5 Reporting Mistakes NRIs Make With USD Investments

Every July, our WhatsApp community lights up with the same panic.

An NRI discovers their Annual Information Statement shows income they thought was invisible. Or their residence country sends a notice about unreported foreign accounts.

At Belong, we see the pattern: people spend weeks choosing the right product but zero minutes understanding what to report, where and when.

These five reporting mistakes cost NRIs the most. Each one is avoidable.

1. Assuming "Tax-Free in India" Means "Tax-Free Everywhere"

This is the mistake that triggers the most expensive surprises. GIFT City FD interest is exempt from Indian income tax under Section 10(4B) of the Income Tax Act. GIFT City mutual fund capital gains are exempt under Section 10(4D) for non-residents (Source: IFSCA).

That exemption is Indian. Your residence country has its own rules.

UAE NRIs: Zero personal income tax. GIFT City returns are genuinely tax-free on both sides. The India-UAE DTAA confirms this.

UK NRIs: From April 2025, the non-dom remittance basis ended (Source: GOV.UK). All foreign income must be declared on Self Assessment. Since GIFT City deducts zero TDS, there's no Foreign Tax Credit to offset. You owe UK tax at your marginal rate. Read our guide for UK NRIs.

US NRIs: GIFT City FD interest is reportable on your 1040. Mutual funds may trigger PFIC classification, requiring Form 8621 per fund per year. Miss this, and the IRS applies the highest rate plus retroactive interest.

👉 Tip: Before investing in any USD product, write down two things: "What do I report in India?" and "What do I report in my residence country?" If you can't answer both, don't invest until you can. Use our double taxation guide to map your obligations.

2. Not Filing Indian ITR When Income Is Below the Taxable Threshold

Many NRIs with GIFT City investments skip filing Indian ITR. Their logic: "My income is tax-free, no other Indian income. Why file?"

Two reasons. First, if any institution deducted TDS on other income (NRO interest, rent, mutual fund redemptions), you need an ITR to claim that refund. Without filing, TDS becomes a permanent loss.

Second, filing creates a compliance trail. If you ever repatriate funds, banks check ITR history. Gaps raise flags that delay remittances by weeks.

The Annual Information Statement now captures more data than ever. If it shows income but you haven't filed, the system auto-generates a mismatch notice. The correct form for NRIs is always ITR-2 (Source: Income Tax Department).

👉 Tip: File ITR every year you have any Indian financial activity, even if the amount is below the ₹2.5 lakh exemption limit. It costs nothing and protects everything. Follow our step-by-step ITR filing guide for the process.

3. Missing FBAR and FATCA Filings (US NRIs)

This mistake carries the steepest penalties. If you're a US tax resident and your total foreign accounts exceed USD 10,000 at any point during the year, you must file FBAR (FinCEN Form 114).

That threshold is aggregate: NRE, NRO, FCNR, GIFT City, even your UAE bank account (Source: FinCEN). GIFT City accounts count.

Separately, if foreign assets exceed USD 50,000 (single filer) on December 31, or USD 75,000 at any point, you file FATCA Form 8938. FBAR goes to FinCEN. Form 8938 goes to the IRS. They overlap but are separate obligations.

The penalty for missing FBAR: up to USD 10,000 per non-wilful violation and up to 50% of account balance for wilful failures.

Per year, per account. We've seen five-figure penalties for accounts NRIs genuinely forgot.

👉 Tip: If you're a US NRI, maintain a master spreadsheet of every financial account you hold outside the US. Update peak balances monthly. Share this with your CPA before April each year. Even GIFT City AIFs count as foreign financial accounts.

4. Using the Wrong Exchange Rate for Conversion

This sounds minor. It isn't. When reporting foreign income on Indian ITR, the conversion rate matters. When reporting Indian income on your US or UK return, it matters again.

For Indian ITR, use the RBI reference rate on the last day of the financial year (Source: RBI).

For US filing, the IRS requires the Treasury Department's yearly average rate for income and year-end rate for balances. For FBAR, use Treasury's year-end rate.

The common mistake: using Google's rate, or your bank's rate, or the rate on filing day.

None are correct. A 2-3% difference on a large GIFT City FD means thousands in misreported income. Document the official rate source for every transaction. Track live rates on GIFT Nifty.

5. Forgetting Foreign Asset Disclosure After Returning to India

This mistake hits NRIs who've recently returned to India. During RNOR, foreign income stays exempt. But disclosure is separate from taxation. You can owe zero tax and still face penalties for not reporting.

Once you file ITR-2 as Resident or RNOR, you must complete Schedule FA (Foreign Assets). This includes every bank account outside India, every investment, every property.

Your GIFT City accounts operate under IFSC jurisdiction. Whether they qualify as "foreign assets" is debatable. The safer approach: disclose them.

The penalty under the Black Money Act: up to ₹10 lakh per undisclosed asset (Source: Black Money Act, 2015).

We've seen returning NRIs who planned their RNOR strategy perfectly but forgot disclosure, losing savings to penalties. Also report FCNR deposits, overseas brokerage accounts and insurance policies.

👉 Tip: In your first year as Resident, hire a CA experienced with foreign asset reporting. The ₹10,000-15,000 fee is nothing compared to a ₹10 lakh penalty. Read our tax filing mistakes guide for more patterns to avoid.

Your Next Step

Reporting mistakes don't just cost penalties. They freeze repatriation, trigger notices and create years of cleanup work.

Thousands of NRIs in our WhatsApp community share filing checklists, CA recommendations and real experiences every tax season.

The Belong app helps you track your investments in one place. Compare FD rates, explore mutual funds and AIFs, and monitor the GIFT Nifty. Invest right. Then report right.

Disclaimer: For informational purposes only. Not financial, tax or legal advice. Consult qualified advisors before investing or filing. Rates and regulations subject to change.