Top 10 Mistakes NRIs Make in Indian Tax Filing – And How to Avoid Them
Why This Blog Matters
If you're a Non-Resident Indian (NRI), you likely juggle tax obligations in multiple countries. Indian tax laws, however, can be tricky and often misunderstood. Many NRIs accidentally fall into tax traps due to lack of awareness or outdated advice. This guide uncovers the top 10 tax filing mistakes made by NRIs and offers practical ways to sidestep them.
1Misunderstanding NRI Status for Tax Purposes
Mistake: Assuming that leaving India automatically makes you tax-free.
How to Avoid It:
Residential status depends on your stay in India:
- 182+ days in India = Resident.
- 120+ days in current year + 365 days in last 4 years = Resident but Not Ordinarily Resident (RNOR).
Tip: Always confirm your residency using the Income Tax Department calculator.
2Not Reporting Global Income When Required
Mistake: Skipping foreign income in your return.
How to Avoid It:
- RNOR or Resident? Your global income is taxable in India.
- True NRI? Only Indian income is taxable.
Tip: If RNOR, include income like overseas deposits or rental income abroad.
3Not Converting Ordinary Accounts to NRO/NRE
Mistake: Continuing to use a resident savings account after becoming an NRI.
How to Avoid It:
- NRE account: For foreign income (tax-free).
- NRO account: For Indian income like rent, dividends (taxable).
Tip: Convert accounts immediately to avoid compliance issues.
4Using the Wrong ITR Form
Mistake: Filing returns on the wrong ITR form.
How to Avoid It:
- ITR-2: NRIs with capital gains, multiple house properties.
- ITR-3: NRIs with business/professional income.
Tip: Unsure? Consult a CA or use NRI-focused tax platforms.
5Failing to Claim DTAA Benefits
Mistake: Paying double tax—abroad and in India.
How to Avoid It:
Claim relief under the Double Taxation Avoidance Agreement (DTAA). Submit Form 10F and a Tax Residency Certificate (TRC).
Tip: Keep proof of foreign tax paid for claiming credit.
6Ignoring Income from Indian Sources
Mistake: Forgetting to declare:
- Rent from property
- Interest on FDs or NRO savings
- Dividends
How to Avoid It:
All Indian-sourced income is taxable for NRIs.
Tip: TDS on NRO accounts is 30%. File your ITR to claim refunds.
7Not Claiming Eligible Deductions
Mistake: Missing out on deductions under Sections 80C, 80D, 80G.
How to Avoid It:
Section 80D:
You can claim deductions on medical insurance premiums paid for yourself, your spouse, dependent children, and even your parents. The limits are higher if the insured are senior citizens, offering additional tax benefits.
Section 80C:
One of the most widely used (and often misunderstood) sections. You can claim up to ₹1.5 lakh annually by investing in options like ELSS mutual funds, Life Insurance (LIC), PPF, NSC, or even child tuition fees. Since this section has multiple options, it's best to seek proper advice before locking in your investments.
Section 80G:
Donations made to eligible charitable institutions, relief funds, or NGOs can be claimed as deductions. Depending on the organization, you can get a 50% or 100% deduction, with or without restriction limits. If you already contribute to social causes, make sure to collect proper receipts so you don't miss out on this benefit.
Tip: Not all 80C options apply to NRIs (e.g., NSC not allowed).
8Missing the Filing Deadline
Mistake: Filing after July 31st (15th Sep for 2025 extended).
How to Avoid It:
Late filing means penalties, interest, and loss of carry-forward benefits.
Tip: Set calendar reminders; prepare documents early.
9Not Disclosing Foreign Assets (Schedule FA)
Mistake: Hiding or forgetting overseas assets.
How to Avoid It:
- Residents/RNORs must disclose foreign assets, bank accounts, investments in Schedule FA.
- Non-disclosure risks penalties under the Black Money Act.
Tip: If unsure, consult a professional—Schedule FA is complex.
10Not Consulting a Professional
Mistake: Relying on friends, blogs, or DIY filing.
How to Avoid It:
Hire a Chartered Accountant with NRI tax expertise or use reliable NRI tax platforms.
Tip: Expert help can save you from penalties and maximize refunds.
Quick Recap – Top 10 Mistakes
Misunderstanding NRI status → Use residency calculator
Skipping global income → Report if RNOR/Resident
Keeping resident accounts → Convert to NRE/NRO
Wrong ITR form → Use ITR-2/ITR-3
Missing DTAA relief → File Form 10F & TRC
Ignoring Indian income → Declare rent, FD, dividends
Skipping deductions → Claim eligible 80C/80D/80G
Filing late → Meet July 31st deadline
Not disclosing foreign assets → Fill Schedule FA
No professional help → Consult NRI tax experts
FAQs: NRI Tax Filing in India
Q1: Do NRIs need to link PAN with Aadhaar?
A: No, NRIs are exempt, but you must inform the department of your NRI status.
Q2: Can NRIs claim TDS refunds?
A: Yes, by filing ITR if excess tax is deducted.
Q3: What documents should NRIs keep ready?
A: PAN, bank statements, NRE/NRO details, rent agreements, Form 26AS, proof of deductions.
Q4: Is NRE account interest taxable?
A: No, it's exempt for NRIs.
Q5: Do NRIs pay capital gains tax on property in India?
A: Yes, TDS applies; exemptions available under Section 54 if reinvested.
Q6: What are the penalties for late filing?
A: Up to ₹5,000 plus interest—and you also lose the ability to carry forward certain losses.
Q7: Is Form 67 mandatory?
A: Absolutely, if you are claiming foreign tax credit under DTAA.
Q8: What is the new LTCG rule for NRIs?
A: From July 2024, NRIs pay a flat 12.5% on long-term capital gains without indexation.
Next Steps for NRIs
Being an NRI doesn't give you a free pass on Indian taxes. With planning, awareness, and expert guidance, you can file accurately, reduce taxes, and stay penalty-free. Whether you're in the US, Dubai, or Singapore, these tax tips will keep your finances compliant and stress-free.