For non-resident Indians (NRIs), filing an income tax return every year comes with unique compliance challenges, starting with determining tax residency status.
And, just as increased data-driven scrutiny by the income tax (I-T) department has narrowed the scope for faulty disclosures by resident taxpayers, it has also raised the bar for NRIs to file accurate and compliant returns.
“The focus of NRI tax compliance has gradually shifted from tax computation to accurate reporting, reconciliation and documentation. With increased use of Annual Information Statement (AIS), Form 26AS, SFT (specified financial transactions) reporting and international exchange of information, even minor inconsistencies are getting flagged,” says chartered accountant Mayank Mohanka, Founder, TaxAaram.com.
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NRIs who were earlier resident in India continue to face a peculiar challenge. “Firsttime NRI return filers whose Permanent Account Number (PAN) and Aadhaar were linked while they were residents in India are unable to register on the e-filing portal with their current overseas mobile numbers. We advise such NRIs to retain their old Indian mobile numbers, wherever possible, to receive the Aadhaar OTP required for registration and for e-verifying their returns,” says chartered accountant Himank Singla, Partner, SBHS Associates.
Tax residency status
This is the most crucial part of the returnfiling exercise. Unlike resident and ordinarily resident (ROR) taxpayers, non-residents and resident but not ordinarily resident (RNOR) do not have to pay tax on income earned overseas. The residential status is determined based on physical presence in India under Section 6 of the Income Tax Act, 1961 (the new Income Tax Rules, 2026, will be applicable for ITR filing in the assessment year 2027-28). “An individual is resident if he is in India for 182 days or more in the previous year, or for 60 days or more in the previous year together with 365 days or more across the four preceding years. The lower 120-day limit applies only where Indiansourced income (i.e. income other than from foreign sources) exceeds `15 lakh, which is uncommon for a salaried expatriate,” says Naveen Wadhwa, Vice-president, Research, Taxmann India.
Incorrectly ascertaining tax residency status can lead to errors in the computation of total income. Simply put, since even your foreign income can be taxed if you are an ROR, the quantum of your total income to be offered to tax can go up. “A non-resident is taxable only on income which is received or accrued or deemed to accrue or arise in India. A wrong ‘resident’ tag brings global income into the net,” points out Wadhwa.
Many NRIs remain unclear about how their residential status is determined for tax purposes. “The biggest misconception is that visa status, a work permit, or residential status under the Foreign Exchange Management Act (FEMA) automatically determines tax residency. It does not. FEMA residential status governs foreign exchange transactions and banking rules, while tax residency is determined independently under Section 6 of the Income Tax Act, 1961, primarily on the basis of the prescribed day-count tests and, where applicable, the residency provisions of the relevant Double Taxation Avoidance Agreement (DTAA),” says Mohanka. Taxpayers ought to carefully calculate the length of their stay and thus their residency status after poring over passport entries, immigration records, and boarding passes. “Even a difference of two or three days can materially alter the taxability of global income,” he adds.
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For Indian citizens and Persons of Indian Origin (PIO) visiting the country, there are some relaxations. “The law provides specified relaxations whereby, subject to the prescribed conditions, the 60-day threshold stands substituted by 120 days or 182 days, as the case may be,” he says.
However, this should not be seen as an unrestrained leeway. “In the recent case of Binny Bansal versus Deputy Commissioner of Income Tax (DCIT), the Bangalore ITAT (Income Tax Appellate Tribunal) held that the expression ‘being outside India’ cannot be interpreted mechanically or through structured travel arrangements merely to secure the benefit of the extended 182-day threshold,” points out Mohanka.
The appellate tribunal emphasised that the relaxation is intended for genuine nonresidents visiting India, not as a tool to artificially avoid residential status. “The ruling reinforces that taxpayers should ensure that their travel pattern genuinely reflects residence abroad rather than relying solely upon a literal interpretation of the expression ‘being outside India’,” he says.
How your NRI status is determined
Take stock of number of days spent in India
You are a ‘resident’ if you satisfy either of these conditions:
182 days or more in India during the financial year
60 days or more in the financial year AND
365 days or more during the preceding four financial years
For an Indian citizen or person of Indian origin visiting India during the year, the 60-day threshold is substituted with 182 days. However, if her India-sourced income (excluding foreign sources) is over Rs.15 lakh, ‘60 days’ will be replaced by 120 days. An Indian citizen with total income of over Rs.15 lakh (other than foreign sources) is deemed to be a resident if she is not liable to pay tax in any other country.
…If you do not tick these boxes, you are a non-resident
POINTS TO REMEMBER
- Tax residency is based on your physical stay in India, not visa or work permit
- Even a difference of 2-3 days can change your residency status
- If you qualify as Resident and Ordinarily Resident (ROR), your global income will be taxable in India
Impact of US-Israel-Iran war
Some Indians visiting the Gulf countries in the last year have another peculiar problem to grapple with. Flight disruption and airspace closures in the region due to the ongoing United States-Iran-Israel war created situations where many were compelled to either extend their stay in India or were unable to return from overseas, potentially affecting their tax residency status. “While no specific Central Board of Direct Taxes (CBDT) relaxation has been notified for Financial Year (FY) 2025-26, taxpayers facing such extraordinary circumstances may appropriately examine their position in the light of judicial precedents,” says Mohanka, citing the Rajiv Saxena versus Deputy Director, Directorate of Enforcement case.
