Should NRIs File An Income Tax Return In India?

1. Should NRIs File An Income Tax Return In India? Many NRIs believe they are not required to file an income tax return in India—particularly when their income is either exempt, taxed at source through TDS, or falls below the basic exemption limit. However, this assumption can be risky. With advanced tracking systems like the Annual Information Statement (AIS) and the Compliance Management portal (CPC-CM), the Indian Income Tax Department now monitors financial transactions more closely than ever. Even if there’s no tax liability, non-filing can trigger notices, create compliance issues, and lead to unnecessary complications. This blog explores when and why NRIs should consider filing a return in India. Who is required to file an income tax return? The Income Tax Department has laid down specific conditions under which filing becomes mandatory, regardless of whether tax is payable. These rules go beyond just income thresholds and extend to high- value transactions, TDS deductions, business turnover, and even claiming refunds. For NRIs, it’s particularly important to understand that certain types of income may still require filing, even if the total income appears exempt. Here’s a simplified breakdown of who must file a tax return under Indian law.  Anyone having an income of more than the maximum amount not chargeable to tax (basic exemption limit). Basic exemption limit is ignored for non-residents having income taxed at specified rates (e.g. LTCG on capital asset) Anyone who incurs expenditure of more than Rs. 200,000 for foreign travel or Rs. 100,000 or more for electricity charges Anyone who deposits cash of more than Rs. 1 crore in current account or Rs. 50L in one or more savings accounts Anyone whose business sales turnover exceeds Rs.1 crore or gross receipts in the Profession exceeds Rs.50 Lakhs Anyone whose TDS/TCS is Rs.25,000 or more (Rs.50,000 for resident senior citizen) Any Ordinary Resident who owns or has beneficial interest in an asset or account out of India     

2.   Anyone who has sustained a loss that he wants to set off and/or carry forward to the next years, Anyone who wants to claim a refund of TDS deducted on the interest income, even if it is below basic exemption limit A company or a firm  Real examples of how filing is beneficial While many NRIs assume they don’t need to file a tax return if there’s no taxable income, the reality is more nuanced. In several situations, filing a return can help NRIs recover excess TDS, remain compliant, or avoid unnecessary scrutiny from the Income Tax Department. Here are a few real-life examples that illustrate why filing is not just necessary in some cases, but also highly beneficial.  Zeeshan from Saudi Arabia has an NRO FD of Rs. 1,000,000 generating Rs. 100,000 as interest on which TDS of Rs. 31,200 is being deducted every year. Mr. Zeeshan is not required to file the income tax return as his income is less than 250,000. However, if he wants to claim the refund of tax, he would be required to file the tax return before due date. Owing to the ignorance of Income tax provisions, many NRIs like Mr. Zeeshan do not file tax return to claim the refund and end up paying more taxes every year in higher TDS rates. If Mr. Praveen from USA has only short term capital gain on sale of equity Rs. 200,000, he would still be required to file the tax return as basic exemption is not allowed against STCG of equity to non-residents.  These examples underline a key point –Filing an ITR isn’t always about paying tax; it’s often about protecting your financial interests as an NRI. The following persons are thus recommended to file income tax return  Anyone who has entered into certain transactions during the year that have been reported to the income tax department under the Annual Information Statement (AIS). Anyone who has made or entered into any large transactions, even if it resulted in generation of income that is exempt from income tax in India.  Why notices are sent – Even for exempt income The Income Tax Department (ITD) in India is getting smarter every year and is using information technology to track major financial transactions. The ITD has been tracking and collecting all major financial information by requiring institutions to report such transactions. The objective is to restrict creation of black money and widen the tax base by identifying the potential taxpayer by examining their income, expenditure or investments patterns. The Income Tax department includes all important high-value transactions in the Annual Information Statement (AIS), even if they result in exempt income. AIS is a comprehensive view of information for a taxpayer as submitted by various institutions. Taxpayers can provide feedback on information displayed in AIS and AIS will show both reported value and modified value (i.e. value after considering taxpayer feedback). The Income Tax Department analyzes and compares the collected information with the income tax return filed by the taxpayer and if any discrepancy is found, notices are being issued. Consequences of ignoring filing Notices to NRIs even if income is exempt from tax: Credits in the NRE accounts are being reported to the Income Tax department by the banks. While interest on NRE accounts is exempt from tax, if return is not filed and NRE interest is not reported as exempt

3. income, the IT department has been issuing notices to NRIs asking them to explain the source of funds in the NRE accounts and why the income tax return is not filed.  Example: Mr. Ravi, an OCI from the USA, transferred Rs. 20,000,000 from USA to India in the F.Y. 2021-22 and invested in NRE bank FDs. As NRE FD interest is exempt from tax, he did not file the tax return in India. However, the Income tax department received a detailed report that included credits in the NRE bank account during F.Y. 2021-22 and realized that no income tax return was filed. They may issue a notice asking to explain the source of funds credited in the NRE accounts. Practically, it is advisable for NRIs having significant NRE FDs to file income tax return and include all the exempt income to avoid or to have a base to reply to such notices. What to do when you receive such notice? It would be a mistake to ignore the notice as it would be kept open unless responded to. While the ITD may not follow up immediately, eventually, if not closed, it will be followed sooner or later and may be with harsh language and/or consequences. There are standard replies in a compliance module that needs to be selected from the drop-down menu. The person would need to select the reasons for non –filing (no taxable income or return under preparation) or provide details of return filed – date, acknowledgement number, circle/ward, city and mode of filing (electronic or physical).  Example: Mr. Jaymit Shah, an NRI from Hong Kong, sold a residential property during 2024-25 for Rs. 10,000,000 resulting in a long-term capital gain of Rs. 2,000,000 and tax liability of Rs. 416,000. Mr. Shah did not have any other income during the year. He calculated and paid all the taxes of Rs. 416,000. However, he did not file a tax return. The Income Tax Officer (ITO) would know about the sale of immovable property and tax paid by Jaymit through CIB after about a year. As the income tax return had not been filed, ITO would not be able to compare the information with the return. ITO would issue a notice and follow up with Jaymit requiring him to file the tax return and may initiate proceedings as if the income has escaped assessment. The Role of NRI Tax Consultants in India Navigating tax compliance as an NRI can be complex, especially with evolving reporting systems like AIS and stricter scrutiny by the Income Tax Department. This is where NRI tax consultants India, like ExpertNRI, play a crucial role. From interpreting your AIS to determining whether a return is required, to accurately preparing your ITR, managing exempt income, and responding to notices – ExpertNRI simplifies every step. Their deep understanding of NRI-specific issues ensures you stay compliant while avoiding unnecessary penalties or missed refunds. More than just filing returns, ExpertNRI protects your financial interests in India, offering peace of mind and proactive tax strategy. With expert guidance, you’re never alone or unprepared – just compliant, informed, and well-represented. Resource: Should NRIs File An Income Tax Return In India?