ITR Filing for NRIs: Which Form to Use?
- PRITI SIRDESHMUKH
- Oct 1
- 9 min read
NRIs earning income in India must carefully select the correct ITR form to ensure compliance and avoid penalties. Choosing the wrong form can lead to processing delays, scrutiny, or fines. Income from property, capital gains, salary, business, or professional activity determines which ITR form is suitable. Recent updates for AY 2025-26 emphasize filing deadlines, e-verification, and DTAA applicability for NRIs. Proper reporting of Indian income and bank account details is essential for smooth processing. Expert tools like TaxBuddy assist NRIs in selecting the right form, uploading documents, and completing filings accurately.
Table of Contents
Understanding NRI Taxation in India
NRI taxation is governed by the Income Tax Act, 1961, and applies to individuals who qualify as non-residents for a particular financial year. An NRI is taxed only on income that is received or accrued in India. Global income of an NRI is generally not taxable in India unless it is received or deemed to be received in India. Income from sources such as salary earned in India, property rental, capital gains from Indian assets, and business operations within India are subject to taxation. Additionally, NRIs are subject to TDS (Tax Deducted at Source) on certain payments, making timely and accurate ITR filing essential to claim refunds and avoid penalties.
Eligibility Criteria for Filing ITR as an NRI
To file an ITR as an NRI, the individual must meet the non-resident criteria under the Income Tax Act:
The individual must have stayed in India for less than 182 days in the financial year, or
Less than 60 days in the financial year and a total of 365 days over the preceding four years.
NRIs earning taxable income in India, such as interest from Indian bank accounts, rental income, or capital gains from Indian securities, must file an ITR. Filing is also mandatory if total taxable income exceeds the basic exemption limit or if TDS has been deducted, allowing the NRI to claim refunds.
Which ITR Form Should NRIs Use?
NRIs must select the appropriate ITR form based on the type of income earned in India. Using the correct form ensures compliance and avoids errors. Common forms for NRIs include ITR-2, ITR-3, and in limited cases, ITR-4. Certain forms like ITR-1 (Sahaj) are not available for NRIs. The choice depends on whether the NRI has income from salary, house property, capital gains, or business/professional sources.
ITR-2 for NRIs: Income from Salary, House Property, and Capital Gains
ITR-2 is the most commonly used form for NRIs who earn income from salary, rental property in India, and capital gains from assets like shares, mutual funds, or property. This form cannot be used if the NRI has business or professional income. Filing ITR-2 allows NRIs to declare all taxable income, claim deductions, and report TDS for potential refunds. It also facilitates reporting of assets and liabilities located in India, which is mandatory for certain high-net-worth individuals.
ITR-3 for NRIs: Business or Professional Income
ITR-3 is applicable for NRIs who have income from a business or profession in India. This includes self-employed professionals, freelancers, or NRIs owning Indian business entities. The form allows reporting of profits, losses, depreciation, and expenses while ensuring compliance with applicable tax provisions. NRIs using ITR-3 must maintain proper books of accounts and reconcile TDS deducted on payments received. This form is critical for ensuring accurate tax computation for business or professional income.
Limited Use of ITR-4 (Sugam) for NRIs
ITR-4 (Sugam) can be used by NRIs only if they have income from a presumptive business scheme under Sections 44AD, 44ADA, or 44AE. However, its use is very limited as most NRIs do not have small presumptive businesses in India. NRIs with salaried income or rental property must avoid ITR-4 and opt for ITR-2 or ITR-3 to ensure compliance and avoid rejection of returns.
Forms NRIs Cannot Use: ITR-1 and Others
ITR-1 (Sahaj) is restricted to resident individuals earning income from salary, pension, or one house property. NRIs are explicitly not allowed to use ITR-1. Similarly, ITR-5, ITR-6, and ITR-7 are meant for firms, companies, or trust-related entities and are not applicable for individual NRIs. Using incorrect forms can lead to return rejection and delays in refund processing.