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“The Delhi High Court recognised that compelled presence should not automatically trigger adverse tax consequences merely because the numerical daycount stands satisfied. Further, Raman Chopra versus DCIT (158 ITD 904) illustrates that where dual residence arises, the Article 4 tie-breaker provisions under the applicable DTAA may allocate treaty residence to the other country,” he explains. In fact, the CBDT had announced a relaxation during the Covid-19 pandemic. “The Organisation for Economic Cooperation and Development (OECD) has also observed that temporary and involuntary presence should ordinarily not alter treaty residence. Although these relaxations are not directly applicable today, they do provide persuasive interpretative guidance,” adds Mohanka.
The ITR filing to-do list for NRIs
- Determine residential status correctly
- Carefully count days spent in India
- Choose the correct ITR form; ITR-1, ITR-4 not for NRIs
- Reconcile AIS, 26AS and TIS
- Report taxable Indian income accurately
- Check TDS before filing returns
- Claim refunds for excess TDS, if any
- Claim eligible DTAA benefits, if applicable
- Obtain Tax Residency Certificate (TRC), File Form 67, if applicable
- NRO interest is taxable, NRE interest is exempt
Property deals? Tread carefully
Several NRIs purchase and sell properties in India, triggering multiple tax rules, including those related to tax deducted at source (TDS). “Keep an eye on TDS mismatch, especially on property sales. On purchase of property from an NRI, tax is deductible under Section 195 at the applicable capital-gains rate (long-term or short-term) and not the 1% under Section 194-IA. NRIs often fail to apply for a lower/nil deduction certificate under Section 197, suffer excess withholding, and then do not reconcile the credit against Form 26AS, AIS and Tax Information Summary (TIS),” explains Wadhwa.
While calculating your income and applicable TDS, ensure that you use the correct source for exchange rate conversion. “Income and TDS must be converted using the State Bank of India (SBI) telegraphic-transfer buying rate as prescribed under Rule 115, not an arbitrary or year-end rate,” he advises.
Since declaring foreign assets and paying tax on overseas income apply only to ordinarily resident Indians, NRIs do not need to fill out the extensive Schedule FA (foreign assets) in the income tax return forms.
GIFT City income
Do NRIs need to report capital gains or other income generated by their GIFT City investments? “If NRIs just have exempt income from GIFT City investments, then they are not required to file their ITRs in India. However, if they have other taxable or reportable incomes in India necessitating filing of ITR, then they should also disclose this exempt Income in EI Schedule,” says Mohanka.
Dos and don’ts
NRIs cannot file their returns using the simple ITR-1 (Sahaj) or ITR-4 (Sugam), as these are applicable only to ordinarily resident taxpayers. You can use ITR-2 if you earn salary, interest income or have clocked capital gains, and have no business income; else ITR-3, even if you are a salaried individual who dabbles in Futures and Options (F&O) and intra-day trading.
“Many NRIs mistakenly believe that the TDS deducted on their Indiasourced income is their final tax liability. As a result, they often do not file an income tax return, even when they should. This can lead to either underpayment of taxes or failure to claim refunds of excess TDS,” says Vishal Dhawan, Founder, Plan Ahead Wealth Advisors.
Many also fail to take advantage of the benefits available under the DTAA that India may have signed with their countries of residence, as they are unaware of the compliance requirements. “To claim treaty benefits, taxpayers may need to obtain a Tax Residency Certificate (TRC) from their country of residence and file Form 67 with the Indian tax authorities, where applicable,” he says.
Many non-resident taxpayers also confuse NRE (non-resident external) bank accounts with NRO (non-resident ordinary) bank accounts when declaring related interest income in their ITR. An NRE account is primarily meant for parking foreign earnings remitted to India, while an NRO account is meant for managing income earned in India. “And, in the case of an NRE account, subject to fulfilment of the prescribed conditions, the interest earned is exempt from tax under Section 10(4)(ii). An NRO account is meant for managing income such as rent collected on property let out in India, dividends, pensions, and interest earned. A clear understanding of the purpose, taxability and reporting requirements of these two accounts is therefore essential for accurate tax compliance,” says Mohanka.
The interest is fully taxable and also subject to TDS under Section 195. “Interest on NRE accounts is exempt from tax and interest on NRO accounts is fully taxable. Taxpayers routinely either miss NRO interest or wrongly claim exemption on it,” says Wadhwa.
Let’s take the case of an NRI A who has earned interest of Rs.4 lakh on his NRE fixed deposit in 2025-26. In addition, NRO fixed deposit has yielded Rs.2 lakh. “While the NRE interest may continue to remain exempt, subject to satisfaction of the prescribed conditions, the NRO interest is taxable in India and must be reported under the head ‘Income from Other Sources’, with credit being claimed for the TDS deducted,” says Mohanka.
Also, even if your income earned in India is below the 87A tax rebate threshold– Rs.5 lakh under the old regime and Rs.12 lakh under the new, default regime – you are not entitled to it. It is available only to resident Indians.
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