What Is ITR Filing for NRIs
ITR for NRIs means filing Income Tax Return-2 (or ITR-3 if Indian business income) declaring Indian-source income only - Indian salary, NRO interest, rental income, capital gains on Indian shares or property and dividends - with DTAA relief claimed via Form 67 where double taxation arises.
NRIs are taxed in India on income that is received in India, accrues or arises in India, or is deemed to accrue or arise in India under Section 9 of the Income Tax Act 1961. Foreign salary credited to a foreign bank account for services rendered abroad is generally outside the Indian tax net. NRO interest, rental income from Indian property, capital gains on Indian shares or mutual funds and dividends from Indian companies all attract TDS at source (typically 30 percent for NRO interest, 12.5 percent for LTCG on equity, 30 percent for STCG). Filing ITR-2 is the only way to recover excess TDS and apply DTAA treaty rates that are usually lower than domestic withholding.
ITR-1 (Sahaj) and ITR-4 (Sugam) are NOT allowed for NRIs - these forms lack Schedules FA, FSI and TR. Filing ITR-1 or ITR-4 as an NRI triggers a Section 139(9) defective return notice within weeks with a 15-day cure window. ITR-2 is the correct form for nearly every NRI - it covers salary, house property, capital gains and other sources. ITR-3 applies only when the NRI has Indian business or profession income (F and O trading, partnership share, proprietary business).
Key Terms for NRI ITR:
Section 6 - Residential Status: The three-test framework that determines NRI vs RNOR vs ROR status each financial year. (a) 182-day test - stay in India for 182 days or more in the FY. (b) 60-plus-365-day test - 60 days in the FY plus 365 days in preceding 4 FYs. (c) 120-day modified rule for Indian citizens or PIOs visiting India with Indian-source income above Rs 15 lakh.
Section 6(1A) - Deemed Residency: Indian citizens with Indian income above Rs 15 lakh who are not liable to tax in any other country (UAE, Bermuda, Monaco, Bahrain) are deemed Resident in India but classified as RNOR. Carried forward as Section 6(7) under Income Tax Act 2025.
Section 6(6) - RNOR Status: Resident but Not Ordinarily Resident - transitional status applicable if you were NRI in 9 of preceding 10 FYs OR stayed in India for 729 days or less in 7 preceding FYs. Lasts 1 to 3 FYs typically.
Section 9 - Income Deemed to Accrue: The NRI taxation hook - Indian-source salary, capital gains, business profits, rental income, dividends are deemed to accrue in India regardless of where received.
Section 90 and 91 - DTAA Framework: Section 90 covers treaty-based relief where India has DTAA (90-plus countries); Section 91 covers unilateral relief where no DTAA exists. Treaty rates typically 10-15 percent on interest vs 30 percent domestic withholding.
Section 195 - TDS on Payments to Non-Residents: Tenant deducts 30 percent on rent paid to NRI landlord; buyer deducts 12.5 percent on LTCG or 30 percent on STCG on property purchase from NRI seller via Form 27Q (NOT Form 26QB).
Section 197 - Lower TDS Certificate: Form 13 application BEFORE sale or before rent receipt to limit Section 195 TDS to the actual capital gains tax or rental tax liability, not the full consideration.
Rule 128 of Income Tax Rules 1962: Foreign Tax Credit mechanism - Form 67 mandatory online filing BEFORE the ITR; FTC equals the lower of foreign tax paid or India tax on the same income.
TRC (Tax Residency Certificate) and Form 10F: Foreign tax authority certificate confirming tax residency plus self-declaration of treaty eligibility - both mandatory for DTAA treaty rate application.
Form 27Q vs Form 26QB: Form 27Q is used by buyers for TDS on payments to NRIs under Section 195. Form 26QB is used only for Resident sellers under Section 194-IA. Wrong form attracts Section 201 disallowance plus interest.
NRO, NRE and FCNR Accounts: NRO account - Indian-source income holdings, interest taxable at 30 percent TDS. NRE account - foreign-earned income, interest fully exempt, freely repatriable. FCNR account - foreign currency deposits, interest fully exempt.
Schedule FA, FSI and TR: Schedule FA - foreign assets disclosure on calendar-year basis (mandatory for ROR only); Schedule FSI - foreign-source income; Schedule TR - tax relief claimed under DTAA.
Section 87A Rebate: NOT available to NRIs - Resident individuals only. Removes the Rs 60,000 new regime and Rs 12,500 old regime rebate for NRIs.
Black Money Act 2015 Sections 43 and 41: Section 43 imposes Rs 10 lakh per AY penalty for Schedule FA non-disclosure (applies to ROR; Rs 20 lakh exemption for movable assets from 1 October 2024). Section 41 imposes up to 3x penalty on undisclosed foreign income.