The 25 most-searched questions in 150-200 words each: residency, ITR, NRE, TDS, DTAA, FBAR, FEMA, GIFT City.

FAQQ&ATop Questions

25 Most-Asked NRI Tax Questions -- Expert Answers for FY 2025-26

Every year, millions of Non-Resident Indians navigate a maze of Indian tax laws, FEMA regulations, DTAA treaties, and filing requirements. The questions keep coming -- on forums, in WhatsApp groups, at family gatherings, and in frantic late-night Google searches before the ITR deadline.

This page is different from every other NRI tax article you have read. It is not a surface-level overview. It is a comprehensive, factual, section-by-section answer to the 25 questions that NRIs ask more than any others -- compiled from actual client consultations, search data, and compliance filings handled by our team at MKW Advisors.

Each answer below cites specific sections of the Income Tax Act, 1961, FEMA 1999, and relevant DTAA provisions. Each provides the exact numbers, thresholds, and rates applicable for FY 2025-26 (AY 2026-27). Each is written to stand alone so you can bookmark, share, or reference the specific question you need.

Need personalized NRI tax advice? Book a consultation with CA Mayank Wadhera or reach us on WhatsApp at +91-96677 44073.

Am I an NRI for tax purposes?
Do NRIs need to file ITR in India?
Which ITR form should NRIs use?
Is NRE account interest taxable?
What TDS rate applies to NRI NRO interest?
How is NRI property sale taxed in India?
What is a Section 197 certificate?
Can NRI claim Section 87A rebate?
What is DTAA and how to claim it?
What is Form 67?
Can NRI buy property in India?
What are FEMA penalties for NRIs?
How to repatriate money from India?
What is RNOR status?
Can NRI invest in mutual funds?
What is GIFT City for NRIs?
New regime vs old regime for NRI?
What is advance tax for NRI?
Can NRI keep a resident savings account?
What is AIS and why should NRIs check it?
What is Section 54 exemption for NRI?
Do US NRIs need to file FBAR?
What TCS applies when sending money abroad?
Can NRI create HUF?
What documents are needed for NRI ITR?

1. Am I an NRI for Tax Purposes?

Short answer: You are an NRI if you were physically present in India for less than 182 days during FY 2025-26 (April 1, 2025 to March 31, 2026).

Your residential status under Indian income tax law is determined by Section 6 of the Income Tax Act, 1961. The primary test is the 182-day rule: if you stayed in India for 182 days or more during the financial year, you are a Resident. Below 182 days, you are generally a Non-Resident Indian (NRI).

There is also the modified 60-day rule under Section 6(1)(c). If you are an Indian citizen or a Person of Indian Origin (PIO), and your India income exceeds Rs. 15 lakh in the year, the threshold drops from 182 days to just 60 days (provided you were in India for 365 days or more in the preceding 4 years). However, Indian citizens who left India for employment abroad, or as crew on an Indian ship, still enjoy the 182-day threshold.

Budget 2020 also introduced the concept of "deemed resident" under Section 6(1A) -- an Indian citizen with India income above Rs. 15 lakh who is not tax-resident in any other country is deemed resident in India.

Days of stay include the day of arrival but not the day of departure, as per CBDT Circular No. 2/2015. Keep passport stamps, boarding passes, and immigration records as proof.

2. Do NRIs Need to File ITR in India?

Short answer: Yes, if your total income in India (before deductions) exceeds the basic exemption limit of Rs. 4,00,000 under the new tax regime for FY 2025-26, or if you want a TDS refund.

Many NRIs wrongly assume that TDS deducted at source means no filing is needed. That is incorrect. Under Section 139(1), every person whose gross total income exceeds the exemption limit must file an ITR. For FY 2025-26 under the new regime (default), this limit is Rs. 4,00,000. Under the old regime, it is Rs. 2,50,000 for NRIs below 60 years.

