The biggest income tax problems NRIs face are confusion over residential status, high tax deducted at source (TDS), double taxation, and paperwork when selling property or claiming refunds. Most can be avoided with the right documents and timely filing.
Getting residential status wrong
Your tax in India depends on your residential status, which is set by days spent in India in the financial year, not by your visa or where you live. Mistakes here change which of your income is taxed. The main tests, as ClearTax and NRI Information describe them:
- 182 days or more in the financial year makes you a resident.
- 60 days plus 365 days in the preceding four years also makes you a resident. For Indian citizens or people of Indian origin visiting India, the 60 days becomes 182.
- 120 days instead of 182 applies if your Indian income exceeds ₹15 lakh. Crossing it makes you resident but not ordinarily resident (RNOR), not a full resident.
- Deemed residents: Indian citizens with Indian income above ₹15 lakh who are not liable to tax in any other country are treated as RNOR, even with zero days in India. Taxguru notes this does not apply to OCI holders.
Common traps are miscounting days, forgetting that the ₹15 lakh test counts Indian income only, and not realising that Gulf-based Indians can be caught by the deemed-resident rule. Returnees often benefit from two to three years as RNOR, when foreign income is generally not taxed in India, so the year you return matters.
High TDS on Indian income
Anyone paying an NRI income taxable in India must deduct tax under Section 195, and there is no minimum threshold for this. The rates below come from Arthgyaan and exclude surcharge and cess.
| Income | TDS rate |
|---|---|
| NRO account interest | 30% |
| Rent | 30% |
| Listed shares and equity mutual funds, long-term gains | 12.5% (on gains above ₹1.25 lakh) |
| Other long-term capital gains | 20% |
| Property, long-term gain | 12.5% without indexation |
| Property, short-term gain | At slab rates |
The problem is that TDS is often higher than your actual tax. A bank deducts 30% on NRO interest even if your total income is below the taxable limit. The excess is not returned automatically; you recover it by filing an income tax return. Interest on NRE and FCNR accounts, by contrast, is exempt from Indian tax while you are a non-resident, which is why where you park money matters.
Tax when selling property
This is where NRIs lose the most cash flow. A resident seller faces 1% TDS, but an NRI seller's buyer must deduct under Section 195 on the full sale price, not just the gain, per NRI Information. For long-term gains the rate is 12.5% plus surcharge and cess, which can reach about 14.95%.
The same source gives an example: on a ₹2 crore sale where the real long-term gain is ₹40 lakh, deducting 12.5% on the full price withholds ₹25 lakh, against a real liability closer to ₹5 lakh.
The fix is a lower deduction certificate. NRIs apply on the TRACES portal using Form 13, under Section 197. SBI's NRI guide suggests applying 30 to 45 days before the sale. One 2026 guide says that from 1 April 2026 this form became Form 128 under the Income-tax Act, 2025, so confirm the current form before applying.
Other points to plan for:
- Sending sale proceeds abroad needs Form 15CA and a chartered accountant's Form 15CB, per Scripbox.
- Reinvesting in an Indian property or in capital gains bonds under Section 54EC can reduce the gain, per DBS.
- Check that the buyer files the TDS return, or your credit will not show in Form 26AS.
Double taxation and treaty paperwork
Many NRIs are taxed on the same income in India and in the country where they live. A tax treaty (DTAA) can reduce this, but only if you show the paperwork. The documents, as listed by 1 Finance:
- A Tax Residency Certificate (TRC) from your country of residence.
- Form 10F, filed on the income tax e-filing portal where required.
- Form 67, if you claim a foreign tax credit.
SBNRI warns that without a TRC and Form 10F, Indian tax authorities will not apply treaty benefits, and that Form 10F should be filed before your return. Foreign tax credit claims can also be challenged over late filing of Form 67, so file it on time, as Dinesh Aarjav's note on a tribunal ruling shows.
Filing and compliance problems
- Wrong ITR form. ITR-1 and ITR-4 are not available to non-residents. Most NRIs file ITR-2 or ITR-3, per 1 Finance.
- Missed deadlines. For assessment year 2026-27, the non-audit due date was 31 July 2026. A StudyCafe guide lists 31 December 2026 as the belated or revised return deadline, so confirm it on the e-filing portal if you are late.
- Mismatched records. Reconcile Form 26AS and the Annual Information Statement (AIS) with your own records before filing, so TDS credits and refunds are not delayed.
- Refunds that never come. Excess TDS is refunded only if you file a return.
- New law, new numbers. For tax years beginning on or after 1 April 2026, residential status falls under the Income-tax Act, 2025. Returns for AY 2026-27 and earlier still follow the 1961 Act, so older guides may use outdated section numbers.
- Returning to India. Once you become a resident, you may need to report foreign income and assets (Schedule FSI and Schedule FA) and file Form 67, per Dinesh Aarjav.
Practical tips
- Keep a day-by-day record of your time in India each financial year.
- Park foreign earnings in NRE or FCNR accounts, and use NRO only for India-sourced income.
- Apply for a lower deduction certificate well before any property sale.
- Get your TRC each year and file Form 10F before your return.
- File a return even if tax was deducted, so you can claim refunds and credits.
- Plan the year of your move back to India with a chartered accountant, because that year decides your status.
0 Comments