The most common mistakes NRIs make when filing Indian Income Tax Returns (ITR) include selecting the wrong residential status, using the incorrect ITR form (such as ITR-1), and failing to reconcile income with Form 26AS/AIS. These errors often lead to "Defective Return" notices, missed tax refunds on high TDS, and significant penalties for non-disclosure of Indian assets or foreign assets (for those transitioning to resident status).
1. Miscalculating Residential Status
Determining whether you are an NRI, RNOR, or Resident is the foundation of your tax liability. Many NRIs mistakenly rely on a simple 182-day rule without considering the secondary 60-day rule (if you spent 365 days in India over the previous four years).
The Impact: Residents are taxed on global income, whereas NRIs are only taxed on income earned or received in India.
2026 Update: Ensure you account for the exact dates of entry and exit stamped on your passport for the financial year
2. Choosing the Wrong ITR Form (The ITR-1 Trap)
A frequent error is filing ITR-1 (Sahaj). ITR-1 is strictly for "Resident" individuals.
Correct Forms: Most NRIs should use ITR-2 (for salary, property, or capital gains) or ITR-3 (if you have business/professional income in India).
Consequence: Filing ITR-1 as an NRI will result in a Section 139(9) notice, rendering your return "defective."
3. Ignoring Form 26AS, AIS, and TIS
NRIs often file based on their own records without checking the Annual Information Statement (AIS).
The Risk: If your bank reported NRO interest or property sale TDS that you didn't include, the tax department’s automated system will flag a mismatch.
Best Practice: Always download your Form 26AS and TIS (Taxpayer Information Summary) from the e-filing portal before starting your draft to ensure every rupee of TDS is claimed.
4. Failure to Disclose All Indian Income Sources
Many NRIs assume that if tax (TDS) was already deducted at 30% on NRO interest or property sales, they don't need to report it.
Omitted Income: Common misses include savings account interest, dividends from Indian shares, and "notional" rent from a second vacant house in India.
Refund Opportunity: If your total Indian income is below the basic exemption limit (₹3 Lakh in the New Regime for FY 2025-26), filing allows you to claim back the 30% TDS deducted by banks.
5. Neglecting DTAA Benefits and Form 10F
NRIs often pay double tax because they don't leverage the Double Taxation Avoidance Agreement (DTAA).
How to fix: To pay a lower tax rate in India (e.g., 10-15% on interest instead of 30%), you must furnish a Tax Residency Certificate (TRC) from your current country and file Form 10F electronically on the Indian tax portal.
6. Overlooking the Foreign Assets Disclosure (For Returning NRIs)
For those who moved back to India during the year and became "Residents," failing to fill Schedule FA (Foreign Assets) is a major mistake.
Expert Note: Under the Black Money Act, non-disclosure of a foreign bank account or stock (like RSUs) can lead to a penalty of ₹10 Lakh, even if the income was earned legally abroad.
New Scheme: The FAST-DS (Foreign Assets of Small Taxpayers Disclosure Scheme) 2026 now provides a window to correct past non-disclosures with reduced penalties.
FAQs
Frequently Asked Questions (FAQs)
Can an NRI file ITR-1?
No. ITR-1 is only for residents. NRIs must typically use ITR-2 or ITR-3.
Is NRE account interest taxable in India?
No, interest earned on NRE and FCNR accounts is tax-free for NRIs. However, NRO account interest is fully taxable.
What is the deadline for NRIs to file ITR for FY 2025-26?
The standard deadline is July 31, 2026. Filing after this date attracts a late fee under Section 234F.
Can I claim a refund if my income is below ₹3 Lakh?
Yes. If your bank deducted 30% TDS on NRO interest but your total income is below the limit, you must file an ITR to get that money back.
Is Aadhaar mandatory for NRIs to file ITR?
NRIs are generally exempt from quoting Aadhaar if they do not have one, but they must check the "Not applicable" box in the residential status section.
What happens if I make a mistake in my filed ITR?
You can file a Revised Return under Section 139(5). For FY 2025-26, you can typically revise it until December 31, 2026, without penalty.
Do I need to report my foreign salary in India?
No, as long as you maintain NRI status and the salary is received in a foreign bank account for services rendered outside India.
Can NRIs claim Section 80C deductions?
Yes, NRIs can claim deductions under Section 80C (like LIC, ELSS, PPF) if they opt for the Old Tax Regime. These are not available in the New Tax Regime.
What is Form 10F?
It is a mandatory self-declaration filed online to claim DTAA benefits when a Tax Residency Certificate (TRC) does not contain all required details.
Do I need to disclose my foreign bank accounts as an NRI?
Generally, no. Pure NRIs only report Indian assets. Disclosure of foreign assets (Schedule FA) is mandatory only for "Resident" taxpayers.
What is the penalty for not filing ITR?
Late fees up to ₹5,000 (or ₹10,000 for very late filings) and the loss of the right to carry forward capital losses to future years.