Even if your income is below the threshold, you should file if TDS was deducted on your NRO interest, property sale proceeds, or other Indian income -- because filing is the only way to claim a refund of excess TDS. NRIs often have TDS deducted at 30% on NRO interest, but their actual tax liability may be lower after applying DTAA rates or computing total income.

Filing is also mandatory if you want to carry forward capital losses (Section 74), claim DTAA benefits systematically, or if you hold specified foreign assets while being a Resident or RNOR transitioning back.

The due date for non-audit NRI returns is July 31, 2026 for AY 2026-27. Belated returns can be filed until December 31, 2026, but attract penalties under Section 234F of up to Rs. 5,000.

Read more: NRI ITR Filing -- Complete Guide

3. Which ITR Form Should NRIs Use?

Short answer: NRIs must file ITR-2. NRIs cannot use ITR-1 (Sahaj) under any circumstances.

This is one of the most common mistakes. ITR-1 is explicitly restricted to Resident individuals with income up to Rs. 50 lakh from salary, one house property, other sources, and agricultural income up to Rs. 5,000. The very first eligibility condition for ITR-1 states "Resident Individual." Since NRIs are Non-Resident by definition, ITR-1 is not available.

ITR-2 is the correct form for NRIs who have income from salary, house property, capital gains, NRO interest, or other sources but do not have business or professional income. If an NRI has business income in India (for example, from a proprietorship), ITR-3 is the appropriate form.

ITR-2 includes dedicated schedules that NRIs need: Schedule for Residential Status (Part A - General), Schedule Capital Gains (for property sales), Schedule Foreign Source Income (FSI), Schedule Tax Relief (TR) for DTAA claims, and Schedule FA (Foreign Assets) if applicable during RNOR transition.

File online through the e-filing portal at incometax.gov.in using your PAN credentials. Digital signature or Aadhaar OTP verification is required. NRIs without Aadhaar can use the verification code sent to their registered email and mobile.

4. Is NRE Account Interest Taxable?

Short answer: No. Interest earned on an NRE (Non-Resident External) account is fully exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act, 1961, as long as you maintain NRI or RNOR status.

This exemption covers both NRE Savings Accounts and NRE Fixed Deposits (also called NRE Term Deposits). There is no cap on the exemption amount -- whether you earn Rs. 10,000 or Rs. 10 lakh in NRE interest, it is entirely tax-free in India. No TDS is deducted on NRE interest either.

The critical condition is that you must be a Non-Resident or RNOR as per Section 6 of the Act. The moment you become a Resident and Ordinarily Resident (ROR), NRE accounts must be redesignated as resident accounts, and the interest becomes fully taxable.

Additionally, interest on an FCNR (Foreign Currency Non-Resident) account is also exempt under Section 10(4)(i) for NRIs and RNORs. FCNR deposits are held in foreign currency (USD, GBP, EUR, etc.) and carry no exchange risk.

Important note for returning NRIs: If you return to India permanently, your NRE FDs can continue to earn tax-free interest until maturity during the RNOR period (typically 2-3 years). Plan your return timing to maximize this benefit.

5. What TDS Rate Applies to NRI NRO Interest?

Short answer: Banks deduct TDS at 30% plus applicable surcharge and cess (effective rate approximately 31.2%) on NRO account interest paid to NRIs. This can be reduced to 10-15% using DTAA benefits.

Under Section 195 of the Income Tax Act, any payment to an NRI is subject to TDS at the rates in force. For interest income, the base rate is 30%. With Health and Education Cess of 4%, the effective rate becomes 31.2%. If NRO interest exceeds Rs. 50 lakh, surcharge applies too.

This is significantly higher than the 10% TDS that banks deduct on resident FD interest under Section 194A. The difference is because NRI income is taxed at source with no threshold exemption for TDS (unlike the Rs. 40,000 threshold for residents).

How to reduce this using DTAA: India has Double Taxation Avoidance Agreements with over 90 countries. Under most treaties, the interest tax rate is capped at 10% (e.g., India-USA, India-UK) or 15% (e.g., India-Canada, India-Australia). To claim DTAA rates, the NRI must provide the bank with a Tax Residency Certificate (TRC) from their country of residence, a self-declaration in Form 10F, and a No Permanent Establishment declaration. Banks then deduct TDS at the lower treaty rate.

