Who are NRI's

For this First of all we need to understand Who are NRI’s? NRI stands for Non-Resident Indian. An NRI is an Indian citizen who resides outside India for employment, business, education, or other purposes for an extended period. The classification of an individual as an NRI is typically based on the number of days they spend in India during a financial year.

Definition as per Income Tax Act (India)

An individual is considered an NRI if:

• They have stayed in India for less than 182 days during the financial year (April 1 – March 31).

• They have stayed in India for less than 60 days in a financial year and less than 365 days in the past four years, subject to certain conditions.

Definition as per FEMA (Foreign Exchange Management Act, 1999)

Under FEMA, an NRI is a person who resides outside India but holds an Indian passport. FEMA classification focuses on the intention to stay abroad rather than just the number of days.

Categories of NRIs

1. Indian citizens living abroad – People who have Indian citizenship but live outside India.

2. Persons of Indian Origin (PIOs) – Foreign citizens (except those from Pakistan and Bangladesh) with Indian ancestry.

3. Overseas Citizens of India (OCIs) – Foreign nationals who have an OCI card, granting them some benefits similar to NRIs.

Common Reasons for NRI Status

• Employment or job opportunities abroad

• Business or trade outside India

• Education in a foreign country

• Staying with family settled overseas

Example:

🔹 Rahul, an Indian citizen working in the USA, visited India for 150 days in FY 2024-25.

🔹 In the last 4 years, he stayed in India for a total of 400 days.

✅ Condition 1 (182 days rule): ❌ Not met (stayed only 150 days).

✅ Condition 2 (60 days & 365 days rule): ✅ Met (stayed 60+ days this year and 365+ in 4 years).

💡 Rahul would still be an NRI because the 60-day rule does not apply to an Indian citizen working abroad.

Is it Necessary for NRI to File ITR

Whether an NRI (Non-Resident Indian) needs to file an Income Tax Return (ITR) in India depends on their income sources and taxable income in India. Here’s a breakdown of the key rules:

When is it Mandatory for an NRI to File ITR?

An NRI must file an ITR in India if:

✅ Total Taxable Income in India Exceeds ₹2.5 Lakhs

• If an NRI's income earned in India (such as rent, interest, or capital gains) exceeds ₹2,50,000 in a financial year, they must file an ITR.

✅ TDS Deducted, But Refund is Due

• If an NRI has Tax Deducted at Source (TDS) on income (e.g., rent, bank interest, or capital gains) but their total taxable income is below ₹2.5 lakhs, they should file an ITR to claim a refund.

✅ Capital Gains from Investments in India

• If an NRI earns short-term or long-term capital gains from selling property, shares, mutual funds, or other assets in India, they must file an ITR, even if their total income is below ₹2.5 lakhs (since capital gains are taxable without exemption).

✅ If They Want to Carry Forward Losses

• If an NRI has incurred losses (e.g., from property, stocks, or business in India), filing an ITR allows them to carry forward the losses to offset against future income.

✅ If Required Due to Special Cases

• If an NRI has foreign assets that need to be reported under Schedule FA (for tax compliance purposes).

• If the NRI holds directorship in an Indian company or owns unlisted equity shares in India.

Example:

🔹 Rahul, an NRI working in Dubai, earns:

• ₹4,00,000 rental income from his apartment in India.

• ₹1,50,000 as interest from an NRO Fixed Deposit (taxable).

• ₹2,00,000 as long-term capital gains (LTCG) from selling equity mutual funds.

✅ Total taxable income before deductions = ₹7,50,000

✅ Deductions under Section 80C & 80D:

• ₹1,50,000 invested in PPF (80C)

• ₹30,000 paid for health insurance premium (80D)

🔹 Taxable Income after deductions = ₹5,70,000 (still above ₹2.5 lakh)

✅ Rahul must file an ITR as his taxable income exceeds ₹2.5 lakh.

How to Avoid Common Tax Filing Mistakes for NRIs

For Non-Resident Indians (NRIs), tax filing can be a complex process due to varying regulations and compliance requirements in India. Even a small oversight can lead to penalties, notices, or unnecessary financial burdens. To help NRIs navigate tax filing smoothly, we have outlined the most common mistakes and how to avoid them.

1. Incorrect Residential Status Declaration

Determining your residential status is crucial as it impacts your tax liabilities. Many NRIs miscalculate their stay duration in India, leading to incorrect tax filing. The Income Tax Act defines an individual as an NRI if:

• They have stayed in India for less than 182 days during the financial year (April 1 – March 31).

• They have stayed in India for less than 60 days in a financial year and less than 365 days in the past four years

making it necessary to check before filing.

How to Avoid: Carefully track the number of days spent in India and consult a tax expert to determine your residential status accurately.

2. Failure to Report Global Income

NRIs are required to pay tax only on income earned or accrued in India. However, many mistakenly report or fail to disclose foreign income, which can lead to unnecessary scrutiny by tax authorities.

How to Avoid: Ensure you only declare income earned in India and maintain proper documentation of foreign earnings to prevent errors.

3. Ignoring Tax Deducted at Source (TDS) on Indian Income

NRIs often overlook the TDS deductions on income sources such as rental income, capital gains, or interest from Indian bank accounts. If not accounted for properly, this can lead to double taxation.

How to Avoid: Verify the TDS deductions on Form 26AS and claim refunds or benefits under the Double Taxation Avoidance Agreement (DTAA) if applicable.

4. Not Filing an Income Tax Return (ITR) When Required

Some NRIs assume they are exempt from filing an ITR if their income falls below the taxable limit. However, if TDS has been deducted, or you have financial transactions exceeding specified limits, filing an ITR is necessary to claim refunds and stay compliant.

How to Avoid: Check if your Indian income necessitates an ITR filing and ensure timely submission to avoid penalties.

5. Using a Regular Savings Account Instead of an NRO/NRE Account

NRIs are not permitted to maintain standard savings accounts in India. Many inadvertently retain them, which is non-compliant with FEMA regulations.

How to Avoid: Convert existing accounts to NRO/NRE accounts to ensure compliance and facilitate smooth banking transactions.

6. Miscalculating Capital Gains Tax on Investments

NRIs investing in Indian stocks, mutual funds, or real estate often miscalculate capital gains tax, leading to incorrect tax payments or liabilities.

How to Avoid: Understand the tax implications of short-term and long-term capital gains and seek professional guidance to ensure correct tax filing.

7. Missing the Tax Filing Deadline

Many NRIs either forget or delay tax filing, resulting in penalties and interest charges.

How to Avoid: Mark important tax deadlines on your calendar and set reminders to file your returns on time.

8. Not Disclosing Assets Held in India

NRIs are required to disclose their assets, including property and bank accounts, in their tax filings. Failure to do so may invite scrutiny from tax authorities.

How to Avoid: Maintain a detailed record of all Indian assets and report them accurately in your tax returns.

Final Thoughts

Tax compliance is a critical aspect of financial management for NRIs. By avoiding these common mistakes and seeking professional assistance, NRIs can ensure hassle-free tax filing and stay compliant with Indian tax laws. If you need expert guidance, consult a tax professional to simplify the process and optimize your tax liabilities.

If you require assistance on filing Income Tax Return for NRI, Manthan Experts can be your trusted advisor. Contact them at info@manthanexperts.com.to discuss your specific needs and explore how their expertise can benefit your business.