31 Jan 2023

Updated: May 2026

Consequences of Not Filing ITR in India: What NRIs, PIOs, and OCIs Must Know

Many Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) believe that because they live abroad, they have no Indian tax filing obligations. This is a dangerous misconception. If you have income arising in India — rent, capital gains, interest, dividends, or business income — you likely have an ITR filing obligation, and the consequences of non-filing are significant and escalating. At Regi Tom Antony And Associates, we advise NRI clients on Indian tax compliance from across the globe.

Who Must File an ITR in India?

Under Section 139(1) of the Income Tax Act, 1961, every person (including NRIs) must file an ITR in India if:

• Their gross total income from Indian sources exceeds the basic exemption limit (₹2.5 lakh under old regime; ₹3 lakh under new regime for FY2025–26)
• They have deposited more than ₹1 crore in bank accounts in India during the year
• They have paid electricity bills exceeding ₹1 lakh in aggregate during the year (for Indian properties)
• They have incurred foreign travel expenditure exceeding ₹2 lakh during the year
• They wish to claim a refund of TDS deducted in India
• They have capital gains (even below the exemption limit) and want to carry forward losses

Common India-Sourced Income for NRIs That Triggers Filing

• Rental income: Income from property let out in India — taxable after standard deduction of 30% under Section 24(a) and municipal taxes paid
• NRO account interest: TDS deducted at 30% — but actual liability under DTAA may be lower; only ITR filing enables refund
• Capital gains on property: LTCG at 12.5% (post-July 2024) on property held >24 months; TDS by buyer at 12.5% + surcharge u/s 195
• Capital gains on equity/mutual funds: LTCG at 12.5% (threshold ₹1.25 lakh); STCG at 20%
• Dividends: Taxable in recipient's hands; TDS deducted at 20% for NRIs
• Business or professional income: Any income from Indian business operations

Consequences of Non-Filing for NRIs

1. Late Fee under Section 234F

A late fee of ₹5,000 applies if ITR is filed after the due date (typically 31 July) but before 31 December. The fee is ₹1,000 if total income is between ₹2.5 lakh and ₹5 lakh. This is the minimum financial consequence — but not the most serious one.

2. Interest on Unpaid Tax — Sections 234A, 234B, 234C

If there is any tax liability beyond TDS (e.g., NRO interest TDS at 30% but actual DTAA rate is 15%, requiring net payment), interest accrues:

• Section 234A: 1% per month on tax payable from due date to filing date
• Section 234B: 1% per month if advance tax paid is less than 90% of assessed tax
• Section 234C: 1% per month for shortfalls in quarterly advance tax instalments

3. Loss of Refund

This is particularly significant for NRIs. TDS on NRO interest is deducted at 30%. If your DTAA rate is 10% or 15%, you are entitled to a refund — but only if you file an ITR. Non-filing means permanently forfeiting the refund for that year. Similarly, if TDS on property sale (u/s 195) exceeds actual tax liability, a refund is available only through ITR filing.

4. Inability to Carry Forward Losses

Capital losses (on property, equity, mutual funds) can be carried forward to offset gains in future years — but only if the ITR is filed on time. Non-filing means these losses expire and cannot be used. For NRIs with investment portfolios in India, this can represent substantial lost tax benefit.

5. Notice under Section 142(1) or 148A

The Income Tax Department cross-matches data from multiple sources: Form 26AS (TDS), AIS (Annual Information Statement), SFT (Statement of Financial Transactions). If the Department identifies India-sourced income for which no ITR was filed, a notice can be issued:

• Section 142(1): Requiring you to file a return or provide information
• Section 148A: Show cause notice before reassessment — if the Department has reason to believe income has escaped assessment
• Section 144: Best judgment assessment if you fail to respond — the Department estimates your income and issues a demand

6. Penalties under Section 270A

If income has been under-reported or misreported (not just un-filed), penalties of 50%–200% of the tax on under-reported income apply under Section 270A.

7. Prosecution under Section 276CC

Wilful failure to file an ITR (where the tax liability exceeds ₹10,000) can attract prosecution — imprisonment of 3 months to 3 years plus fine. While prosecution is typically reserved for deliberate, large-scale evasion, the risk is real for NRIs with significant India-sourced income who systematically fail to file.

8. TRC and DTAA Benefits May Be Denied

To claim reduced withholding tax rates under a DTAA, an NRI must provide a Tax Residency Certificate (TRC) from their country of residence and Form 10F. However, if non-filing creates a disputed tax position, DTAA benefits may be challenged during assessment. A clean ITR filing history strengthens your position.

What NRIs Should Do Now

1. Assess your India-sourced income for the past 2–3 years — rental income, NRO interest, capital gains, dividends
2. Check Form 26AS and AIS on the Income Tax portal — the Department already has this data
3. File pending returns — Updated Return under Section 139(8A) allows filing for up to 2 prior years with an additional tax payment
4. Engage a CA familiar with NRI taxation and DTAA — not a generalist who files basic ITRs

For NRI ITR filing, DTAA advisory, and Indian tax compliance, visit www.nriblueprint.com or refer to NRI Tax Blueprint 2025 by CA Regi Tom Antony — available on Amazon.

Frequently Asked Questions

Does an OCI card holder have to file ITR in India?

The OCI card grants certain rights of residence and movement in India — it does not change tax obligations. An OCI card holder who is a non-resident for Indian tax purposes (does not meet the 182-day residency test under Section 6) has the same ITR filing obligations as any NRI: they must file if their India-sourced income exceeds the basic exemption limit. The OCI status itself is irrelevant to Indian tax residency determination.

Can I file ITR in India from abroad?

Yes, completely online. The Income Tax portal (incometax.gov.in) allows filing from anywhere in the world. You will need your PAN, Aadhaar (or declaration of non-possession), Indian bank account details (NRO account) for refund credit, and digital verification via net banking, DSC, or EVC. A CA can file on your behalf with a Power of Attorney or as a registered e-Return Intermediary (ERI).

What is the Updated Return (ITR-U) and can NRIs use it?

The Updated Return under Section 139(8A), introduced by the Finance Act 2022, allows filing or correcting ITRs for up to 2 preceding assessment years. NRIs can use ITR-U to file returns they missed or to correct under-reported income. An additional tax of 25% (within 12 months) or 50% (12–24 months) of the aggregate tax and interest is payable when filing an ITR-U. It is an excellent compliance regularisation tool for NRIs with pending filing obligations.