Step-by-Step Guide for NRI Income Tax Return Filing in India
- Rajesh Kumar Kar
- Nov 3
- 9 min read
Filing income tax returns in India as a Non-Resident Indian (NRI) involves specific rules, documents, and eligibility conditions. Taxation for NRIs depends on income earned or received fin India, and with recent updates under the Union Budget 2025, understanding these nuances is crucial for compliance. The process includes determining residential status, choosing the correct ITR form, claiming eligible deductions, and filing the return through the official e-filing portal. Platforms like TaxBuddy simplify this process by offering expert-assisted and AI-driven filing options designed for NRIs.
Table of Contents
Confirm Your NRI Status Under Indian Tax Law
Determining residential status is the first and most crucial step before filing an NRI income tax return. Under the Income Tax Act, 1961, an individual qualifies as a Non-Resident Indian (NRI) if they reside in India for less than 182 days during the financial year. Alternatively, if the stay in India is less than 60 days in the current year and less than 365 days in the four preceding years, the person is also considered an NRI. This classification directly affects taxability, as only the income earned or received in India is taxable for NRIs. Foreign income is exempt unless it originates from business or professional connections in India.
Documents Required for NRI ITR Filing
Accurate documentation ensures smooth tax filing and reduces the chances of discrepancies or notices. Essential documents include:
Permanent Account Number (PAN) card
Passport (to confirm travel days and residency)
NRO and NRE bank account statements
TDS certificates such as Form 16, Form 16A, and consolidated Form 26AS
Annual Information Statement (AIS) for income and investment tracking
Details of property, capital gains, or investment income in India
Proof of tax paid abroad and a Tax Residency Certificate (TRC) if claiming DTAA benefits
Maintaining these records is vital as the Income Tax Department may request verification during assessment or refund processing.
Choosing the Correct ITR Form for NRIs
Selecting the correct ITR form is essential for valid filing.
ITR-2 is typically used by NRIs having salary, house property, or capital gains income in India.
ITR-3 applies if the NRI has income from business or professional activities in India. The ITR-1 (Sahaj) form cannot be used by NRIs. Filing the wrong form can result in the return being marked as defective, which must then be rectified under Section 139(9).
How to Calculate Total Income and Tax Liability for NRIs
To calculate taxable income, NRIs must include:
Salary earned or received in India
Rental income from Indian property
Capital gains from the sale of shares or property
Interest earned from NRO accounts Once the total income is calculated, applicable deductions can be claimed under sections such as:
Section 80C: Investments like ELSS or life insurance (up to ₹1.5 lakh)
Section 80D: Health insurance premiums
Section 80TTA: Interest on savings account (up to ₹10,000) After applying deductions, use the income tax slab for NRIs under the new regime to compute tax liability.
Deductions and Exemptions Available to NRIs in AY 2025-26
NRIs can claim several deductions similar to resident taxpayers, subject to eligibility. Commonly claimed deductions include:
Investments under Section 80C (ELSS, life insurance, PPF, etc.)
Health insurance premium under Section 80D
Interest on savings account under Section 80TTA
Education loan interest under Section 80E However, some exemptions like those on agricultural income or long-term capital gains may have specific conditions. NRIs cannot claim deductions for certain savings schemes restricted to residents.
Claiming DTAA Benefits to Avoid Double Taxation
To prevent being taxed twice on the same income, NRIs can utilize the Double Taxation Avoidance Agreement (DTAA). India has DTAA agreements with over 90 countries. To claim this benefit:
Obtain a valid Tax Residency Certificate (TRC) from the country of residence
Fill Schedule FSI (Foreign Source Income) and Schedule TR (Tax Relief) in the ITR form
Attach proof of taxes paid abroad The DTAA ensures that tax is either exempted in one country or adjusted through credit in another.
Step-by-Step Process to File NRI Income Tax Return Online
Visit the official e-filing portal at incometax.gov.in.
Log in or register using your PAN as the user ID.
Select the appropriate assessment year (AY 2025-26).
Choose the correct ITR form (ITR-2 or ITR-3).