Excess TDS already deducted can be claimed as a refund by filing your ITR.

6. How Is NRI Property Sale Taxed in India?

Short answer: If held for more than 24 months, property sale by NRI attracts Long-Term Capital Gains (LTCG) tax at 12.5% without indexation (post-July 23, 2024 amendment) on gains above Rs. 1.25 lakh. Properties acquired before July 23, 2024 can use the grandfathering option of 20% with indexation if it results in lower tax.

The buyer is required to deduct TDS under Section 195 at 20% of the total sale consideration (not just the gain) for LTCG. For Short-Term Capital Gains (property held 24 months or less), TDS is deducted at 30% of the sale consideration, and the gain is added to total income and taxed at applicable slab rates.

This creates a major cash flow problem for NRIs. On a Rs. 1 crore property sale with only Rs. 20 lakh actual gain, the buyer still deducts Rs. 20 lakh as TDS (20% of Rs. 1 crore) -- far exceeding the actual tax liability of approximately Rs. 2.5 lakh on the gain. The remedy is a Section 197 certificate (see Question 7 below) or filing an ITR to claim the refund.

Capital gains are computed as: Sale Price minus Cost of Acquisition (with indexation up to FY 2024-25 if using the old 20% rate) minus Sale Expenses (brokerage, legal fees). Stamp duty value applies if sale consideration is less than stamp duty value by more than 10%.

7. What Is a Section 197 Certificate?

Short answer: A Section 197 certificate is an order from the Assessing Officer that allows the buyer of your property to deduct TDS at a lower rate or nil rate instead of the standard 20-30% on the total sale consideration.

When an NRI sells property, TDS under Section 195 is deducted on the entire sale price, not just the capital gain. This often results in TDS far exceeding the actual tax liability. Section 197 provides relief by allowing the NRI seller to apply to the jurisdictional Assessing Officer for a certificate specifying the appropriate TDS amount based on the actual estimated capital gain.

How to apply: File Form 13 on the TRACES portal (tdscpc.gov.in). You need to provide details of the property transaction including purchase price, sale price, holding period, indexation calculation, and any exemptions claimed under Section 54 or 54EC. The AO evaluates your application and, if satisfied, issues a certificate mentioning the exact TDS amount or percentage.

Processing time: Typically 15-30 days, though delays can occur. Apply well before the registration date. The certificate is valid for the specific transaction and the financial year mentioned.

Pro tip: If you are claiming Section 54 exemption (reinvestment in another house), include that in your Form 13 application to potentially get a nil or very low TDS certificate. This preserves your sale proceeds for reinvestment rather than locking them up in a TDS refund cycle that can take 6-12 months.

8. Can NRI Claim Section 87A Rebate?

Short answer: No. NRIs are NOT eligible for the Section 87A rebate. This rebate is available only to Resident Individuals.

Section 87A of the Income Tax Act explicitly states: "An assessee, being an individual resident in India..." This language categorically excludes Non-Resident Indians. Under the new tax regime for FY 2025-26, the Section 87A rebate allows Resident Individuals with total income up to Rs. 12,00,000 (Rs. 12 lakh) to claim a rebate of up to Rs. 60,000, effectively making their income tax-free. Under the old regime, the rebate is Rs. 12,500 for income up to Rs. 5,00,000.

NRIs get none of this benefit. An NRI with taxable income of Rs. 5 lakh under the new regime will pay approximately Rs. 30,000 in tax (after cess), while a Resident with the same income pays zero.

This is one of the most significant tax disadvantages of NRI status and frequently surprises first-time NRI filers. It applies regardless of the NRI's country of residence, income level, or whether they are an Indian citizen.

