9 Jun 2025Updated: May 2026
NRI tax compliance in India involves multiple interconnected frameworks — the Income Tax Act, FEMA, the DTAA network, and the RBI's account and remittance regulations. Each has its own filing requirements, deadlines, and penalty provisions. The mistakes that cost NRIs the most — financially and in terms of regulatory exposure — tend to be systematic rather than accidental. Here are the ones that come up most frequently in practice.
1. Wrong Residential Status Declaration
Residential status under the Income Tax Act determines whether an NRI's global income is taxable in India. The test is day-count based: an individual is a resident if present in India for 182 days or more in the financial year, or 60 days or more in the financial year plus 365 days in the preceding four years. NRIs who visit India frequently — particularly those returning for family reasons or to manage property — sometimes cross the 182-day threshold without realising it, triggering full resident taxation on global income.
The deemed residency provision adds another layer: Indian citizens earning more than ₹15 lakh from Indian sources who are not taxable anywhere else are treated as residents regardless of physical presence. This catches some NRIs in zero-tax jurisdictions.
The fix: track your India presence days precisely every financial year. If you are close to the threshold, document your travel carefully — airline tickets, passport stamps, and hotel records are the evidence base in a dispute.
2. Not Filing ITR When Required
NRIs with any taxable income in India — rental income, capital gains from property or securities, interest on NRO accounts — are required to file ITR. The common misconception is that if TDS has been deducted on the income, no ITR is needed. This is incorrect. ITR filing is independently required where income exceeds the basic exemption limit (₹2.5 lakh for NRIs, since the age-based higher slabs do not apply to non-residents).
The AIS (Annual Information Statement) on the Income Tax portal now captures virtually all India-source income for NRIs — property sales, interest income, securities transactions, and more. The department can see this data. Not filing when this data is present almost guarantees a Section 142(1) or 148A notice.
3. Missing TDS Credit on NRO Interest
Banks deduct TDS at 30% on NRO account interest. NRIs in DTAA countries are entitled to reduced rates — typically 10–15% — on bank interest under most Indian DTAAs, subject to providing the Tax Residency Certificate (TRC) and Form 10F to the bank. Many NRIs fail to submit these documents, resulting in excess TDS deducted at 30%. The excess can be refunded through ITR filing, but requires a return to be filed — which many NRIs skip, leaving the TDS permanently deducted.
4. Ignoring Section 50C on Property Sale
When selling property in India, if the agreed sale price is below the stamp duty value (circle rate), Section 50C deems the circle rate to be the full value of consideration for capital gains purposes. Tax is computed on the higher amount. NRIs who negotiate a sale below circle rate — often to accommodate the buyer's cash component — end up paying tax on a figure higher than what they received. Awareness of this provision and structuring the sale accordingly is essential pre-transaction planning.
5. Not Obtaining LDC Before Property Sale
TDS under Section 195 on property sale proceeds is deducted on the full consideration — not just the gain. On a ₹1 crore sale, 12.5% LTCG TDS plus surcharge and cess can amount to ₹14–16 lakh, even if actual tax liability after exemptions is a fraction of that. Without a Lower Deduction Certificate (LDC) under Section 197, the excess sits with the government until ITR processing — typically 6–12 months. Applying for the LDC before the sale is registered is the fix.
6. FEMA Non-Compliance on Repatriation
The USD 1 million annual repatriation cap from NRO accounts, the mandatory Form 15CA/CB requirement for overseas remittances, and the source-account rules (proceeds must route through NRO) are frequently overlooked. Banks will not process the remittance without Form 15CA/CB — but NRIs sometimes attempt to remit without first arranging these, causing delays and in some cases missing the financial year repatriation window.
7. Holding Non-Permissible Assets
Under FEMA, NRIs cannot hold agricultural land, plantation property, or farmhouses in India (unless inherited or acquired when resident). Continuing to hold inherited agricultural land without converting it or obtaining appropriate permissions is a FEMA violation. NRIs who have inherited agricultural land should seek specific FEMA advisory on the options available.
For a comprehensive guide to NRI tax and FEMA compliance, including worked examples and DTAA positions, refer to NRI Tax Blueprint 2025 by CA Regi Tom Antony — available on Amazon. For all NRI advisory resources, visit nriblueprint.com.
Regi Tom Antony And Associates provides NRI tax advisory, ITR filing, TDS compliance, DTAA applications, Form 15CA/CB certification, and FEMA advisory for NRIs across all countries of residence. Contact: letstalk@rtaandassociates.com | Kakkanad, Kochi.