Being an NRI comes with many advantages – but also with a unique set of tax responsibilities in India. Each year, thousands of NRIs unknowingly make errors while filing their Income Tax Returns (ITR), which can lead to penalties, delayed refunds, or even tax notices from the IT Department. Here’s how to avoid tax filing mistakes.
If you’re an NRI filing taxes in India this season, this guide is for you. Let’s break down the 7 most common mistakes NRIs make during tax filing – and how you can avoid them with confidence.
1. Declaring the Wrong Residential Status
This is the starting point of your tax return, and also where many go wrong.
Your residential status under Indian tax law determines whether your global income is taxable in India or not. It’s not based on where you live today – but on the number of days you’ve stayed in India during the financial year.
What people often assume:
- “I have an NRI account, so I must be an NRI.”
- “I work abroad, so Indian tax laws don’t apply.”
- “I visited India for less than 6 months, so I’m safe.”
But here’s how it really works:
According to the Income Tax Act, you’re considered an NRI for tax purposes if:
- You were in India for less than 182 days during the financial year,
OR - You were in India for less than 60 days in that year, AND for less than 365 days over the past 4 years.
Even a single-day miscalculation can change your tax status from NRI to Resident.
Why this matters:
If you incorrectly declare your status:
- You may be asked to pay tax on your entire global income.
- Your tax return can be flagged for mismatch or evasion.
How to avoid it:
- Count your days in India precisely using a travel log or passport stamps.
- If you’re unsure, get help from a tax advisor or CA.
- Don’t confuse FEMA’s NRI status with the Income Tax Act’s rules—they’re not the same.
2. Filing with the Wrong ITR Form
Your ITR form must match your income type and residential status. But many NRIs unknowingly pick the wrong one. This is a common tax filing mistake.
Common mistake:
- Using ITR-1 (Sahaj)—this form is only for Resident Indians with income from salary, one house property, and other sources.
Why this is a problem:
- If you’re an NRI, your return will be invalid or processed incorrectly.
- You could lose deductions or misreport income, leading to notices.
Which form should NRIs use?
| ITR Form | When to Use |
|---|---|
| ITR-2 | If you’re an NRI with income from salary, more than one house property, capital gains, or other sources (except business income) |
| ITR-3 | If you have income from a business or profession in India |
Even if you earn only rental income or capital gains, ITR-2 is usually the correct form.
Pro tip:
Read the eligibility criteria on the Income Tax portal before selecting your form – or ask a qualified expert.
Also read: ITR Forms for NRIs Explained: Which One Should You File & Why?
3. Not Filing Form 67 Before Claiming Foreign Tax Credit (FTC)
As an NRI, you might be taxed twice—once abroad and once in India—for the same income. Thankfully, India has Double Taxation Avoidance Agreements (DTAA) with many countries.
But here’s the catch:
To claim relief under DTAA, you must file Form 67 before filing your ITR.
Common errors:
- Filing Form 67 after submitting the ITR—resulting in rejection of FTC.
- Forgetting to submit Form 67 altogether.
- Missing details like country of taxation, foreign income breakup, or taxes paid abroad.
How to avoid this:
- Collect your foreign tax documents (like W-2, 1099, or tax return proof).
- File Form 67 online through the income tax portal before filing your return.
- Make sure your CA calculates and reports the FTC correctly.
Without Form 67, your foreign tax paid won’t be considered—even if DTAA allows it.
4. Skipping or Misreporting Foreign Income
Many NRIs think that foreign income doesn’t need to be reported at all. That’s not always true.
You don’t have to report foreign income in India if:
- You’re an NRI, and
- The income was earned and received outside India.
But you must report it if:
- You’re classified as Resident or RNOR.
- You’ve received foreign income in an Indian bank account.
- The income has a tax link to India through the DTAA.
- You’ve repatriated income or capital gains from foreign assets.
Why it matters:
- The Income Tax Department now receives global income information through information exchange agreements.
- Skipping or under-reporting income can trigger notices and scrutiny.
When in doubt, report. You can always claim exemption or FTC if applicable.
