You are sipping your morning coffee, thousands of miles away from India, when an email notification pops up. It is from the Indian Income Tax Department. Your heart skips a beat. Your mind races. What did I do wrong? I filed my return. Is this a penalty? A scam?

You open it. It is a notice. A real one. It talks about a mismatch in your income, a foreign asset you did not declare, or a tax refund that has been held back.

This scenario is more common than you think. For Non-Resident Indians (NRIs), navigating the Indian tax system can feel like walking through a minefield. One wrong step, one missed detail, can trigger a notice that leads to months of stress, paperwork, and potential financial penalties.

The good news? Almost every notice is preventable. They are not random. They are system generated, triggered by specific mistakes.

After analyzing hundreds of cases, we have identified the exact missteps that cause the majority of tax notices for NRIs. This guide will walk you through these common mistakes, explain the consequences in simple terms, and give you a clear action plan to file with confidence and stay notice free.

Why NRIs Receive Tax Notices A Quick Overview

The Indian Income Tax Department has become incredibly tech savvy. It uses automated systems that cross check every number you enter in your tax return against a massive database of your financial life.

This database includes your bank statements, stock market transactions, property sales, and even information shared by foreign countries under treaties. The system flags any discrepancy, any missing income, or any rule that seems broken. This flag becomes a notice.

Getting a notice does not automatically mean you are in trouble. Sometimes it is just a query. But ignoring a notice is perhaps the biggest mistake you can make. It tells the department you are not responsive, which can escalate a simple query into a serious penalty.

Understanding what triggers these notices is your first and best line of defense.

Top NRI Tax Mistakes That Trigger Notices

These are the errors we see time and again. Avoiding them is the simplest way to ensure a peaceful, notice free filing experience.

Misdeclaring Your Residential Status

This is the granddaddy of all NRI tax mistakes. Get this wrong, and almost everything else in your tax return will be wrong too.

Your residential status is not about your passport, your visa, or where you feel you belong. It is a purely mathematical test based on how many days you spent in India.

The Rule: You are considered a Non-Resident Indian (NRI) for tax purposes if:

• You were in India for less than 182 days during the financial year (April to March), or
• You were in India for less than 60 days that year and for less than 365 days over the previous four years.

The Mistake: Many NRIs, often advised by well meaning but unaware accountants, file their returns as ‘Resident’. This is a catastrophic error.

Why It Triggers a Notice: If you file as a resident, the tax department expects you to disclose your worldwide income and foreign assets. If you are truly an NRI and do not do this (because you are not required to), the system sees it as concealment. It is a red flag.

The Cost: This is where it gets scary. If you are filed as a resident but have not disclosed foreign assets, you can be penalized under the Black Money Act. The penalty can be a crushing ₹10 lakh per undisclosed asset. We have seen cases where this simple error led to penalties exceeding ₹30 lakh.

How to Avoid It:

• Count Your Days Precisely: Use your passport stamps to track your exact physical presence in India. Do not estimate.
• Understand Deemed Residency: Even if you stay less than 182 days, if you are an Indian citizen with total Indian income exceeding ₹15 lakh, you may be deemed a resident. This is a new rule that catches many people off guard.
• Document Your Status: Keep your employment contract, visa, and foreign tax returns handy. These support your claim of being an NRI.

Your residential status is the foundation of your entire tax filing. Get this right first.

Using the Wrong ITR Form

You would not use a spoon to cut a steak. Using the wrong ITR form for your NRI status is just as ineffective.

The Mistake: The most common error is using ITR 1 (Sahaj) or ITR 4 (Sugam). These forms are designed for resident Indians with simple income sources. They are simply not meant for NRIs.

Why It Triggers a Notice: The income tax portal has built in validations. When an NRI tries to file ITR 1, the system will often reject it outright or mark it as defective. Even if it goes through, processing will be delayed for months. It signals a lack of basic compliance knowledge.

The Correct Form:

• ITR 2: This is the go to form for most NRIs. Use it if you have income from salary, rent from one or more properties, capital gains from stocks or property, or interest from fixed deposits.
• ITR 3: Use this form only if you have income from a business or profession in India.

How to Avoid It: Always select your ITR form based on your residential status first, and your income sources second. When in doubt, ITR 2 is almost always the safe choice for an NRI.

Skipping DTAA Compliance (Form 67 and Form 10F)

India has Double Taxation Avoidance Agreements (DTAA) with over 90 countries. These treaties are designed to ensure you are not taxed twice on the same income. But the benefits are not automatic. You have to claim them correctly.

The Mistake: Earning income in India and paying a high 30% TDS without applying for a lower DTAA rate. Or, claiming foreign tax credit in your return without filing the mandatory Form 67 beforehand.

Why It Triggers a Notice: The department sees that you have paid tax abroad and are claiming a credit in India. If you have not filed Form 67, your claim is invalid. This creates a mismatch. Your calculated tax liability will be wrong, leading to a notice demanding the extra tax.

The Cost: This is a direct financial loss. For example, without the DTAA benefit, interest income from NRO deposits is taxed at 30%. Under the DTAA with countries like the UAE, this rate can be as low as 12.5%. On an interest income of ₹10 lakh, that is a difference of ₹1,75,000 in tax every year. That is a massive overpayment.

How to Avoid It:

• Get a Tax Residency Certificate (TRC): This is the most important document. Get it from the tax authorities in your country of residence.
• File Form 10F: Submit this form electronically on the Indian tax portal. It provides details of your tax residency abroad.
• Submit Form 67 BEFORE Filing ITR: This is the step everyone misses. You must file Form 67 to claim foreign tax credit before you submit your income tax return. Doing it after will get your claim rejected.

Do not leave money on the table. The DTAA is your friend, but you have to do the paperwork.

