NRI Tax Filing in India FY 2025-26: The Complete Guide

NRI Tax Filing in India FY 2025-26: The Complete Guide If you are an Indian living abroad — in the UAE, USA, UK, Canada, or Australia — Indian tax laws still apply to income originating from India. Every year, thousands of NRIs overpay TDS, miss refunds, or receive penalty notices simply because they are unsure of their obligations. B M C Associates, a full-service CA firm in Delhi NCR, has put together this complete guide for FY 2025-26 (AY 2026-27) to walk you through every step — from determining your residential status to claiming DTAA benefits and acting on Budget 2025 changes. Our dedicated NRI tax services team handles income tax filing, TDS refunds, capital gains, DTAA optimisation, and FEMA compliance for non-resident Indians across the globe. If at any point you need personalised guidance, we are a call away. Key fact: NRIs are taxed only on income that originates from India. Salary or business income earned and received abroad is fully outside India's tax net. 1. Are You an NRI? Determining Your Residential Status Your tax obligations in India are entirely driven by your residential status for each financial year (April 1 – March 31). The Income Tax Act, 1961 classifies individuals into three categories: a) Resident and Ordinarily Resident (ROR) You are ROR if you have been a resident in India for at least 2 out of the last 10 years AND stayed in India for at least 730 days in the last 7 financial years. RORs are taxed on their global income. b) Resident but Not Ordinarily Resident (RNOR) RNOR is a transitional status — typically for NRIs who have returned to India after several years abroad. It is a major tax-saving window because RNORs are taxed only on Indian-source income, not foreign income. Our corporate advisory team can help you structure your return year if you are transitioning between RNOR and ROR status. c) Non-Resident Indian (NRI) You are classified as an NRI if you spend fewer than 182 days in India during the financial year. If your total Indian income exceeds ₹15 lakh and you are not liable to pay tax in any other country, the threshold changes to 120 days. Practical tip: Your residential status applies to the full financial year — you cannot be an NRI for part of the year and a resident for the other part. One status governs the entire year. 2. What Income Is Taxable for NRIs in India? As an NRI, India taxes only income with a direct connection to India: • Rental income from property located in India • Capital gains from the sale of Indian assets — property, shares, mutual funds • Interest income from NRO (Non-Resident Ordinary) accounts • Salary received or accrued in India for work performed in India • Dividends from Indian companies • Royalties and fees for technical services from Indian entities — these often have cross-border structuring implications under FEMA & RBI regulations The following income is NOT taxable in India for NRIs: • Salary earned and received entirely abroad • Interest on NRE (Non-Resident External) accounts — fully exempt under Section 10(4)(ii) • Interest on FCNR (Foreign Currency Non-Resident) accounts — fully exempt under Section 10(15)(iv)(fa) • Business income earned and accrued entirely outside India FY 2025-26 update: NRIs filing ITR-2 must now disclose interest from all Indian accounts exceeding ₹50,000 and Indian assets exceeding ₹1 crore. Non-disclosure can attract notices under the Black Money Act. 3. NRI Tax Slabs for FY 2025-26 (AY 2026-27) NRIs can choose between the Old Tax Regime and the New Tax Regime. Our direct tax services team runs a personalised comparison to identify which regime results in lower net liability for your specific income mix. The new regime is the default from FY 2023-24 onwards; opting for the old regime requires an explicit declaration at the time of filing. New Tax Regime — Tax Slabs (FY 2025-26) Income Slab Tax Rate Up to ₹4,00,000 Nil ₹4,00,001 – ₹8,00,000 5% ₹8,00,001 – ₹12,00,000 10% ₹12,00,001 – ₹16,00,000 15% ₹16,00,001 – ₹20,00,000 20% ₹20,00,001 – ₹24,00,000 25% Above ₹24,00,000 30% Old Tax Regime — Tax Slabs (FY 2025-26) Income Slab Tax Rate Up to ₹2,50,000 Nil ₹2,50,001 – ₹5,00,000 5% ₹5,00,001 – ₹10,00,000 20% Above ₹10,00,000 30% Critical difference: NRIs are NOT eligible for the Section 87A rebate. Tax liability begins from the first rupee above the exemption limit — unlike resident individuals. 4. TDS on NRI Income — Rates You Must Know TDS is the biggest practical compliance challenge for NRIs. Unlike resident taxpayers, NRIs face significantly higher deduction rates. If excess TDS has been cut from your NRO interest or capital gains proceeds, filing an ITR is the only legal route to reclaim it. Type of Income TDS Rate (NRI) NRO account interest 30% + surcharge + cess Short-term capital gains (listed equities) 15% + surcharge + cess Long-term capital gains (property) 20% + surcharge + cess Rental income 30% + surcharge + cess Dividends from Indian companies 20% + surcharge + cess NRE / FCNR account interest Nil (fully exempt) NRIs who also run a business or supply services in India may have additional obligations. If your Indian turnover crosses applicable thresholds, Goods & Services Tax compliance becomes mandatory alongside income tax filing. 