Do NRIs have to file tax returns in India: What's the rule and process

NRIs must pick the right form to give information about their earnings and fill it up carefully, according to experts

It is the time to file Income Tax returns (ITR) and many non-resident Indians (NRIs) are likely asking: Do they need to do so in India? While the process is simple, experts say NRIs need to carefully give details about their earnings.

 

Do NRIs need to pay income tax in India?

 

“An NRI is liable to pay tax in India only on the income earned or received in India. This includes rent from Indian property, interest on Non-Resident Ordinary (NRO) accounts, which is savings or current account in Indian Rupees for NRIs in India, or capital gains from Indian assets,” said S R Patnaik, partner and head of taxation at law firm Cyril Amarchand Mangaldas. 

"For NRIs, the general rule is that income earned abroad and held in foreign bank accounts is not taxable in India. A critical point is that the first receipt of the income should be outside India. If foreign income is directly received in India (e.g., your overseas salary is directly deposited into an NRO account in India), it might become taxable in India. However, if it's first received in an overseas account and then remitted to India, it typically retains its tax-exempt status as foreign income for an NRI." explains Vishwanathan Iyer, Sr. Associate Professor - Finance & Accreditation, Great Lakes Institute of Management, Chennai. 

 

 

Who is considered as NRI?

 

According to the Income-Tax Department, an individual’s residential status is the first factor in determining tax liability. If you’ve spent less than 182 days in India in a financial year, you’re typically considered a non-resident — and taxed accordingly. 

 

How is filing taxes different for NRIs?

 

“Resident individuals are taxed on global income and can use ITR-1 (Sahaj) for simple income sources. NRIs, however, must use ITR-2 if they don’t have business income, or ITR-3 if they do,” Patnaik explained.

 

NRIs are also not eligible for certain exemptions and deductions available to residents, such as the one under Section 80GG for rent paid.  ALSO READ | Start early, choose right ITR form: Tax guide for professionals

 

Common mistakes by NRIs in ITR filing

 

“NRIs often misclassify their residential status or forget to update banks and mutual funds about the change,” said Amit Bansal, partner at Singhania & Co, a global legal consultancy firm.

 

“They also tend to use the wrong ITR form or miss reporting Indian income such as interest earned in NRO accounts.” Bansal advised NRIs to maintain travel records, inform Income Tax Department promptly, and consult a professional to ensure correct classification and filing.

 

Foreign income and reporting: What’s mandatory?

 

“If you’re an NRI for tax purposes, your foreign income is not taxable in India,” Patnaik said. “Also, unlike residents, NRIs are not mandated to disclose foreign bank accounts or assets under Schedule FA. However, they may do so voluntarily.”

 

According to the Central Board of Direct Taxes, mandatory foreign asset disclosure applies only to individuals classified as residents under the Income Tax Act, especially those falling under the Resident but Not Ordinarily Resident (RNOR) category.  ALSO READ | Old or new tax regime? A step-by-step guide to choose what's best for you

 

No major policy shifts for NRI tax filing for AY 2025–26

 

The CBDT has released the ITR forms applicable for Assessment Year 2025-26. Form ITR-2 has been updated for clarity and no NRI-specific policy changes or exemptions have been introduced, according to the two experts.

 

“There’s been no new circular or rule that specifically impacts NRIs this filing season,” said Bansal.