scrutiny years later. For shares and mutual funds, download demat and folio statements showing that day's NAV or closing price. Record the RBA exchange rate for the date alongside each figure, since the cost base lives in dollars. You may not sell for a decade; the file you build that week is the only contemporaneous record there will ever be.

Do I get the 50% CGT discount on Indian assets?

Yes — the discount doesn't discriminate by geography. You need to have held the asset at least 12 months, counted from your actual acquisition or, for assets you owned when PR was granted, from the deemed acquisition date, since the reset restarts the clock. One erosion to know: for periods after May 2012 in which you're a foreign resident, the discount is pro-rated away, which matters if you keep Australian-taxed assets after moving back to India under the deferral choice.

Can I claim the TDS my Indian bank or tenant's buyer deducted as a FITO?

Yes, provided the income it relates to is in your Australian return and the Indian tax was charged in accordance with the treaty. That second condition has teeth: the treaty caps Indian tax on interest at 15%, so if your bank withheld 30%-plus on NRO interest because you never filed a Tax Residency Certificate, Australia credits only the 15% — the rest must come back from India as a refund. And FITO is capped at the Australian tax attributable to the foreign income; the excess is neither refunded nor carried forward.

What happens to my assets if I move back to India permanently?

Ceasing Australian residency triggers CGT event I1 — a deemed disposal at market value of everything that isn't taxable Australian property — unless you elect to keep those assets inside the Australian net until you actually sell. Your Indian assets, freshly re-based on your PR day, are caught too if you became a full resident in between. Sell the Australian family home before residency ends, or the main residence exemption is lost. On the Indian side, RNOR status gives you a two-to-three-year transitional shield while you reorganise.

Which exchange rate do I use for Indian income and gains?

The RBA rate at the time of each transaction — each rent receipt, each interest credit, the acquisition and the sale contract dates for CGT — or an average rate where the ATO's rules permit one. Because the rupee has historically depreciated against the dollar, translating cost base and proceeds at their respective dates routinely shrinks a rupee gain in dollar terms. Keep the translation with your records; the currency work is part of the return, not an optional refinement.