5. Ignoring Income from India
Even if you live abroad, your income generated in India is taxable here. Many NRIs wrongly assume their NRE account interest or property income is exempt.
What you must report:
- Interest from NRO accounts
- Rental income from property in India
- Capital gains from selling Indian shares, mutual funds, or property
- Dividends from Indian companies
- Any other income earned or received in India
Interest from NRE and FCNR accounts is tax-free, but NRO account interest is taxable.
If your total Indian income exceeds ₹2.5 lakh, you’re legally required to file your ITR—even if your global income is exempt.
6. Not Matching with Form 26AS and AIS
This is a silent killer. You file your return with one number, but the IT department sees a different one—leading to confusion, mismatch notices, and delayed refunds.
Where things go wrong:
- TDS (Tax Deducted at Source) not reflected or claimed correctly.
- High-value transactions like mutual fund redemptions or large bank deposits not shown.
- Income declared in ITR doesn’t match the Annual Information Statement (AIS).
What to do:
- Download Form 26AS and AIS from the Income Tax portal.
- Compare every source of income and TDS with your bank/passbook.
- If something is wrong, contact the deductor or revise your return.
7. Delaying Filing or Missing the Deadline
Filing your ITR late may not seem like a big deal—but it has serious consequences. The deadline is usually 31st of July, but may vary as per the government directions.
What you risk by filing after the deadline:
- Late fee of ₹5,000
- Loss of carry-forward benefit for capital losses
- Inability to revise the return (in case of error)
For NRIs especially, filing early gives more time to:
- Coordinate with your tax advisor across time zones
- Collect foreign tax documents for Form 67
- Review and validate all income streams and deductions
- Avoid common tax filing mistakes
Good news: Big Relief for Taxpayers: ITR Filing 2025 Deadline Extended to 15th September 2025
Final Checklist: NRI Tax Filing Do’s & Don’ts
Here’s a quick reference before you hit ‘submit’ on your ITR:
- Count your days in India correctly
- Use the right ITR form
- File Form 67 before ITR, if claiming FTC
- Report all Indian income—and any foreign income that’s taxable
- Reconcile your return with Form 26AS and AIS
- File before the deadline
- Consult a tax advisor if you’re even slightly unsure
In Conclusion
NRI tax filing doesn’t have to be stressful – if you know what to look out for. The biggest errors often come from assumptions, haste, or outdated information.
The good news? Every mistake listed here is 100% avoidable with the right preparation and guidance.
Want to avoid tax notices and file your ITR with peace of mind?
At SBNRI, we’ve helped thousands of NRIs file accurately – with zero notices received so far. Yes 100% success rate!
FAQs
1. What are the most common tax filing mistakes NRIs make?
Some of the most common mistakes include declaring the wrong residential status, choosing the incorrect ITR form, failing to file Form 67 for foreign tax credit, not reconciling Form 26AS/AIS, and missing income disclosures.
2. Why is choosing the correct ITR form important for NRIs?
Using the wrong ITR form, such as ITR-1 which is not meant for NRIs, can lead to rejection or misprocessing of your return. NRIs typically need to use ITR-2 or ITR-3 based on their income sources.
3. What happens if I do not submit Form 67 while claiming foreign tax credit?
If you do not file Form 67 before filing your ITR, your foreign tax credit claim may be rejected, even if you have paid tax abroad under a DTAA agreement.
4. Do NRIs need to report foreign income in their Indian tax return?
NRIs usually don’t need to report foreign income unless they are RNOR or Resident, or if the foreign income is received in India. However, in unclear cases, disclosure is better for compliance.
5. Is it mandatory for NRIs to file ITR if they earn only interest from NRO accounts?
Yes, if the total income from Indian sources, including NRO interest, exceeds ₹2.5 lakh, NRIs must file their tax return.
6. How can I check if my income is correctly reported to the Income Tax Department?
You should download and review your Form 26AS and AIS from the income tax portal. These documents list TDS, interest income, capital gains, and high-value transactions.
7. What is the penalty for filing ITR after the due date?
Late filing can attract a penalty of up to ₹5,000 under Section 234F, and you may also lose the benefit of carrying forward capital losses.
