How do NRIs file income tax returns in India? A Step-by-Step Guide

As a Non-Resident Indian (NRI), you might often find yourself asking the question, “Do I still need to pay taxes or file a return in India?” The answer, in many cases, is a resounding yes. While you may live abroad, your financial ties to India—be it a property, investments, or bank accounts—can create tax obligations. Understanding the nuances of cross-border taxation is crucial, but it doesn’t have to be overwhelming. This comprehensive guide will simplify the entire process and explain exactly how NRIs file income tax returns in India. We will walk you through everything from determining your tax liability to the final e-verification step, ensuring your NRI income tax filing in India is smooth, compliant, and stress-free.

First, Determine Your Residential Status for Tax Purposes

Before you can even begin thinking about filing taxes, you must first confirm your residential status for the specific financial year as per the Indian Income Tax Act. This status is the cornerstone of your tax liability in India and determines which portion of your global income is taxable in the country. It is important to note that the definition of a “Non-Resident Indian” for tax purposes is based on your physical presence in India and can differ from the definition under the Foreign Exchange Management Act (FEMA).

Defining NRI vs. Resident Indian

For income tax purposes, you are considered a “Resident” of India if you satisfy either of the following basic conditions for a financial year (April 1st to March 31st):

You have been in India for a period of 182 days or more in that financial year.
You have been in India for 60 days or more during that financial year AND for 365 days or more during the 4 years immediately preceding that financial year.

If you do not meet either of these conditions, you are classified as a Non-Resident Indian (NRI) for that financial year. This status is assessed annually, meaning you could be an NRI one year and a Resident the next, depending on your travel and stay patterns. Accurately calculating your days of stay is the first critical step in adhering to Indian tax laws.

What Income is Taxable for NRIs in India?

Unlike a Resident Indian who is taxed on their global income, an NRI is only liable to pay tax on income that is either earned or accrued in India or is received in India. This is one of the most fundamental NRI tax filing guidelines in India. If your income is earned abroad and received abroad, it is generally not taxable in India.

Here are the most common types of income that are considered taxable for an NRI in India:

Salary Income: Any salary received for services performed in India is taxable in India. This includes salary credited directly to an Indian bank account, even if you are an NRI.
Rental Income: Income earned from a property (residential or commercial) situated in India is taxable in India, regardless of where you reside.
Capital Gains: Profit generated from the sale of any capital asset located in India is taxable. This includes gains from selling Indian property, mutual funds, or shares of Indian companies.
Interest Income: Interest earned from Indian sources is taxable. A key distinction is that interest on a Non-Resident External (NRE) account is tax-exempt, but interest on a Non-Resident Ordinary (NRO) savings account or fixed deposits is fully taxable.
Business or Professional Income: Any income from a business controlled or a profession set up within India is taxable.

The Complete Income Tax Return Process for NRIs in India

Once you have determined that you are an NRI with taxable income in India, the next step is to follow the prescribed procedure for filing your return. The process is entirely online and follows a logical sequence. By breaking it down into manageable steps, you can ensure accuracy and compliance without feeling overwhelmed by the complexities involved.

Step 1: Collect All Documents Required for NRI Income Tax Filing in India

Being organized is half the battle won. Before you log in to the tax portal, gather all the necessary paperwork. Having these documents ready will make the process of filing ITR for NRIs in India much faster and reduce the chances of errors.

Here is a comprehensive checklist of the documents required for NRI income tax filing in India:

PAN Card: A Permanent Account Number (PAN) is mandatory for filing income tax in India. If you don’t have one, you must apply for it first.
Aadhaar Card: If you have been allotted an Aadhaar Card, keep it handy for linking with your PAN and for e-verification purposes.
Indian Bank Account Statements: You will need statements for all your Indian bank accounts, especially your NRO account (to report taxable interest) and your NRE account (to report exempt income).
TDS Certificates: These forms show the tax that has already been deducted from your income.
- Form 16: If you received a salary from an Indian employer.
- Form 16A: For tax deducted on other income, like interest from fixed deposits or rental income.
- Form 26AS & Annual Information Statement (AIS): These are comprehensive tax credit statements available on the e-filing portal. Always cross-check your TDS certificates with the data in Form 26AS and AIS to ensure no income or tax deduction is missed.
Property & Investment Details: If you have sold property, shares, or mutual funds, you will need the sale and purchase deeds, and broker statements to calculate capital gains accurately.
Passport: A copy of your passport is essential to verify your travel dates and confirm your number of days of stay in India, which validates your NRI status.
Foreign Tax Information: To claim benefits under the Double Taxation Avoidance Agreement (DTAA), you will need your Tax Identification Number (TIN) from your country of residence and proof of taxes paid there on income that is also taxable in India.

