How NRIs Should File ITR for Indian Salary and Investments
- Nimisha Panda
- 7 hours ago
- 8 min read
NRIs earning income from salary or investments in India are required to file an Income Tax Return (ITR) if their total income exceeds the basic exemption limit. The tax liability depends on the type of income earned—such as salary, interest, capital gains, or rental income—and whether tax has already been deducted at source (TDS). To ensure compliance and claim eligible refunds, NRIs must file their ITR accurately within the due date prescribed by the Income Tax Department. Platforms like TaxBuddy simplify this process with automated tools and expert guidance designed specifically for non-resident taxpayers.
Table of Contents
Understanding NRI Taxation Rules in India
Non-Resident Indians (NRIs) are taxed in India based on their residential status as per the Income Tax Act, 1961. An individual qualifies as an NRI if they spend less than 182 days in India during a financial year or meet specific conditions outlined under Section 6. NRIs are required to pay tax only on income earned or accrued in India, such as salary, rent, capital gains, or interest from Indian bank accounts. Income earned abroad is not taxable in India. NRIs must file their ITR in India if their total income exceeds ₹2.5 lakh in a financial year.
Is Salary Earned in India Taxable for NRIs?
Yes, salary income earned or received in India is taxable for NRIs, even if the services are rendered abroad. For example, if an NRI receives salary directly into an Indian bank account from an Indian employer, it becomes taxable in India. However, salary received abroad for services performed outside India is exempt. NRIs working for Indian companies on foreign assignments should carefully verify the location of service and the place of receipt to determine taxability. Double taxation relief under DTAA (Double Taxation Avoidance Agreement) may apply if tax is also paid abroad.
How NRIs Should File ITR for Indian Salary and Investments
NRIs must file their Income Tax Return in India using either ITR-2 or ITR-3, depending on their income sources. Salary, rental income, and capital gains can all be reported in a single return. If an NRI has only interest or salary income, ITR-2 is sufficient. For business income or professional earnings, ITR-3 should be used. NRIs should ensure that income from Indian sources, such as fixed deposits, mutual funds, or property sales, is correctly declared. Form 26AS and AIS statements should also be checked to confirm that all TDS deductions are accounted for.
How to Report Investment Income in ITR
Investment income, such as interest from NRO accounts, dividends, or capital gains from the sale of Indian shares and mutual funds, must be reported under the head “Income from Other Sources” or “Capital Gains.” TDS is deducted at source on most of these incomes — typically 20% for interest and 10% for dividends. NRIs can claim a refund if excess TDS is deducted. Reporting these incomes accurately helps avoid notices and ensures refund processing without delays.
Choosing Between Old and New Tax Regimes for NRIs
NRIs can opt for either the old or new tax regime when filing returns. The old regime allows claiming deductions under Sections 80C, 80D, 80E, and others, while the new regime offers lower slab rates without exemptions. Most NRIs with investment-linked deductions, such as home loan interest or ELSS investments, benefit from the old regime. However, if they have limited deductions, the new regime may result in lower tax liability. Choosing the correct regime requires comparing both structures before filing.
How to Avoid Double Taxation on NRI Income
NRIs can avoid double taxation by claiming relief under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. This treaty ensures that the same income is not taxed twice. Taxpayers can claim credit for taxes paid abroad against Indian tax liability using Form 67 while filing ITR. For example, if an NRI pays tax on salary income in the U.S., they can claim a credit in India for the same amount, provided proof of foreign tax payment is submitted.
Step-by-Step Process to File ITR for NRIs
Determine residential status as per Section 6 of the Income Tax Act.
Collect Form 16, Form 26AS, and AIS statement.
Choose the correct ITR form (ITR-2 or ITR-3).
Report all Indian income — salary, rent, capital gains, and investments.
Claim DTAA relief if applicable.
Verify TDS details and claim refunds if any.
File and e-verify the ITR before the due date, typically July 31 of the assessment year. Platforms like TaxBuddy make this process easy by automatically classifying income and computing tax based on the residential status.
Common Mistakes NRIs Should Avoid While Filing ITR
NRIs often make errors like using the wrong ITR form, omitting foreign bank account details, or not declaring interest income from NRO accounts. Another frequent mistake is failing to claim TDS credit properly, leading to refund delays. Some NRIs also forget to report capital gains from the sale of mutual funds or property. Ensuring accurate reporting and cross-verification with Form 26AS and AIS helps avoid income tax notices and penalties.
Role of TaxBuddy in Simplifying NRI ITR Filing
TaxBuddy offers a simplified and accurate filing solution for NRIs through its AI-powered and expert-assisted filing system. It automatically detects applicable deductions, applies DTAA relief, and verifies all TDS records. NRIs can upload Form 16, capital gains statements, and investment proofs directly, and TaxBuddy’s experts handle the rest. The platform ensures that users file the correct ITR form and meet all compliance requirements, reducing errors and penalties.
Key Deadlines and Penalties for NRI ITR Filing in 2025
For FY 2024-25 (AY 2025-26), the last date to file ITR without penalty is July 31, 2025. If filed after the due date, a late filing fee of up to ₹5,000 applies under Section 234F, depending on income level. Filing beyond December 31 may attract higher interest and penalties. Timely filing also ensures smooth refund processing and avoids unnecessary scrutiny by the Income Tax Department.