Filing Obligations and Compliance Rules for NRIs
NRIs must comply with various filing obligations, including timely submission of ITR, declaration of all taxable income in India, claiming deductions under Sections like 80C, 80D, and 80G where applicable, and reporting foreign assets as per Indian law. Failure to comply can result in penalties, interest on unpaid tax, and scrutiny by the Income Tax Department. Proper planning and accurate reporting help avoid these issues.
Reporting Foreign Income and Assets
Non-Resident Indians (NRIs) have specific reporting requirements when it comes to disclosing foreign income and assets in their Income Tax Returns. While NRIs are generally taxed only on income earned or received in India, certain provisions, such as Schedule FA (Foreign Assets), require them to disclose foreign income and assets if they exceed specified thresholds or meet particular criteria. Reporting encompasses all bank accounts held abroad, ownership of foreign property, shares, mutual funds, or any other financial interest in foreign entities. This ensures transparency and compliance with the Income Tax Act and helps the tax authorities track global assets and income of residents. Non-disclosure or incorrect reporting of foreign assets can lead to significant penalties, additional scrutiny from the tax department, and potential legal complications, including the imposition of fines under Sections 271 and 269 of the Income Tax Act. Therefore, NRIs must maintain detailed records of their foreign assets and ensure accurate reporting while filing their ITR.
Importance of Bank Accounts (NRO/NRE) in ITR Filing
Bank accounts play a pivotal role in the ITR filing process for NRIs, particularly when reporting income and reconciling taxes. NRE (Non-Resident External) accounts are primarily used for repatriation of funds and are tax-free in India for both the principal and interest earned. On the other hand, NRO (Non-Resident Ordinary) accounts are used for managing income earned in India, such as rent, dividends, or interest, and interest earned in these accounts is subject to Indian taxation. Accurate reporting of account balances, interest earned, and any TDS (Tax Deducted at Source) is essential to ensure that the ITR reflects the correct taxable income and avoids any discrepancies. Using the appropriate account type for different transactions is critical for maintaining compliance and proper tax computation. NRIs should also reconcile TDS entries with their bank statements to ensure that the refund or tax liability is calculated accurately in the return. Proper documentation and timely reporting through the correct accounts minimize errors and reduce the risk of notices or penalties from the tax authorities.
E-Verification and Submission Process
Once an NRI completes the filing of their Income Tax Return (ITR) online, the process is not fully complete until the return is e-verified. E-verification is a crucial step because the Income Tax Department treats unverified returns as invalid. Without completing verification, the return is considered incomplete, and any refunds due may face significant delays. NRIs have multiple options for e-verification. One common method is through Aadhaar OTP, where a One-Time Password is sent to the registered mobile number linked with Aadhaar and entered on the e-filing portal. Another method is via Net Banking, where the taxpayer can log in to their bank account and e-verify the ITR directly. Alternatively, NRIs can choose the offline method by sending a signed copy of Form ITR-V to the Centralized Processing Center (CPC) within the stipulated time frame. Using platforms like TaxBuddy simplifies the e-verification process, as the system provides step-by-step guidance, reducing the chances of errors and ensuring that the filing and verification steps are completed efficiently and accurately.
Common Mistakes to Avoid While Filing ITR as an NRI
NRIs often encounter challenges in filing ITR accurately, which can lead to delays, rejections, or penalties. A frequent mistake is selecting the wrong ITR form. For example, using ITR-1 instead of ITR-2 or ITR-3 can cause the return to be rejected, especially if the NRI has income from multiple sources such as capital gains or foreign assets. Another common error is failing to report Tax Deducted at Source (TDS), which may create mismatches when the tax authorities reconcile the return with Form 26AS, leading to refund delays or notices. NRIs must also ensure that all rental income, capital gains, and other income sources are accurately reported. Not e-verifying the return is another critical oversight, as it leaves the return incomplete in the eyes of the Income Tax Department. Additionally, incorrect or outdated bank account details can delay refunds or even prevent them from being credited. To avoid these pitfalls, NRIs should carefully review all entries, reconcile TDS statements with income records, and ensure proper reporting of income, foreign assets, and bank details. Leveraging tools like TaxBuddy can help streamline these steps, provide reminders for verification, and flag common errors to ensure smooth filing and timely processing of refunds.