Step 2: Choose the Correct ITR Form

Selecting the right Income Tax Return (ITR) form is a critical step. An NRI cannot use the simplest form, ITR-1 (Sahaj). Your choice will depend on the nature of your income sources.

ITR Form	Who Should Use It?
ITR-2	This is the most common form for NRIs. Use it if your income is from Salary/Pension, House Property, Capital Gains, or Other Sources (like interest from an NRO account). You cannot have income from a business or profession.
ITR-3	Choose this form if you have any income from a business or profession in India, in addition to any of the income sources covered under ITR-2.

Filing the wrong form will lead to your return being marked as ‘defective’ by the Income Tax Department, requiring you to refile it correctly.

Step 3: Calculate Your Taxable Income and Liability

This step involves compiling all your Indian income sources, claiming eligible deductions to reduce your taxable income, and then calculating your final tax liability. You must start by adding up all your taxable income—salary, rental income, capital gains, and NRO account interest. From this gross total income, you can claim certain deductions under Chapter VI-A of the Income Tax Act. Some popular deductions available to NRIs include:

Section 80C: For investments in Life Insurance Premiums, ELSS, principal repayment on a home loan for Indian property, etc. (up to ₹1.5 lakh).
Section 80D: For premiums paid for health insurance policies in India.
Section 80TTA: Deduction up to ₹10,000 on interest earned from an NRO savings account.

A crucial aspect for NRIs is claiming relief under the Double Taxation Avoidance Agreement (DTAA). India has DTAA treaties with over 90 countries. These agreements ensure that you do not pay tax on the same income in both your country of residence and in India. You can either claim an exemption or a credit for taxes paid in your country of residence, depending on the specific DTAA. This requires careful filling of the ‘Schedule FSI’ (Foreign Source Income) and ‘Schedule TR’ (Tax Relief) in the ITR form.

Step 4: How NRIs File Income Tax in India Online

With your calculations and documents ready, you can proceed with the actual filing. The government has made the online process user-friendly and efficient.

Here’s a step-by-step guide on how NRIs file income tax in India:

Go to the official Income Tax e-filing portal.
Log in using your PAN as the User ID and your password. If you are a first-time user, you must register on the portal by providing your PAN, name, and contact details.
Once logged in, navigate to the menu: `e-File > Income Tax Returns > File Income Tax Return`.
Select the Assessment Year (AY) for which you are filing. For income earned between April 1, 2023, and March 31, 2024, the AY is 2024-25.
Choose the Mode of Filing as `Online` and confirm your Status as `Non-Resident`.
You will be prompted to select the correct ITR Form. Based on your income sources, choose ITR-2 or ITR-3.
The portal will present a form with several sections. Much of your personal information and TDS data will be pre-filled from your profile, Form 26AS, and AIS. Carefully verify this pre-filled data and manually enter details for all other income, deductions, and DTAA claims.
After filling out all the schedules, the portal will compute your tax liability or refund. If there is tax due, you must pay it online through the provided payment gateways before submitting the return.
Once all details are complete and any tax is paid, Preview your return. Double-check everything and then click Submit.

Step 5: E-Verify Your Filed Return

Your job isn’t done after you hit ‘Submit’. Filing an ITR is a two-step process: submitting and then verifying. An unverified return is considered invalid. You have 30 days from the date of filing to complete the verification.

