Introduction

As an NRI living abroad, you are not required to pay any taxes on your income in India for your foreign income. However, you are required to file an ITR and pay tax on any income you receive from assets in India. Navigating your life abroad and your Indian compliances can be tricky. So, it is common for NRIs to miss deadlines related to their tax payment while living abroad.

The right information is the key to avoiding penalties and ensuring compliance. Navigating India's tax system can be tricky for Non-Resident Indians. In this blog, we’ll break down the essentials of NRI taxation, common mistakes to avoid, smart strategies to stay on the right side of the law, and practical steps to fix past errors. 

Understanding NRI Taxation

Guide for NRIs on avoiding penalties during tax filing in India

NRIs are taxed based on the duration of their stay in India during a financial year.

According to Section 6 of the Income Tax Act, an NRI is "an individual who is not a resident in India." The law says you're a resident of India for a financial year if either:

        1. You stay in India for 182 days (about 6 months) or more during that             financial year. 

                                                        OR

        2. You stay in India for 60 days or more during that financial year and             365 days or more during the four years before that.

If you leave India for the purpose of employment, the first rule (182 days) applies to you instead of the second one.     

NRIs are taxed only on income that is earned in India. It includes salary received in India, income from property situated in India, or capital gains from the transfer of Indian assets. If you fulfil the residential condition as an Indian, you will be taxed both on your foreign and Indian income.

Common Tax Mistakes That Lead to Penalties​

1. Missing the ITR Filing Deadline

Failing to file the Income Tax Return (ITR) by the due date will result in penalties. Like resident Indians, NRIs are also required to file their ITRs (Income Tax Returns) by July 31st of the assessment year.

According to Section 234(a) of the IT Act, you will be charged an interest of 1% per month on the amount outstanding from your income tax dues.

For example, if you have an outstanding tax of Rs. 2 lakh to pay to the department and you pay in October of the same year. The penalty amount will be (Rs.2000x 2 months) Rs. 4000.

This interest rate of 1% applies to the advance tax filings under sections 234(b) and 234(c) of the IT act

2. Ignoring Tax Deducted at Source (TDS) Mismatches

Mismatches between the TDS reported in Form 26AS, and the income reported in the ITR will lead to notices from the tax authorities.

3. Non-Disclosure of Foreign Assets: 

NRIs who come under the Resident and Ordinarily Resident (RoR) are required to disclose their foreign assets and income. Failure to do so can attract severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.​

4. Not Utilizing Double Taxation Avoidance Agreements (DTAA) 

NRIs can avoid being taxed twice on the same income by claiming benefits under DTAA. This provision can be used to reduce your tax liabilities.

Understand the NRI income tax rules in India to ensure compliance and effective financial planning.

Strategies to Avoid NRI Tax Payment Penalties

  1. Timely and Accurate ITR Filing: Ensure that you file your ITR before the deadline, accurately reporting all income and deductions.​ If you feel that filing the tax return by yourself is complex, seek the advice of a tax professional. The deadline for filling is July 31st of the previous year. For example - for FY 2024-25 the returns filing date is 31st July 2025.
  2. Regularly Review Form 26AS: Monitor your Form 26AS to ensure that all TDS entries are correctly reflected. Check and reconcile if you promptly find any discrepancies.​
  3. Maintain documentation: Maintain record and proper documentation of your TDS deductions and income from rent and other sources like dividends from stock etc.

How to Rectify Past Tax Filing Errors

Best practices for NRIs to manage taxes and prevent financial penalities

If you've made errors in past tax filings:

  1. File a Revised Return: The Income Tax Act allows taxpayers to file a revised return to correct mistakes in the original ITR. This should be done before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.​

  2. Respond Promptly to Notices: If you receive a notice from the tax department regarding discrepancies or non-compliance, address it promptly to reduce penalties.​

  3. Seek Professional Assistance: Engage a tax professional to guide you through the rectification process and ensure compliance with current tax laws.​

Conclusion

Even if you are living abroad, filing your taxes will ensure that you are compliant in India. This will be helpful for you if you intend to settle down in India or take a loan from an Indian bank.  Staying informed about your tax obligations and fulfilling compliance requirements is essential to avoid penalties. NRIs can navigate the Indian tax system effectively by understanding common mistakes, maintaining documentation and taking professional support when needed.