Introduction
Picture this: you moved abroad five years ago, but you still own a flat in Mumbai that's rented out, an NRO account collecting interest, and a mutual fund portfolio you never got around to redeeming.
Many NRIs assume that because they live and pay tax overseas, their Indian income is someone else's problem. It isn't.
Rental income, NRO interest, and capital gains earned in India remain taxable here, regardless of where you live. The rules that decide how much you owe, which form you file, and how much tax gets withheld also differ substantially from those for resident Indians.
This guide walks through the residential status test, the correct ITR form, mandatory filing triggers, taxable income rules, and the mistakes that trip up most NRIs filing for FY 2025-26 (AY 2026-27).
Key Takeaways
- Your residential status under Section 6 decides whether global or only Indian income gets taxed
- India-sourced income (rent, capital gains, NRO interest, salary) is taxable, but NRE and FCNR interest remain exempt
- NRIs must file ITR-2 or ITR-3 — never ITR-1 or ITR-4
- Filing is mandatory past the basic exemption limit, but voluntary filing often unlocks TDS refunds
- A Tax Residency Certificate and Form 10F can cut TDS from 30% to treaty rates under DTAA
Step-by-Step Guide to Filing ITR for NRIs in India
Following these steps in order helps you avoid rejected returns, missed refunds, and compliance notices later. Skipping ahead, especially on residential status or form selection, is where most NRI filings go wrong.
Step 1: Determine Your Residential Status
This is the foundation everything else rests on. Under Section 6 of the Income Tax Act, you're a resident if you spent 182 days or more in India during FY 2025-26. You're also a resident if you spent 60 days or more in FY 2025-26 plus 365 days or more across the preceding four years.
There's a relaxation worth knowing:
- If you're an Indian citizen leaving India for employment abroad, the 60-day limb extends to 182 days
- Visiting Indian citizens/PIOs with non-foreign income above ₹15 lakh face a tighter 120-day threshold instead of 182 days
- Citizens with over ₹15 lakh in non-foreign income who aren't taxed in any other country may be deemed resident (classified as RNOR)
Landing and departure days both count as days spent in India. Keep your passport stamps handy: a miscounted stay of even a few days can flip your entire tax status.
Step 2: Gather Required Documents
Before you open the e-filing portal, collect:
- PAN and passport (with entry/exit stamps for the financial year)
- Form 16 or 16A for any salary/TDS deducted in India
- NRE, NRO, and FCNR account statements
- Capital gains statements from your broker, mutual fund RTA, or property sale deed
- TRC and Form 10F, if you're claiming DTAA relief
Cross-check Form 26AS and AIS on the e-filing portal before you start. These reflect the TDS actually credited against your PAN, so any mismatch here directly affects your refund.
Step 3: Choose the Correct ITR Form and Tax Regime
NRIs file either ITR-2 or ITR-3, depending on whether business income exists (covered in detail in the next section). Get this right early, since the form determines which schedules you'll need to fill.
You'll also need to pick between the old and new tax regime before entering deductions. This choice affects whether Section 80C, 80D, or 80TTA claims even apply, so decide it upfront rather than midway through the form.
Step 4: Compute Taxable Income and Claim Deductions/DTAA
Report each income head (salary, house property, capital gains, other sources), matching the figures in Form 26AS exactly. Discrepancies here are a common trigger for processing delays.
Then claim what you're eligible for: deductions under 80C, 80D, and 80TTA where applicable, and DTAA relief by selecting your treaty country and entering your TRC/Form 10F details in the relevant schedule.
Step 5: Submit and E-Verify the Return
Filing isn't complete until you e-verify. Your options include:
- Aadhaar OTP
- Net banking
- Electronic Verification Code (EVC) via a pre-validated bank or demat account
- Digital Signature Certificate (DSC)
Net banking is often the most practical route for NRIs without an active Indian mobile number, since Aadhaar OTP needs a linked, working number. Whichever method you choose, you have 30 days from filing to complete verification. Miss that window, and your return is treated as never filed.
Which ITR Form Should You Use — ITR-1, ITR-2, ITR-3, or ITR-4?
Let's clear up the confusion immediately: ITR-1 (Sahaj) and ITR-4 (Sugam) are for residents only. No matter how simple your income looks, an NRI cannot legally file either form.
Here's how the remaining forms split:
| Form | Who it's for | Typical NRI income covered |
|---|---|---|
| ITR-2 | NRIs with no business/professional income | Salary, house property, capital gains, other sources |
| ITR-3 | NRIs with business or professional income earned/controlled from India | Everything in ITR-2, plus business/professional income |
| ITR-5 | Partnership firms owned by NRIs | Firm-level income |
| ITR-6 | Companies with NRI shareholding | Company-level income |
Most NRIs with rental property, mutual funds, or NRO deposits will use ITR-2. If you run a consultancy, freelance for Indian clients, or hold a stake in an Indian business you actively manage, ITR-3 applies instead.
Filing the wrong form doesn't just cause inconvenience. It typically triggers a Section 139(9) defective return notice, giving you 15 days to fix it. Miss that cure window, and your return can be treated as invalid, delaying or even forfeiting your refund entirely.