Mismatching TDS in Your Form 26AS

Your tax return is your version of the story. Form 26AS is the tax department’s version. If the two do not match, you will hear about it.

Form 26AS is a consolidated annual statement that shows all the tax deducted on your income by others. Your employer, your bank, your tenant, anyone who pays you and cuts TDS must report it. This information is compiled in your Form 26AS.

The Mistake: You report your income and claim TDS credit based on your own records. But you forget to reconcile it with the official Form 26AS. What if your bank made an error in quoting your PAN? What if your tenant deducted TDS but forgot to deposit it? Your Form 26AS will not reflect that TDS.

Why It Triggers a Notice: The automated system compares the TDS you claimed in your return with the TDS shown in Form 26AS. Any difference, even a single rupee, will trigger a notice. This is the most common cause of notices for salaried employees and retirees.

The Cost: You lose your refund. If you have paid excess tax but the TDS in Form 26AS does not support your claim, your refund will be blocked. We have seen cases where NRIs missed out on refunds of ₹50,000 or more simply because of a reconciliation error.

How to Avoid It:

• Download Your Form 26AS: Before you even start filing your return, log in to the income tax portal and download your Form 26AS and the broader Annual Information Statement (AIS).
• Reconcile Line by Line: Compare every entry in your Form 26AS with your own records. Does the TDS from your bank match? What about the TDS from your tenant?
• Correct Errors Immediately: If you find a mismatch, contact the deductor (your bank, your tenant) immediately and ask them to file a corrected TDS return.

Think of Form 26AS as your report card. Make sure your return matches it perfectly.

Misreporting or Hiding Global Income and Assets

This is a sensitive and often misunderstood area. The rules are very clear, but many NRIs operate on assumptions.

The Rule:

• NRIs: You are generally not required to report income that is earned and received outside India. You are also not required to disclose foreign assets.
• Resident Indians: You must report your worldwide income and disclose foreign assets if their total value exceeds ₹20 lakh.

The Mistake: There are two sides to this coin.

1. NRIs incorrectly filing as Residents: This is the big one, as we discussed. By filing as a resident, you inadvertently trigger the requirement to disclose global assets. Failure to do so then leads to penalties.
2. Hiding Indian-sourced Income: Some NRIs think that if their family manages a property in India and the rent goes to a family member’s account, they do not have to report it. This is incorrect. The income is still yours and must be reported in your return.

Why It Triggers a Notice: India now receives automatic financial information from over 100 countries under the Common Reporting Standard (CRS). The tax department’s system automatically compares this data with your tax return. If you have a bank account in the USA or a property in Dubai that you did not disclose (when required to), the system will find it.

How to Avoid It: First, get your residential status right. If you are a genuine NRI, you have nothing to worry about regarding foreign assets. Second, report all income that is generated in India, regardless of where it is deposited. When in doubt, transparency is the best policy.

How to Avoid These Mistakes A Proactive Compliance Plan

Prevention is always better than cure. A little organization goes a long way in avoiding tax notices.

1. Maintain a Residency Log: Use a simple spreadsheet or app to track your entries and exits from India. This takes the guesswork out of your status.
2. Reconcile Early: Download your Form 26AS and AIS in April itself. Reconcile your income and TDS before the filing season begins in July.
3. Get Your DTAA Paperwork Ready: Apply for your Tax Residency Certificate well in advance. It can take time.
4. Choose the Right Form: Remember, ITR 2 is your default choice as an NRI.
5. Consider Professional Help: If your financial situation is complex involving multiple properties, investments, or foreign income sources, hiring a CA who specializes in NRI taxation is a wise investment. They will ensure everything is filed correctly the first time.

What to Do If You Have Already Made a Mistake

Maybe you are reading this and realizing you have made one of these errors in the past. Do not panic. The Indian tax system allows you to correct mistakes.

• Revised Return: If you discover an error in your already filed return, you can file a revised return. The deadline for this is usually December 31st of the assessment year.
• Updated Return (ITR-U): This is a powerful new tool. If you missed filing a return altogether or omitted some income, you can file an updated return within 24 months from the end of the assessment year. There is an additional tax penalty, but it is better than facing a notice and a higher penalty later.

The key is to be proactive. Voluntary disclosure is always looked upon more favorably than being caught by the department.

Frequently Asked Questions

I just received a ITR notice. What should I do first?

Do not ignore it. Read it carefully to understand what the department is asking for. Most notices will give you a reference number and a timeframe to respond. Gather all relevant documents related to the query. If the notice is complex, it is highly advisable to take help from a tax professional.

How can I check if a notice is genuine?

Log in to your account on the official income tax e-filing portal. All genuine notices will be displayed under the ‘Pending Actions’ or ‘e-Proceeding’ tab. Do not trust notices that come only via email and ask for immediate payment or personal details.

I am an NRI but got a notice about foreign assets. Why?

This almost always means that your past returns were filed incorrectly, declaring you as a ‘Resident’ instead of an ‘NRI’. The department assumes you are a resident and is asking for foreign asset details. You will need to correct your residential status for those years.

Can I avoid TDS on my rental income in India?

Yes, you can apply for a lower TDS certificate. If your total tax liability is nil, you can submit Form 13 to your tenant’s assessing officer. If approved, your tenant can deduct TDS at a lower rate or even zero percent.

Conclusion

Receiving a tax notice can be unsettling. But understanding that these notices are often just automated queries can reduce the anxiety. The Indian tax system is not out to get you. It is simply asking for clarity.

By being meticulous about your residential status, choosing the right forms, complying with DTAA rules, and reconciling your TDS, you can file your returns with confidence. You can turn that notice from a thing of dread into a simple request for information that you are fully prepared to answer.