9 Common Mistakes NRIs Make When Filing Income Tax in India — And How to Avoid Them (AY 2026-27)

Filing income tax in India as a Non-Resident Indian feels like navigating a system designed for someone else — because, in many ways, it is. The forms, rules, and compliance requirements are built around resident taxpayers, and NRIs get tripped up by differences they never expected.

The result? NRIs routinely overpay tax by thousands of rupees, miss refunds they are entitled to, or invite unnecessary scrutiny from the Income Tax Department. Most of these problems stem from a handful of recurring mistakes.

Here are the nine most common errors NRIs make when filing their Indian ITR — and exactly how to avoid each one.

1. Getting Residential Status Wrong

This is the single most expensive mistake an NRI can make, because everything else — which income is taxable, which deductions apply, which ITR form to use — flows from your residential status.

The Income Tax Act classifies individuals as Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-Resident (NR). The classification depends on how many days you spent in India during FY 2025-26 and the preceding years. Indian citizens who left for employment abroad get a relaxed 182-day threshold instead of the usual 60-day rule.

The common mistake: Many NRIs assume their status based on their passport or visa, not on the day-count rules in Section 6 of the Income Tax Act. Someone who returned to India in November 2025 and stayed through March 2026 might have crossed the 182-day threshold without realising it — making them a Resident, taxable on worldwide income.

How to avoid it: Count your days in India carefully for FY 2025-26 (1 April 2025 to 31 March 2026). Both arrival and departure days count. If you are close to the 182-day boundary, check whether the RNOR transitional status applies — it can shield your foreign income even if you technically qualify as a Resident. Our NRI income tax guide walks through the day-count rules in detail.

2. Not Filing an ITR When One Is Required

Many NRIs believe they do not need to file an ITR in India if TDS has already been deducted on their Indian income. This is incorrect in several situations.

You must file an ITR if:

• Your gross total income in India (before deductions) exceeds Rs 3,00,000 under the new tax regime or Rs 2,50,000 under the old regime
• You want to claim a refund of excess TDS deducted (banks deduct TDS at 30% on NRI FD interest, but your actual rate may be lower under DTAA)
• You sold property in India and the buyer deducted TDS under Section 194-IA
• You have capital gains from selling Indian shares or mutual funds
• You want to carry forward losses to set off against future gains

The common mistake: An NRI with Rs 8 lakh of FD interest has Rs 2.4 lakh deducted as TDS at 30%. Their actual tax under DTAA may be only Rs 1.2 lakh. Without filing an ITR, they forfeit a Rs 1.2 lakh refund.

How to avoid it: File an ITR whenever you have Indian income, even if TDS covers the full tax. The refund opportunity alone makes it worthwhile. NRIs cannot use ITR-1 (Sahaj) — use ITR-2 instead.

3. Filing the Wrong ITR Form

NRIs are not eligible to file ITR-1 regardless of how simple their income is. ITR-1 is exclusively for Resident individuals with income up to Rs 50 lakh from salary, one house property, and other sources.

The common mistake: An NRI with only salary income from an Indian employer files ITR-1 because their income structure appears straightforward. The return may get processed initially, but it can be flagged as defective or trigger a notice later — especially as AIS data now reveals residential status markers like foreign bank accounts and passport travel history.

How to avoid it: Always use ITR-2 if you are a Non-Resident or RNOR. If you have business or professional income, you will need ITR-3. Knowing which ITR form to use prevents unnecessary processing delays and notices.

4. Not Claiming DTAA Benefits (or Claiming Them Incorrectly)

India has Double Taxation Avoidance Agreements with over 90 countries. These treaties often cap the tax rate on specific income types — for example, the India-US DTAA limits tax on interest income to 15% instead of the domestic 30%.

The common mistake comes in two forms:

• Not claiming at all: Many NRIs are unaware that treaty benefits exist, so they accept the default 30% TDS on FD interest or 20% on other income without question.
• Claiming without proper documentation: To avail DTAA benefits, you need a Tax Residency Certificate (TRC) from your country of residence, and in many cases, Form 10F submitted on the Indian e-filing portal. Without these, the bank or buyer will deduct TDS at full domestic rates, and the ITR processing system may disallow your treaty claim.

How to avoid it: Obtain your TRC from the tax authority of your country of residence before the financial year ends. Submit it to your bank, tenant, or any Indian payer along with Form 10F and a self-declaration. When filing your ITR, claim relief under Section 90 or 91 and fill Schedule TR correctly. For a deeper understanding, see our guide on foreign income taxation and DTAA.

5. Ignoring NRE Account Interest That Became Taxable

Interest earned on NRE (Non-Resident External) accounts is fully tax-exempt in India — but only as long as you maintain NR or RNOR status. The moment your residential status changes to ROR, that NRE interest becomes fully taxable like any other bank interest.

The common mistake: An NRI returns to India permanently in July 2025. They qualify as a Resident for FY 2025-26 (spending more than 182 days in India). Their NRE FD continues earning interest at 7%, but they do not report this income because "NRE interest is tax-free." The AIS now captures this interest from bank reporting, and a mismatch notice follows.