How to Claim Refunds and Track ITR Status Online
NRIs can claim a refund for any excess TDS deducted by ensuring that income and TDS details match with Form 26AS and AIS. Refunds are credited directly to NRE or NRO bank accounts registered with PAN. The refund status can be tracked through the Income Tax Department’s e-filing portal using the acknowledgment number. TaxBuddy users receive real-time updates on filing, refund approval, and credit confirmation via email and SMS notifications.
Conclusion
Filing taxes in India as an NRI may seem complex, but with proper planning, documentation, and the right platform, it can be seamless. Understanding the rules for salary, investments, and capital gains helps NRIs stay compliant while maximizing savings. TaxBuddy simplifies the entire process by offering guided filing, expert assistance, and accurate computation tailored for NRIs.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Who qualifies as an NRI under the Income Tax Act? An individual qualifies as a Non-Resident Indian (NRI) if they spend less than 182 days in India during a financial year, or less than 60 days in the relevant financial year and 365 days in the preceding four years combined. Residential status is determined each year separately, and it directly affects the scope of income taxable in India. Those meeting the criteria are taxed only on income earned or received in India, while foreign income remains exempt.
Q2. Is income earned abroad taxable in India for NRIs? Income earned abroad is generally not taxable in India for NRIs, as long as it is neither received nor deemed to be received in India. Only income that accrues, arises, or is received within India — such as rent from Indian properties, interest on NRO accounts, or capital gains on Indian assets — is taxable. Salary earned abroad and credited outside India is exempt, ensuring NRIs are not taxed twice on global income.
Q3. Can NRIs claim deductions under Section 80C? Yes, NRIs can claim deductions under Section 80C for certain eligible investments and payments. These include life insurance premiums, tuition fees for children’s education in India, principal repayment of home loans, and investments in Equity-Linked Savings Schemes (ELSS). However, some instruments like the Public Provident Fund (PPF) are not available for new NRI investments, though existing accounts can be maintained until maturity.
Q4. What tax rate applies to NRI interest income? Interest income from Non-Resident Ordinary (NRO) accounts is taxable at 30% (plus applicable surcharge and cess). However, interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) deposits is completely exempt from tax, provided the account holder retains NRI status as per FEMA and Income Tax rules. NRIs should also ensure correct declaration of their residential status to avoid unnecessary TDS deductions.
Q5. Which ITR form should NRIs use? NRIs should file ITR-2 if they earn income from salary, rent, or capital gains, and do not have income from business or profession. If an NRI has business or professional income in India, ITR-3 should be used. Those earning only interest or dividend income below taxable limits may also qualify for ITR-1 (Sahaj) in limited cases, though ITR-2 is preferred for comprehensive reporting.
Q6. How can NRIs avoid double taxation? NRIs can avoid double taxation by availing benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. By filing Form 67, NRIs can claim foreign tax credit for taxes paid abroad on the same income. They must provide supporting documentation such as tax residency certificates and foreign tax payment proofs while filing their Indian ITR.
Q7. Is PAN mandatory for NRIs? Yes, a Permanent Account Number (PAN) is mandatory for NRIs conducting financial transactions in India, such as buying or selling property, opening NRO/NRE accounts, or filing income tax returns. Without a PAN, TDS on income is deducted at higher rates. NRIs can apply for a PAN online through the NSDL or UTIITSL portals using valid passport and overseas address proof.
Q8. Are mutual fund investments by NRIs taxable? Yes, mutual fund investments made by NRIs are taxable in India. The taxation depends on the type of fund and the holding period. Short-term capital gains (held for less than one year in equity funds or three years in debt funds) are taxed at 15% or at the applicable slab rate, while long-term capital gains are taxed at 10% for equity and 20% with indexation for debt funds. TDS is deducted at the source by fund houses on redemption.
Q9. Can NRIs file ITR without visiting India? Yes, NRIs can file their income tax returns online from anywhere in the world. The Indian e-filing portal supports fully digital submission using Aadhaar-linked verification or electronic signatures. Platforms like TaxBuddy simplify the process further by offering guided filing, AI-based validation, and expert assistance, ensuring compliance without the need for physical presence in India.
Q10. How are capital gains from property taxed for NRIs? Capital gains from property sales in India are taxable for NRIs based on the holding period. Properties held for less than 24 months are considered short-term and taxed at applicable slab rates, while those held longer qualify as long-term and are taxed at 20% with indexation benefits. TDS of 20% (plus surcharge and cess) is deducted at the time of sale. NRIs can claim exemptions under Sections 54, 54EC, or 54F by reinvesting the proceeds in eligible assets.
Q11. What happens if an NRI misses the ITR filing deadline? If an NRI fails to file the return before the due date (generally July 31 for individuals), a late filing fee under Section 234F applies — ₹1,000 if total income is below ₹5 lakh, or ₹5,000 otherwise. In addition, interest on unpaid tax may apply under Sections 234A, 234B, and 234C. Missing deadlines can also delay refunds and restrict the ability to carry forward capital losses.
Q12. How does TaxBuddy assist NRIs in filing returns?
TaxBuddy offers a dedicated NRI tax filing service that ensures accurate reporting of foreign and Indian income, proper DTAA benefit application, and error-free computation of TDS and refunds. The platform’s AI-driven system identifies eligible deductions and applies the correct tax rate based on residency status. Expert-assisted plans also provide personalized guidance, ensuring NRIs remain compliant with Indian tax laws without the complexity of manual calculations or paperwork.
