Every year, thousands of NRIs file their Indian income tax returns with the best intentions — and still end up with defective returns, excess tax deductions, or notices from the Income Tax Department. Not because they ignored their taxes, but because the rules for NRIs are genuinely different from those for residents, and the filing portals aren't exactly intuitive about flagging those differences.

If you have rental income, bank interest, capital gains, or any other Indian income source, this applies to you. Let's go through the mistakes that actually matter.

Mistake 1: Filing the Wrong ITR Form

This is the most common and the most consequential error. Most NRIs need to file either ITR-2 or ITR-3 — ITR-2 for salary, rental income, capital gains, or interest income, and ITR-3 if you have business or professional income from India.

One of the most serious errors is NRIs filing ITR-1, which they are simply not eligible to use. ITR-1 is a simplified form available only to resident individuals. Filing it as an NRI can misrepresent your residential status, potentially triggering taxation of your global income in India — and inviting scrutiny under international information exchange frameworks like CRS and FATCA.

Many NRIs also mistakenly file ITR-4, which cannot be used by NRIs under any circumstance. If your return has been filed in the wrong form, do not wait for a notice — file a revised return immediately using the correct form.

Mistake 2: Getting the Residential Status Wrong

Your residential status is the foundation of your entire return. It determines what income is taxable in India and what is not. The Indian tax system classifies individuals into three categories based on physical presence: Resident, Non-Resident, and Resident but Not Ordinarily Resident (RNOR).

A common assumption is that holding a USA residence visa means NRI status for Indian tax purposes. The reality is that Indian tax residency depends only on days spent in India — not your visa status in another country. The threshold is 182 days in a financial year for most individuals. Get this count wrong and the downstream errors in your return — income reported, deductions claimed, form chosen — all follow.

Mistake 3: Not Claiming DTAA Benefits (and Paying Tax Twice)

If you are resident in a country that has a Double Taxation Avoidance Agreement (DTAA) with India — and most NRI-heavy countries do — you are likely entitled to reduced TDS rates on your Indian income. But the benefit is not automatic.

Under Rule 21AB, a Tax Residency Certificate (TRC) must be submitted along with Form 10F to avail DTAA benefits on income earned in India. Without a TRC, an NRI is required to pay taxes at higher domestic rates — often up to 30% plus surcharge and cess.

Form 10F is required when your TRC does not include all mandatory details such as taxpayer status, nationality, Tax Identification Number (TIN), residency period, or address. Since July 2022, it must be filed electronically through the Income Tax e-filing portal.

The practical implication: if your payer — bank, tenant, or company — has been deducting TDS at the full domestic rate because you never submitted a TRC and Form 10F, you can claim a refund in your return. But going forward, submit these documents before income is paid, not after. Once TDS is deducted at the higher rate, you have to file and wait for a refund. That is avoidable.

Mistake 4: Misreporting NRO, NRE, and FCNR Account Income

Many NRIs assume their NRE account interest or other income is exempt from tax. Capital gains generated from the sale of Indian shares, property, or mutual funds are taxable. Interest earned on an FCNR or NRE account is exempt from tax in India, but interest from an NRO account must be reported.

This distinction is frequently missed. NRO account interest is fully taxable, subject to TDS at 30%, and must be disclosed in the return regardless of the amount. Failing to report it creates a mismatch with your AIS (Annual Information Statement) and almost always triggers an automated query from the Income Tax Department.

Mistake 5: Claiming Deductions You Are Not Entitled To

NRIs do not have access to all the deductions that resident individuals can claim. Deductions under sections 80DD, 80DDB, and 80U — which relate to disability and medical expenses — are not available to NRIs. However, NRIs can claim deductions under 80C and 80E, among others.

Claiming an ineligible deduction does not go unnoticed. It will either be rejected during processing or flagged in scrutiny. Check your eligibility before claiming, not after.

Mistake 6: Not E-Verifying the Return

Filing the return is not enough. A return that is not e-verified within 30 days of submission is treated as invalid. For NRIs who cannot use Aadhaar OTP-based verification (a common issue for those without an Aadhaar-linked mobile number), the alternative is a Digital Signature Certificate (DSC) or sending a physical ITR-V to CPC Bengaluru.

Test your e-verification method before filing season — not the day you file.

Mistake 7: Ignoring Notices from the Income Tax Department

Ignoring income tax notices may result in penalties or other legal issues. NRIs abroad often assume that a notice received in India can simply be ignored because they are not present. That is not how it works. Notices are now served digitally on your registered email and the e-filing portal. Non-response leads to ex-parte assessment orders, demands, and in serious cases, attachment proceedings against Indian assets.

Most notices for NRIs are routine — a mismatch in AIS, a missing form, a clarification on TDS credit. They resolve easily with the right documentation. But only if you respond in time.

Quick Reference: NRI Filing Checklist

The filing deadline for FY 2025-26 (AY 2026-27) is 31 July 2026 for NRIs without a tax audit requirement. If you have Indian income and have not yet reviewed your filing approach for this year, the time to do that is now — not in the last week of July.

CA Praneeth Thunuguntla | Thunuguntla & Associates | Income Tax & GST Advisory