Enter personal details, income information, and claim deductions.
Review the total tax computation and validate entries.
Submit the return online and e-verify through Aadhaar OTP, net banking, or sending a signed ITR-V to CPC Bengaluru. For an easier experience, NRIs can use platforms like TaxBuddy, which provides expert-assisted and automated filing solutions, ensuring accuracy and compliance.
NRO vs NRE Bank Account: Which to Use for ITR Filing
NRO Account: Used for income earned in India such as rent, dividends, or capital gains. Interest earned on NRO accounts is taxable and must be declared in the ITR.
NRE Account: Used to park foreign income remitted to India. Interest on NRE accounts is exempt from tax as long as NRI status is maintained. Refunds from the Income Tax Department are credited only to an Indian account, preferably NRO, which should be pre-validated on the e-filing portal.
Post-Filing Procedures: Verification, Refunds, and Notices
After submitting the ITR, NRIs must verify the return within 30 days. Verification can be done online using Aadhaar OTP, net banking, or by posting a signed physical copy (ITR-V) to CPC Bengaluru. Refunds, if applicable, are processed electronically to the registered bank account. Taxpayers should regularly check the e-filing portal for updates or notices, such as defective return intimation, refund status, or mismatch notifications. Platforms like TaxBuddy can help track these communications and assist in prompt responses.
Latest Updates for FY 2024-25 (AY 2025-26)
Recent updates have streamlined the NRI tax filing process:
Higher thresholds for reporting certain foreign assets and overseas investments
Clarity on taxation of global income for individuals changing residency status
Enhanced scrutiny of cross-border capital gains and foreign remittances
Improved online verification and faster refund mechanisms
These updates aim to reduce procedural delays and simplify compliance for NRIs.
Common Mistakes to Avoid While Filing NRI ITR
Selecting the wrong ITR form (e.g., ITR-1 instead of ITR-2)
Failing to declare NRO account interest or capital gains
Missing verification of ITR within 30 days of filing
Incorrect bank account details for refund credit
Ignoring DTAA benefits or failing to attach TRC
Filing after the due date without justification Avoiding these mistakes ensures faster processing and prevents the return from being marked defective.
Conclusion
Filing NRI income tax returns in India requires clarity on residency status, careful documentation, and accurate disclosure of Indian income. The process, while systematic, can become complex for those with multiple income sources or foreign assets. Expert support can make a significant difference in ensuring error-free filing and timely refunds. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy 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 offers both self-filing and expert-assisted plans to cater to different taxpayer needs. The self-filing option is powered by an AI-driven system that guides users step-by-step while ensuring compliance with the latest tax laws. The expert-assisted plan, on the other hand, connects NRIs with qualified tax professionals who handle everything from income classification to DTAA claims and refund tracking. This dual approach makes it easier for NRIs to choose between a guided DIY experience or full professional support, depending on their complexity and comfort level.
Q2. Which is the best site to file ITR?
The official Income Tax Department portal (incometax.gov.in) is the most reliable platform for filing income tax returns, offering direct access to government resources. However, many taxpayers prefer platforms like TaxBuddy for their user-friendly interface, simplified workflows, and AI-driven data validation that minimizes filing errors. TaxBuddy’s integrated dashboard also helps NRIs manage multiple income sources, deductions, and documents seamlessly, ensuring a smooth and compliant filing experience.
Q3. Where to file an income tax return?
Income tax returns can be filed online through the official e-filing portal of the Income Tax Department or via registered intermediaries like TaxBuddy. Filing through authorized e-filing platforms simplifies the process by automating key steps such as data import from Form 26AS, AIS, or TDS certificates, making it faster and more accurate. For NRIs, online filing is the most efficient method since it eliminates the need for physical documentation and provides instant acknowledgment of submission and verification.
Q4. What is the last date for NRI ITR filing for AY 2025-26?