How to avoid it: If you have returned to India or are planning to, check whether your residential status has changed. Once you become ROR:

• Convert your NRE account to a Resident account (or re-designate to RFC — Resident Foreign Currency)
• Report all interest earned post status-change in your ITR
• Consider breaking NRE FDs before your status changes if the interest differential matters

The bank itself may not re-designate your account automatically. You need to notify them and initiate the change.

6. Forgetting to Report Capital Gains from Indian Investments

NRIs frequently hold Indian mutual funds, stocks, and property acquired years ago. When these are sold, the capital gains are taxable in India regardless of where the NRI lives — because the asset is situated in India.

The common mistake: An NRI redeems Rs 15 lakh of equity mutual funds held for over a year. The AMC deducts TDS at 12.5% on the gain. The NRI assumes TDS has settled the matter and skips reporting in the ITR.

But here is the problem: TDS is not a final settlement of tax. The NRI may owe additional tax (if other income pushes them into a higher bracket) or may be due a refund (if LTCG is below the Rs 1.25 lakh exemption threshold under Section 112A). Not reporting capital gains also means missing the opportunity to set off losses from other asset classes.

How to avoid it: Report all capital gains — from stocks, mutual funds, and property — in Schedule CG of your ITR-2. Cross-check your capital gains data with the Annual Information Statement (AIS) on the e-filing portal. It now captures most equity and mutual fund transactions reported by brokers and registrars.

7. Not Filing Form 67 for Foreign Tax Credit

If you are an RNOR or have become a Resident, you may have foreign income on which you paid tax abroad. Section 90/91 allows you to claim credit for foreign tax paid, so you are not taxed twice on the same income.

But there is a procedural requirement that trips up many taxpayers: Form 67 must be filed on or before the due date of your ITR.

The common mistake: A returning NRI files their ITR on July 30, correctly claiming foreign tax credit in Schedule TR. But they forget to file Form 67 separately on the e-filing portal. The CPC disallows the entire foreign tax credit during processing, and a demand notice arrives for the uncredited amount.

How to avoid it: File Form 67 on the income tax e-filing portal before or on the same day you file your ITR. You will need:

• Country-wise details of foreign income
• Tax paid in each country
• Tax Identification Number in the foreign country
• Proof of tax payment (tax return acknowledgement or withholding certificate from the foreign country)

This is a common trap even for diligent filers because Form 67 is filed separately from the ITR — it is not a schedule within the return itself.

8. Overlooking TDS Deducted at Higher Rates on Property Sale

When an NRI sells property in India, the buyer is required to deduct TDS under Section 195. The applicable rates are significantly higher than what residents face:

Plus surcharge and cess, the effective rate can reach 13% to 31.2% depending on the gain amount.

The common mistake: NRIs often face a situation where the buyer deducts TDS on the entire sale consideration instead of just the capital gain, especially when the buyer's CA applies a conservative approach. On a Rs 1.2 crore property with Rs 30 lakh capital gain, TDS might be deducted on Rs 1.2 crore instead of Rs 30 lakh — a massive over-deduction.

NRIs then either do not file an ITR to claim the refund, or they do not apply for a lower/nil TDS certificate in advance.

How to avoid it: Before the sale, apply for a lower TDS certificate under Section 197 from your Assessing Officer. This ensures TDS is deducted only on the actual estimated capital gain. After the sale, file your ITR-2 with accurate capital gains computation in Schedule CG, claim the excess TDS in Schedule TDS, and claim any applicable Section 54/54EC exemption to reduce the gain further.

9. Not Reporting Foreign Bank Accounts and Assets in Schedule FA

If you are filing ITR-2 (which all NRIs must), you will encounter Schedule FA — Foreign Assets and Income from any source outside India. RNOR and Resident taxpayers are required to report all foreign assets: bank accounts, investment accounts, property, trusts, and any other financial interest held outside India.

The common mistake: NRIs who have recently returned and become Resident forget (or choose not) to disclose their foreign bank accounts, brokerage accounts, or retirement accounts (like 401(k) or superannuation funds). Non-reporting of foreign assets attracts penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 — with penalties up to Rs 10 lakh per year.

How to avoid it: If you are RNOR or ROR, disclose every foreign financial account and asset in Schedule FA, regardless of the balance or value. This includes:

• Foreign bank accounts (savings, checking, or dormant)
• Brokerage and trading accounts
• Retirement accounts (401(k), IRA, superannuation)
• Foreign property ownership
• Any signing authority on foreign accounts

Note: If you are a Non-Resident filing ITR-2 from abroad, Schedule FA reporting is generally not applicable to you — it applies when your status is Resident or RNOR.

A Quick Checklist for NRI Filers

Before you submit your ITR for AY 2026-27, verify these:

The Bottom Line

Most NRI tax mistakes are not about complex planning — they are about procedural missteps and assumptions carried over from years of living abroad. The Indian tax system has become far more data-driven, with AIS capturing transactions from banks, brokers, and property registrars in near real-time. The gap between what the department knows and what you report is shrinking every year.

The simplest way to avoid these mistakes is to file your ITR-2 carefully, cross-check against your AIS data, and ensure every procedural requirement (Form 67, TRC, Form 10F) is completed before the July 31 deadline. 49Tax can help NRIs auto-populate their ITR-2 from AIS data and flag missing schedules before submission — so nothing falls through the cracks.