5. Which ITR Form Should NRIs File? Choosing the wrong ITR form is one of the most common and costly mistakes. The Income Tax Department can reject the return or issue a defective return notice — which itself requires a formal response within a tight deadline. NRIs CANNOT file ITR-1 (Sahaj) or ITR-4 (Sugam) — even if income seems simple. This is a hard regulatory rule with no exceptions. Form Applicable When ITR-2 Income from salary, house property, capital gains, and other sources — no business or professional income ITR-3 Income from a business or profession, in addition to salary, capital gains, or other income 6. DTAA — Avoid Paying Tax Twice on the Same Income India has Double Taxation Avoidance Agreements (DTAAs) with over 90 countries. These treaties ensure that the same income is not taxed in both India and your country of residence. NRIs can choose whichever is more beneficial — domestic Indian law or the applicable treaty. How to Claim DTAA Benefits — Step by Step • Obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence • Submit Form 10F to the Indian payer — your bank or company — before income is paid • Provide your PAN details to the deductor so TDS is cut at the lower treaty rate • Claim DTAA relief in Schedule TR while filing your ITR Example: A NRI in the UAE earning NRO account interest is normally subject to 30% TDS in India. The India-UAE DTAA may significantly reduce this rate. The right treaty rate depends on the specific income type and country — always verify with a CA before submitting Form 10F. 7. Deductions Available to NRIs Under the Old Tax Regime Several deductions are available to NRIs under the old regime, and they often make it the more tax-efficient choice for those with significant Indian investments or loan obligations: Section 80C — Up to ₹1.5 Lakh • Principal repayment of home loan on Indian property • Life insurance premium paid on Indian policies • Investment in ELSS mutual funds listed in India • Tuition fees for children studying in India Section 80D — Health Insurance • Health insurance premium for self, spouse, and dependent children — up to ₹25,000 • Additional deduction up to ₹50,000 for senior citizen parents' health insurance Section 24(b) — Home Loan Interest • Interest paid on a home loan for a rented-out Indian property is fully deductible without a ceiling — one of the most valuable deductions for NRI property owners. Note that property-related transactions also intersect with other regulatory compliance matters such as mutation, stamp duty, and repatriation approvals. Note: HRA exemption, Section 80TTA (savings account interest deduction), and the Section 87A rebate are not available to NRIs. 8. Budget 2025 — Key Changes Affecting NRIs in FY 2025-26 Two Self-Occupied Properties Now Fully Exempt Previously, NRIs owning two or more properties in India were taxed on notional rent for the additional property. Budget 2025 removed this entirely — NRIs can now hold up to two self-occupied Indian properties without any notional rent tax liability. New Tax Regime Basic Exemption Raised to ₹4 Lakh The exemption threshold in the new regime has increased from ₹3 lakh to ₹4 lakh, reducing liability for NRIs with moderate Indian income who opt for the new regime. Stricter Foreign Asset Disclosure Requirements NRIs filing ITR-2 must now disclose Indian assets exceeding ₹1 crore and associated liabilities exceeding ₹50 lakh. Non-disclosure can attract scrutiny under the Black Money Act. Our audit and assurance support team helps clients prepare the required documentation accurately and on time. 9. Step-by-Step: How to File Your NRI ITR for FY 2025-26 • Step 1: Register or log in on incometax.gov.in using PAN and Aadhaar OTP or net banking • Step 2: Go to e-File > Income Tax Returns > File Income Tax Return. Select AY 2026-27 and Online mode • Step 3: Select residential status as Non-Resident and choose ITR-2 or ITR-3 as applicable • Step 4: Fill in income details — house property, capital gains, interest, dividends • Step 5: Enter DTAA details in Schedule TR. Upload Form 10F and TRC if claiming treaty relief • Step 6: Cross-check TDS credits in Form 26AS and Annual Information Statement (AIS) • Step 7: Submit and e-verify using Aadhaar OTP, net banking, or Digital Signature Certificate (DSC) • Step 8: Save your ITR-V acknowledgement for your records Due date: 31st July 2026. Late filing attracts a penalty up to ₹10,000 under Section 234F, plus interest under Section 234A on any unpaid tax. 10. Documents Checklist for NRI ITR Filing • PAN Card — mandatory for all NRIs with Indian income • Passport and visa copies — to establish and prove residential status • Form 26AS and Annual Information Statement (AIS) — verify all tax credits and transactions • Bank statements for all Indian accounts — NRO, NRE, FCNR • NRO account interest certificates issued by your bank • Property documents and home loan certificate for Section 24(b) interest deduction • Investment proofs for 80C and 80D (if opting for old regime) • Tax Residency Certificate (TRC) and Form 10F for DTAA claims • Capital gains computation statement for property or equity sales • Foreign income details and tax return from your country of residence 11. Common Mistakes NRIs Must Avoid • Filing ITR-1 instead of ITR-2 — NRIs are prohibited from ITR-1 and ITR-4 without exception • Not filing at all — even with income below the exemption limit, file to recover TDS on NRO interest • Wrong residential status declaration — misreporting attracts penalties of 50%–200% of tax due under Sections 276B and 276C • Missing DTAA benefits — most NRIs overpay because they do not submit Form 10F and TRC to their bank before income is credited • Not disclosing NRE/FCNR interest — though exempt, it must be reported in the relevant ITR schedule from FY 2025-26 onwards • Ignoring advance tax — if net tax liability exceeds ₹10,000 for the year, quarterly advance tax instalments are mandatory Need Expert Help? Talk to B M C Associates NRI taxation sits at the intersection of residential status rules, DTAA provisions, FEMA compliance, and multiple income types — all governed by rules that change with every budget. Getting it wrong can mean penalties, blocked refunds, and reassessment notices. B M C Associates has offices in Gurugram, Noida, and Uttam Nagar, Delhi. We offer virtual consultations for NRI clients anywhere in the world. Reach us at info@bmcassociates.in or WhatsApp +91-991-084-9998 for a quick response. Services we handle for NRIs: • NRI ITR-2 and ITR-3 filing for AY 2026-27 • DTAA analysis, Form 10F and TRC processing • TDS refund claims on NRO interest and capital gains • Capital gains tax computation and planning for property and equity • Form 15CA and 15CB for NRO account repatriation • FEMA compliance for investments and property transactions in India • Tax notice handling under Section 148A, 148, and Black Money Act .