Here are the most common verification methods for NRIs:

Net Banking: Log into your Indian bank’s net banking portal and look for the ‘e-Verify Income Tax Return’ option.
Bank Account or Demat Account EVC: You can generate an Electronic Verification Code (EVC) through a pre-validated Indian bank account or Demat account.
Physical Verification (ITR-V): If the digital options are not accessible or fail, you can use this method. Download the ITR-V acknowledgement form, sign it in blue ink, and mail the physical copy via ordinary or speed post to the CPC, Income Tax Department, Bengaluru, 560500, India.

Important Deadlines and Considerations

To avoid penalties and interest, it is vital to be aware of the key dates and concepts related to NRI taxation. Missing deadlines can lead to financial consequences and unnecessary complications with the tax authorities.

Tax Filing Due Dates for NRIs

The due dates for filing income tax returns for NRIs are the same as for resident individuals. For any given financial year, the deadline is:

July 31st of the following year (the assessment year) for individuals whose accounts are not required to be audited.
October 31st of the assessment year for individuals who are required to have their accounts audited (e.g., those with certain business income).

It is always a good practice to file well before the deadline and to check the official Income Tax Department website for any announcements regarding deadline extensions.

Understanding TDS and Advance Tax for NRIs

The concepts of Tax Deducted at Source (TDS) and Advance Tax are particularly important for NRIs. Payers of certain incomes to NRIs are required to deduct tax at source, often at higher rates. For instance, TDS on rental income is 30% (plus cess), and TDS on the sale of property can be 20% (plus cess) on the long-term capital gain.

To avoid a large chunk of your income being locked up in TDS, you can apply to the Assessing Officer using Form 13 to obtain a lower or nil TDS certificate. This certificate can then be given to the payer. Additionally, if your estimated total tax liability for the year (after TDS) is ₹10,000 or more, you are required to pay Advance Tax in quarterly installments.

Conclusion

Navigating the Indian tax system from abroad can seem like a complex task, but it becomes manageable when broken down into clear, actionable steps. The key is to first correctly determine your residential status, diligently gather all your financial documents, choose the right ITR form (ITR-2 or ITR-3), and accurately calculate your income and tax liability, paying special attention to DTAA benefits. Finally, ensure you complete the process by filing online and verifying your return before the July 31st deadline. Staying compliant not only prevents penalties but also ensures your financial affairs in India are clean and well-managed.

While the process is straightforward, the rules for how NRIs file income tax returns can be intricate, especially concerning capital gains and DTAA provisions. If you need expert guidance, are unsure about your obligations, or simply want to ensure your filing is 100% accurate, contact the experts at TaxRobo today for a seamless experience.

Frequently Asked Questions (FAQs)

Is it mandatory for every NRI to file an income tax return in India?
Answer: It is mandatory for an NRI to file an ITR in India if their gross total income earned or accrued in India during a financial year exceeds the basic exemption limit (which is ₹2.5 lakh under the old tax regime). However, it is highly advisable to file a return even if your income is below this limit, especially if you want to claim a tax refund for TDS deducted or carry forward any losses to set off against future income.
How can an NRI get a tax refund if excess tax has been deducted (TDS)?
Answer: A tax refund can only be claimed by filing an income tax return. During the ITR filing process, you declare your total income, calculate your actual tax liability, and report the total TDS that has been deducted. If the TDS is more than your liability, the difference will be calculated as a refund. After your return is processed by the Income Tax Department, the refund amount will be credited directly to your pre-validated Indian bank account.
What is the tax difference between an NRE and an NRO account?
Answer: Understanding this difference is a key part of NRI income tax filing in India. Interest earned on a Non-Resident External (NRE) account, which is funded by foreign currency, is completely tax-exempt in India. You do not have to pay any tax on this interest. In contrast, interest earned on a Non-Resident Ordinary (NRO) account, which can be funded by Indian or foreign income, is fully taxable at your applicable slab rates and must be included in your ITR.
Can an NRI revise their income tax return after filing?
Answer: Yes, absolutely. Just like resident Indians, NRIs have the option to file a revised return if they discover any mistake, omission, or wrong statement in the original return they submitted. A revised return can be filed at any time before the end of the relevant assessment year or before the completion of the assessment by the tax authorities, whichever is earlier.