There is no workaround or DTAA provision that overrides this restriction. The only solution is to become a Resident or RNOR, at which point the rebate becomes available. NRIs planning to return to India should time their return to qualify as Resident in a year when they can maximize the 87A benefit.

9. What Is DTAA and How to Claim It?

Short answer: DTAA (Double Taxation Avoidance Agreement) is a bilateral treaty between India and another country that prevents the same income from being taxed twice. India has DTAAs with over 90 countries including the USA, UK, Canada, UAE, Singapore, and Australia.

Under Section 90 of the Income Tax Act, where India has a DTAA with a country, the NRI can be taxed at the lower of the rate under the Act or the treaty rate. For example, the India-US DTAA caps interest income tax at 15% (versus the domestic rate of 30%), and the India-Singapore DTAA caps it at 15%.

To claim DTAA benefits, you need three documents:

Tax Residency Certificate (TRC): Obtained from the tax authority of your country of residence (e.g., IRS in the USA, HMRC in the UK). This proves you are a tax resident of the treaty country.
Form 10F: A self-declaration filed on the Indian income tax e-filing portal providing details like your tax identification number abroad, residential address, and the period of residency.
No Permanent Establishment (PE) Declaration: A declaration that you do not have a permanent establishment in India (relevant for business income).

Submit TRC and Form 10F to the payer (bank, property buyer, or tenant) before payment to get TDS at the treaty rate. Otherwise, claim DTAA benefit while filing your ITR using Schedule TR (Tax Relief) and get excess TDS refunded.

10. What Is Form 67?

Short answer: Form 67 is a mandatory form that NRIs must file on the Indian income tax portal to claim Foreign Tax Credit (FTC) under Rule 128 of the Income Tax Rules.

If you paid taxes on the same income in both India and your country of residence, you can claim credit for the foreign tax paid against your Indian tax liability (or vice versa, depending on the DTAA). However, the Income Tax Department requires you to file Form 67 before or along with your ITR for the relevant assessment year to process this credit.

What Form 67 requires:

Country where foreign tax was paid
Taxpayer identification number in that country
Nature of income (salary, interest, capital gains, etc.)
Amount of income in foreign currency and INR
Tax paid in foreign currency and INR
Relevant DTAA article under which relief is claimed

Attach supporting documents: Foreign tax return, tax payment receipts or tax withholding certificates (e.g., W-2 or 1099 for US NRIs), and the TRC.

Critical deadline change: From AY 2022-23 onwards, Form 67 can be filed on or before the end of the relevant assessment year (March 31). Earlier, it had to be filed before the ITR, which caused many NRIs to lose their FTC claim. Even so, best practice is to file Form 67 before or simultaneously with your ITR to avoid processing issues.

FTC is limited to the lower of the tax payable in India on that income or the actual foreign tax paid.

11. Can NRI Buy Property in India?

Short answer: Yes. NRIs and PIOs can purchase residential and commercial property in India under FEMA regulations. However, they cannot buy agricultural land, plantation property, or a farmhouse without specific RBI approval.

Under the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, NRIs (Indian citizens residing outside India) and OCIs (Overseas Citizens of India) can buy any number of residential or commercial properties. There is no limit on the number of properties or the total value.

Payment must be made from:

NRE account (repatriable funds)
NRO account (non-repatriable funds)
FCNR account
Inward remittance through normal banking channels

Payment in foreign currency, traveler's cheques, or cash is not permitted. All transactions must be routed through Indian banking channels.

Key considerations for NRI property buyers:

Stamp duty and registration charges vary by state (typically 5-8% of property value)
Home loans are available from Indian banks at standard rates; some banks offer NRI-specific home loan products
Rental income is taxable in India at slab rates with 30% standard deduction under Section 24(a)
TDS at 30% applies if tenant is paying rent exceeding Rs. 50,000 per month to an NRI (Section 195)
Joint purchase with another NRI or a Resident relative is permitted

12. What Are FEMA Penalties for NRIs?

Short answer: Under the Foreign Exchange Management Act, 1999, penalties for FEMA violations can be up to three times the amount involved in the contravention, or Rs. 2,00,000 where the amount is not quantifiable.

