In this guide
For NRIs, an Income Tax notice is not always the result of hidden income or tax evasion. Problems often begin because the ITR does not reconcile with information already reported against the taxpayer’s PAN by banks, tenants, mutual funds, property buyers or other reporting entities.
For AY 2026-27, relating to FY 2025-26, the Income-tax Act, 1961 continues to apply. The normal due date is 31 July 2026 for applicable non-business cases and 31 August 2026 for non-audit business/professional cases.
Here are eight areas NRIs should check carefully.
1. Assuming No Tax Means No ITR
Having zero final tax does not automatically remove the filing requirement.
An individual can be required to file where income exceeds the applicable basic exemption limit. Filing may also become mandatory below that limit because of specified transactions such as current-account deposits exceeding ₹1 crore, savings-account deposits exceeding ₹50 lakh, prescribed TDS/TCS levels and certain other conditions.
However, simply purchasing Indian property or mutual funds does not, by itself, appear as a standalone filing trigger in this statutory list.
Also remember that certain NRIs have specific exemptions from return filing—for example, Section 115G can apply where qualifying income consists only of specified investment income/LTCG and the required TDS has been deducted.
2. Selecting the Wrong Residential Status
NRI status is determined for each financial year. It is not decided merely by citizenship, passport, OCI status or where you normally describe yourself as living.
The general tests consider 182 days and, in appropriate cases, the 60-day plus 365-day test. Indian citizens and Persons of Indian Origin have important 120/182-day modifications, while deemed-resident provisions can also apply where specified Indian income exceeds ₹15 lakh.
A wrong status can change the scope of taxable income substantially.
| Status | Broad Indian tax scope |
|---|---|
| Non-Resident | Generally Indian-received/accruing or deemed Indian income |
| RNOR | Indian income plus specified foreign income connected with India |
| ROR | Worldwide income, subject to applicable relief |
3. Filing ITR-1 Just Because Income Looks Simple
For AY 2026-27, ITR-1 is restricted to qualifying resident individuals other than RNORs. It is therefore generally not available to a non-resident.
An NRI without business/professional income will commonly use ITR-2, while an NRI having business or professional income generally needs ITR-3.
4. Not Reconciling AIS, TIS and Form 26AS
The Annual Information Statement contains information reported by third parties, while TIS provides an aggregated summary. From AY 2023-24 onwards, Form 26AS primarily displays TDS/TCS information, with broader transaction information available through AIS.
Before filing, reconcile AIS/TIS/26AS with:
- Indian bank statements;
- Interest certificates;
- Mutual-fund and broker reports;
- Property transactions;
- Rental income;
- TDS certificates; and
- Capital-gain calculations.
If AIS contains incorrect information, use the portal’s feedback mechanism instead of blindly copying the figure into the ITR.
5. Treating NRO, NRE and FCNR Interest the Same
These accounts can have very different income-tax treatment.
NRO interest is taxable in India. TDS deducted by the bank is only prepaid tax; the interest still needs appropriate reporting in the return.
NRE interest can qualify for exemption under Section 10(4)(ii), subject to the statutory/FEMA conditions. FCNR foreign-currency deposit interest can also qualify for exemption for eligible non-residents and RNORs.
Do not assume that every account carrying “NRI” terminology automatically receives the same exemption.
6. Assuming Property TDS Is the Final Tax
When an NRI sells Indian immovable property, the buyer’s TDS obligation falls under Section 195, not the resident-seller Section 194-IA mechanism.
The amount deducted is a tax credit—not necessarily the final capital-gains liability.
The seller should separately compute the taxable capital gain after allowable acquisition cost, transfer expenses and eligible exemptions. Excess TDS can then be claimed as a refund through the ITR.
Similarly, an NRI earning rent from Indian property should ensure the tenant knows the landlord is non-resident because payments to a non-resident involve the Section 195 framework.
7. Assuming DTAA Relief Is Automatic
Being resident in a treaty country does not automatically apply every DTAA benefit to your return.
Section 90 requires a non-resident claiming treaty relief to obtain a Tax Residency Certificate (TRC) from the foreign jurisdiction. Rule 21AB also requires prescribed information through Form 10F where applicable.
Keep the TRC, Form 10F and supporting documentation ready before relying on a reduced treaty rate.
8. Wrongly Reporting—or Not Reporting—Foreign Assets
A frequent misconception is that every person who becomes “resident” must immediately fill Schedule FA.
The current ITR-2 instructions specifically state that Schedule FA need not be filled by a Non-Resident or RNOR. Foreign-asset reporting becomes particularly relevant for Resident and Ordinarily Resident taxpayers.
Therefore, determining residential status correctly should come before deciding the foreign-asset disclosure requirement.
One More NRI Tax Trap: Section 87A
The new regime provides a ₹60,000 Section 87A rebate up to the prescribed ₹12 lakh income level for qualifying resident individuals.
An NRI cannot claim Section 87A merely because income is below ₹12 lakh. The Income Tax Department expressly confirms that the rebate is unavailable to non-residents.
For tax notices and reconciliation issues:
Frequently Asked Questions
Is an NRI required to file ITR if TDS has already been deducted?
Possibly. TDS does not itself eliminate the return-filing requirement, although specific statutory exemptions such as Section 115G may apply in limited cases.
Can an NRI use ITR-1?
Generally no. ITR-1 is restricted to qualifying resident individuals. An NRI commonly uses ITR-2 or ITR-3 depending on income sources.
Is NRO account interest taxable?
Yes. NRO interest is generally taxable in India.
Are NRE and FCNR interest always taxable?
They can qualify for exemption where the statutory conditions are satisfied. The precise account type and taxpayer status should be verified.
Does an NRI have to disclose all overseas bank accounts in Schedule FA?
Not merely because the person holds them. The ITR-2 instructions state that Schedule FA is not required for NR or RNOR taxpayers.
What is the best way to reduce mismatch-related notices?
Reconcile residential status, the correct ITR form, AIS/TIS, Form 26AS, bank interest, property income, investments and TDS before submitting the return.