When Is It Mandatory for NRIs to File an ITR in India?
Filing becomes mandatory once your taxable Indian income exceeds the basic exemption limit for FY 2025-26:
- ₹2.5 lakh under the old tax regime
- ₹4 lakh under the new tax regime
But income level isn't the only trigger. Under Rule 12AB high-value transaction norms, filing is mandatory even below the exemption limit if any of these apply:
| Trigger | Threshold |
|---|---|
| Current account deposits | Exceeds ₹1 crore |
| Foreign travel expenditure | Exceeds ₹2 lakh |
| Electricity expenditure | Exceeds ₹1 lakh |
| Aggregate TDS/TCS | ₹25,000 or more |
| Savings account deposits | ₹50 lakh or more |
Even if none of these apply to you, filing voluntarily is often worth the effort. It's the only way to reclaim excess TDS, and a clean filing history genuinely helps with Indian loan applications and, in some cases, visa renewals abroad.
Understanding Taxable Income, Deductions, and DTAA Benefits for NRIs
NRIs are taxed only on India-sourced income, not their global earnings. That includes:
- Salary for services rendered in India
- Rental income from Indian property
- Capital gains on Indian assets (shares, mutual funds, property)
- NRO account interest
NRE and FCNR interest, along with income earned entirely outside India, stay exempt. This distinction trips up a lot of people who assume all their Indian bank interest is off-limits to tax authorities. NRO interest is fully taxable.
Deductions You Can (and Can't) Claim
Most Chapter VI-A deductions remain available to NRIs under the old regime:
- 80C: life insurance premiums, ELSS, home loan principal
- 80D: health insurance premiums
- 80E: education loan interest
- 80TTA: savings account interest
- 80G: eligible donations
What's off the table:
- New PPF accounts (an existing one can run to maturity but cannot be extended)
- NSC and Post Office deposit schemes
- Senior Citizens Savings Scheme (SCSS)
- Disability-related deductions under 80U, 80DD, and 80DDB (resident-only)
How DTAA Reduces Your Tax Outgo
Without treaty relief, TDS on NRI income can run as high as 30%. A Double Taxation Avoidance Agreement prevents you from paying tax twice on the same income (once in India, once in your country of residence) through either an exemption or a tax-credit method.
To claim it, you'll need a Tax Residency Certificate (TRC) from your resident country's tax authority, plus Form 10F filed electronically on the Indian portal. Get this documentation right, and TDS often drops from a flat 30% to a much lower treaty-specified rate.
This is exactly where things get complicated for NRIs juggling investments across two or three countries. Cambridge Wealth works with NRI investors on how India-held investments sit alongside the rest of their portfolio when two or three tax jurisdictions are in play. Its goal-linked distribution process starts from your stated goals, timelines and liquidity needs, so the documentation and sequencing are considered before income is realised rather than after the fact.
Common Mistakes NRIs Should Avoid When Filing ITR
- Assuming Indian income is automatically exempt: Living abroad doesn't exempt your NRO interest, rental income, or capital gains from Indian tax, which remains the costliest misconception on this list.
- Filing ITR-1 instead of ITR-2 or ITR-3: It might seem simpler, but it invalidates your return and can trigger a Section 139(9) defective return notice.
- Leaving PAN unlinked to Aadhaar: An inoperative PAN means higher TDS under Section 206AA and can hold up your refund entirely, so check this before filing season, not during it.
- Skipping DTAA documentation: No TRC, no Form 10F, no treaty benefit means you'll pay the flat 20-30% rate instead of a lower negotiated one, and reclaiming the difference later means waiting for a refund with your own money.
Frequently Asked Questions
How much income is tax-free for NRIs?
Under the old regime, the basic exemption is ₹2.5 lakh; under the new regime, it is ₹4 lakh for FY 2025-26. Unlike residents, NRIs cannot claim the Section 87A rebate.
Which ITR form should an NRI file — ITR-1 or ITR-2?
Neither ITR-1 nor ITR-4 is available to NRIs. Use ITR-2 for salary, property, capital gains, and investment income, or ITR-3 if you have business/professional income.
Is it mandatory to declare NRI status in India?
There's no separate declaration form, but you must correctly select your residential status within the ITR itself each year, based on your actual days spent in India.
I used ITR-1 before I moved abroad — can I keep filing the same form?
No. ITR-1 (Sahaj) and ITR-4 (Sugam) are resident-only forms, so once your status changes to non-resident you are barred from both regardless of income level. ITR-2 is the usual replacement, or ITR-3 if you have business or professional income in India.
What is the due date for NRIs to file ITR in India?
The standard due date is July 31 of the assessment year, extending to October 31 if business income requires an audit. Always check the income tax portal for official extensions.
Can NRIs claim a refund if TDS was deducted at a higher rate?
Yes. Filing ITR-2 or ITR-3 is the only way to reclaim excess TDS, often withheld at the flat 30% rate, and refunds typically carry interest once processed.