Conclusion
Filing ITR correctly as an NRI is essential to remain compliant with Indian tax laws, claim refunds, and avoid penalties. Proper selection of the ITR form, accurate reporting of Indian income and TDS, and timely e-verification are critical for a seamless filing experience. For anyone looking for assistance in filing ITR as an NRI, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides both self-filing and expert-assisted plans, catering to taxpayers with different levels of comfort and expertise. The self-filing option allows users to upload their Form 16 or financial data and complete their ITR with guided steps, while the expert-assisted plan provides personalized support from tax professionals to ensure accuracy, compliance, and faster refund processing.
Q2. Which is the best site to file ITR for NRIs? TaxBuddy is one of the most reliable platforms for NRI ITR filing. It offers an intuitive interface, AI-driven pre-filling of data, compliance with Indian tax laws, and guidance specific to NRI scenarios, including foreign income and TDS considerations.
Q3. Where to file an income tax return as an NRI? NRIs can file their income tax returns on the Income Tax Department’s e-filing portal or through trusted platforms like TaxBuddy, which simplify the filing process, pre-fill forms, calculate taxes, and guide users through e-verification.
Q4. Can NRIs file ITR if they only have interest income from India? Yes, NRIs earning interest income from Indian bank accounts, fixed deposits, or NRO/NRE accounts must file ITR if their total taxable income exceeds the basic exemption limit. Filing ensures proper reporting and claim of any eligible TDS refunds.
Q5. Is e-verification mandatory for NRIs? Yes, e-verification is mandatory for all ITRs, including those filed by NRIs. It can be completed via Aadhaar OTP (if linked), net banking, or by sending a signed ITR-V to the CPC, Bengaluru, within 120 days of filing. E-verification validates the ITR and initiates processing and refunds.
Q6. Which ITR form should an NRI use for capital gains? NRIs with capital gains should generally use ITR-2. This form accommodates income from capital gains, foreign assets, and other sources, ensuring accurate reporting and tax computation for both short-term and long-term capital gains.
Q7. Can NRIs claim deductions under Section 80C? Yes, NRIs are eligible to claim deductions under Section 80C for certain investments in India, such as PPF, life insurance premiums, and ELSS. However, contributions to some instruments like NPS may have separate provisions and must comply with NRI eligibility rules.
Q8. How are NRO and NRE accounts treated for tax purposes? Interest earned on NRE accounts is tax-free in India, while interest from NRO accounts is taxable. NRIs must report NRO interest under “Income from Other Sources” in their ITR and TDS may already be deducted at source by the bank.
Q9. Are NRIs required to report foreign assets in ITR? Yes, if an NRI is classified as a resident in any previous year under the Income Tax Act, foreign assets must be reported. Non-resident status generally does not require reporting foreign assets, but it is important to check the residential status and disclosure requirements before filing.
Q10. What happens if an NRI misses the filing deadline? If an NRI misses the ITR deadline, they can still file a belated return before December 31 of the assessment year, but they may incur penalties, interest on unpaid taxes, and delayed refund processing. Timely filing and e-verification are recommended to avoid complications.
Q11. Can NRIs file ITR-4 for small businesses? Yes, NRIs operating a small business or professional practice under the presumptive taxation scheme can file ITR-4. However, they must ensure that their income qualifies under the presumptive provisions and that all relevant income and expenses are accurately reported.
Q12. How does TDS affect ITR filing for NRIs? TDS is deducted at source on various incomes for NRIs, such as interest on NRO accounts, rental income, or sale of property. While filing ITR, NRIs must reconcile TDS with Form 26AS to claim refunds or adjust tax liabilities. Accurate reporting ensures smooth processing and avoids mismatches or notices.
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