FEMA replaced the draconian FERA (Foreign Exchange Regulation Act) in 1999 and treats violations as civil offenses rather than criminal offenses. However, the penalties remain substantial. Under Section 13 of FEMA, the Adjudicating Authority can impose a penalty up to thrice the sum involved in the violation. If the contravention continues, an additional penalty of up to Rs. 5,000 per day during which the default continues can be levied.

Common FEMA violations by NRIs include:

Maintaining a resident savings account after becoming NRI (most common -- see Question 19)
Holding or transferring agricultural land without RBI approval
Receiving sale proceeds of Indian property in a foreign bank account instead of NRO/NRE account
Exceeding the Liberalised Remittance Scheme (LRS) limit of USD 2,50,000 per financial year
Non-reporting of foreign assets and income to the bank
Accepting cash payments for property transactions

The Enforcement Directorate (ED) handles FEMA enforcement. In serious cases involving money laundering, PMLA (Prevention of Money Laundering Act) provisions may also apply, escalating the matter to criminal proceedings.

Compounding of offenses is available under Section 15 of FEMA, which allows violations to be settled by paying a compounding fee, typically a fraction of the total penalty. Apply to the RBI Compounding Authority within the prescribed period.

13. How to Repatriate Money from India?

Short answer: NRIs can repatriate funds from India through their NRO account after paying applicable taxes. The process requires Form 15CA and Form 15CB (CA certificate) for amounts exceeding Rs. 5 lakh, and there is an annual cap of USD 1 million (approximately Rs. 8.5 crore) per financial year under the RBI scheme.

Step-by-step repatriation process:

Ensure funds are in NRO account. Sale proceeds of property, rental income, matured FDs, and inherited amounts accumulate here.
Pay applicable Indian taxes. Capital gains tax on property sale, income tax on interest/rent, etc. must be paid or TDS must be deducted before repatriation.
Obtain Form 15CB from a Chartered Accountant. This is a certificate confirming the nature of the remittance, the tax liability, and that taxes have been duly paid. Required for remittances exceeding Rs. 5 lakh in a financial year.
File Form 15CA on the income tax e-filing portal. Part A is for remittances below Rs. 5 lakh; Part C is for remittances above Rs. 5 lakh where a CA certificate (15CB) has been obtained; Part D is for remittances covered by Section 197 certificate.
Submit to your bank along with the bank's own A2 form, PAN card copy, passport copy, and supporting documents (sale deed, tax computation, ITR acknowledgment).

NRE account funds (original foreign remittance plus interest) are freely repatriable without any cap and without 15CA/15CB requirements.

14. What Is RNOR Status?

Short answer: RNOR (Resident but Not Ordinarily Resident) is a transitional tax status that gives returning NRIs a 2-3 year window during which their foreign income remains exempt from Indian tax, even though they are physically residing in India.

Under Section 6(6) of the Income Tax Act, a person is "Not Ordinarily Resident" if they satisfy either of these conditions:

They have been a Non-Resident in India in 9 out of the 10 preceding financial years, OR
They have been in India for 729 days or less during the 7 preceding financial years

An RNOR is taxed exactly like an NRI for income tax purposes -- only Indian-sourced income is taxable in India. Foreign salary, overseas rental income, capital gains from foreign stocks, interest from foreign bank accounts, and dividends from foreign companies are all exempt in India during the RNOR period.

Example: An NRI who lived in the US for 12 years returns to India on April 1, 2025. For FY 2025-26 and FY 2026-27 (possibly FY 2027-28 depending on exact days), they qualify as RNOR. During this period, their US 401(k) withdrawals, US rental income, US stock gains, and US bank interest are not taxable in India.

This makes RNOR status invaluable for tax planning. Actions to consider during the RNOR window: sell foreign stocks, withdraw from overseas retirement accounts, liquidate foreign fixed deposits, and consolidate foreign income while it remains tax-free in India.