The deadline for filing the NRI Income Tax Return for AY 2025-26 is July 31, 2025, unless extended by a government notification. Filing before the due date ensures timely processing of refunds, avoids penalties under Section 234F, and allows the taxpayer to carry forward eligible losses. In case of delay, NRIs can still file a belated return under Section 139(4) by paying the prescribed late fee, but early filing is always advisable for faster verification and smoother compliance.
Q5. Can NRIs file ITR without an Aadhaar card?
Yes, NRIs can file their income tax returns without an Aadhaar card. The Aadhaar requirement is exempt for individuals who qualify as NRIs under the Income Tax Act unless they have voluntarily obtained one. The PAN card and passport are sufficient for identity verification and residency proof. However, linking Aadhaar (if available) with PAN helps expedite e-verification and refund processing, so it can be beneficial though not mandatory.
Q6. Which ITR form should NRIs use for capital gains and salary income?
For NRIs having salary income, rental income, or capital gains, the correct form is ITR-2. This form covers all non-business income categories and allows claiming deductions and DTAA reliefs. If the NRI has income from a business or professional source in India, they must use ITR-3. Using the correct form is essential to prevent the return from being marked as defective under Section 139(9), which could lead to re-filing and potential delays in refund processing.
Q7. Can NRIs claim deductions under Section 80C and 80D?
Yes, NRIs are eligible to claim deductions under Section 80C and Section 80D, provided the investments or expenses are made in India. Under Section 80C, NRIs can claim up to ₹1.5 lakh for eligible contributions such as ELSS funds, life insurance premiums, and certain pension plans. Under Section 80D, they can claim deductions for health insurance premiums paid for themselves or their dependents in India. However, deductions on specific schemes like PPF or NSC are not available to NRIs since they are restricted to resident individuals.
Q8. How can NRIs claim DTAA relief?
NRIs can claim Double Taxation Avoidance Agreement (DTAA) benefits to prevent paying taxes twice on the same income. To do this, they must:
Obtain a Tax Residency Certificate (TRC) from the country where they reside.
Fill out Schedule FSI (Foreign Source Income) and Schedule TR (Tax Relief) in the ITR form.
Provide documentary evidence of foreign taxes paid, such as tax receipts or employer certificates. Once verified, the relief is provided either as an exemption or a tax credit against Indian liability. This mechanism ensures fair taxation and prevents double deduction on the same earnings.
Q9. Is NRO account interest taxable in India?
Yes, the interest earned on NRO (Non-Resident Ordinary) accounts is fully taxable in India under the head “Income from Other Sources.” Banks generally deduct TDS at 30% (plus applicable cess and surcharge) before crediting the interest. NRIs must include this income in their ITR and can claim credit for the TDS deducted while computing total tax liability. If DTAA provisions apply, the effective tax rate may be lower based on the treaty between India and the NRI’s resident country.
Q10. Is NRE account interest taxable?
No, the interest earned on NRE (Non-Resident External) accounts is exempt from Indian income tax as long as the individual qualifies as an NRI under the Income Tax Act. The exemption applies to both savings and fixed deposits held in NRE accounts. However, if the person’s status changes to resident, the exemption ceases from that financial year onwards, and the interest becomes taxable. NRIs should maintain documentation of their NRI status to ensure exemption validity.
Q11. What happens if an NRI fails to file ITR on time?
Failure to file ITR by the due date may lead to consequences such as:
A penalty under Section 234F, which can go up to ₹5,000 for delayed filing.
Loss of eligibility to carry forward capital losses for future adjustment.
Delayed refunds or potential interest disallowance on refund amounts.
Increased scrutiny from the Income Tax Department for late compliance. NRIs who miss the due date can still file a belated return before December 31 of the assessment year, but it’s advisable to file within the original deadline to avoid complications.
Q12. Can NRIs get a tax refund directly into their foreign account?
No, income tax refunds for NRIs are credited only to an Indian bank account, preferably an NRO account. The account must be pre-validated and linked with the PAN on the income tax e-filing portal. Refunds cannot be remitted directly to foreign accounts or NRE accounts as per CBDT guidelines. NRIs should ensure the bank account is active and verified to avoid delays in receiving the refund after successful return processing.
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