15. Can NRI Invest in Mutual Funds in India?

Short answer: Yes, NRIs can invest in Indian mutual funds. However, KYC compliance is mandatory, and NRIs from the USA and Canada face restrictions due to FATCA regulations, with many fund houses not accepting their investments.

Under SEBI regulations, NRIs can invest in mutual funds on a repatriable basis (through NRE account) or non-repatriable basis (through NRO account). The investment process requires:

KYC registration with a KRA (KYC Registration Agency) using passport, overseas address proof, PAN card, and a photograph. In-Person Verification (IPV) can be done at select bank branches or embassy offices.
Bank account linking -- NRE or NRO account details linked to the mutual fund folio.
FATCA/CRS self-certification -- mandatory declaration of tax residency status, foreign tax ID, and country of residence.

US and Canada NRIs: Due to FATCA compliance burden, most Indian AMCs (Asset Management Companies) do not accept investments from US and Canada-based NRIs. Notable exceptions include select schemes from UTI Mutual Fund, SBI Mutual Fund, and a few others. The list changes periodically -- always verify before investing.

Tax implications: Equity mutual fund LTCG (held over 12 months) is taxed at 12.5% above Rs. 1.25 lakh. Debt fund gains are taxed at slab rates. TDS is deducted at 12.5% (equity LTCG) or 30% (debt/STCG) for NRI investors. NRIs cannot claim Section 87A rebate to offset this tax.

16. What Is GIFT City for NRIs?

Short answer: GIFT City (Gujarat International Finance Tec-City) in Gandhinagar is India's first International Financial Services Centre (IFSC) offering NRIs a zero-tax or low-tax environment for investing in global and Indian assets without FEMA restrictions.

GIFT IFSC operates as a jurisdiction outside India's domestic tax framework. Under Section 80LA and the IFSC-specific tax regime, key benefits for NRIs include:

Zero capital gains tax on investments in IFSC-listed securities (equity, bonds, ETFs, REITs)
Zero GST on financial services within IFSC
No STT (Securities Transaction Tax) on trades executed on GIFT IFSC exchanges (India INX, NSE IFSC)
No FEMA restrictions -- investments in IFSC are treated as foreign jurisdiction investments
No TDS on income from IFSC-based Fund Management Entities

What NRIs can do in GIFT City:

Open a foreign currency account (USD-denominated) with GIFT IFSC banking units
Invest in global stocks (Apple, Google, Amazon) via NSE IFSC or India INX platforms
Buy India-focused ETFs and fund-of-funds without domestic market TDS
Access Alternative Investment Funds (AIFs) structured in GIFT IFSC
Hold and trade global bonds and derivatives

How to start: Open a trading and demat account with a GIFT IFSC-registered broker (e.g., NSE IFSC members). Fund it via wire transfer in USD. Minimum investment varies by product -- some ETFs start as low as USD 50.

GIFT IFSC is positioned as India's answer to Singapore and Dubai for NRI wealth management.

17. New Regime vs Old Regime for NRI?

Short answer: For FY 2025-26, the new tax regime is the default for all taxpayers including NRIs. The new regime is generally better for NRIs because they typically cannot claim many deductions that make the old regime attractive for Residents.

New regime tax slabs for FY 2025-26 (applicable to NRIs):

Rs. 0 - 4,00,000: Nil
Rs. 4,00,001 - 8,00,000: 5%
Rs. 8,00,001 - 12,00,000: 10%
Rs. 12,00,001 - 16,00,000: 15%
Rs. 16,00,001 - 20,00,000: 20%
Rs. 20,00,001 - 24,00,000: 25%
Above Rs. 24,00,000: 30%

The new regime does not allow most deductions -- Section 80C (Rs. 1.5 lakh), Section 80D (health insurance), HRA exemption, and Section 24(b) (home loan interest above Rs. 2 lakh) are not available. However, NRIs abroad rarely pay Indian LIC premiums, PPF contributions, or Indian home loan EMIs, so these deductions are often irrelevant anyway.

When old regime is better for NRIs: If you have significant Indian home loan interest (Section 24b), rental income with full deductions, or large 80C investments, the old regime may save more tax. NRIs with only NRO interest and capital gains almost always benefit from the new regime.

Important: NRIs cannot claim the Section 87A rebate under either regime. Standard deduction of Rs. 75,000 is available under the new regime for salary income.

18. What Is Advance Tax for NRI?

Short answer: If your total tax liability for the year (after deducting TDS already deducted) exceeds Rs. 10,000, you are required to pay advance tax in quarterly installments under Section 208 of the Income Tax Act.

Advance tax is essentially "pay-as-you-earn" tax. While most NRI income has TDS deducted at source (NRO interest at 30%, property sale at 20%, etc.), situations arise where additional tax is due -- for example, rental income where the tenant did not deduct TDS, or capital gains where TDS was deducted at a lower rate via Section 197 certificate.

Advance tax due dates for FY 2025-26:

Due Date	Cumulative % of Tax
June 15, 2025	15%
September 15, 2025	45%
December 15, 2025	75%
March 15, 2026	100%

Failure to pay advance tax results in interest under Section 234B (for shortfall below 90% of assessed tax) at 1% per month and Section 234C (for deferment of individual installments) at 1% per month for 3 months.

Practical tip for NRIs: Most NRI income sources (NRO interest, capital gains, rental income) have TDS deducted. Advance tax typically becomes relevant only when you have large undisclosed capital gains, significant rental income from multiple properties, or income from business in India. If your TDS covers your full tax liability, advance tax is not required. Verify by computing your total estimated tax liability and comparing it against total TDS reflected in Form 26AS.

19. Can NRI Keep a Resident Savings Account?

Short answer: No. Maintaining a resident savings or current account after becoming an NRI is a FEMA violation under the Foreign Exchange Management (Deposit) Regulations, 2016.

This is the single most common FEMA violation among NRIs, and most people are unaware they are breaking the law. Under FEMA regulations and RBI Master Direction on deposits, when an Indian resident becomes a Non-Resident (by moving abroad for employment, business, or staying outside India for more than 182 days), they are required to redesignate or convert their resident savings account to an NRO account immediately.

What you must do:

Inform your bank about your change in residential status
Convert resident savings accounts to NRO savings accounts
Convert resident FDs to NRO FDs (or close and move to NRE FDs)
Update KYC with overseas address, passport details, and NRI status declaration
Open an NRE account if you want to park foreign earnings for repatriation

Consequences of non-compliance:

FEMA penalty up to 3 times the amount in the account (Section 13, FEMA 1999)
Bank may freeze the account upon discovering NRI status
Tax complications: interest earned may still be taxable, and TDS treatment becomes unclear
Issues during property transactions, remittances, or when applying for Form 15CA/15CB

Many NRIs keep resident accounts active for convenience -- UPI payments, recurring SIPs, or loan EMIs. The compliant alternative is to run these through your NRO account, which supports all domestic transactions.

20. What Is AIS and Why Should NRIs Check It?

Short answer: AIS (Annual Information Statement) is a comprehensive record of all financial transactions linked to your PAN, available on the income tax e-filing portal. NRIs must check it because discrepancies between AIS data and your ITR can trigger notices and scrutiny.

AIS replaced the older Form 26AS as the primary information document from AY 2021-22 onwards (though Form 26AS is still available). AIS captures data from multiple sources:

Interest income: NRO FD/savings interest reported by banks
Dividend income: Dividends from Indian shares and mutual funds
Securities transactions: Purchase and sale of shares, mutual fund redemptions
Property transactions: Purchase/sale of immovable property from stamp duty registrars
Foreign remittances: Inward and outward remittances reported under FBAR/FATCA
TDS and TCS: All TDS deducted on your income, TCS collected on purchases
GST data: High-value purchases reported under GST
Cash deposits: High-value cash transactions reported by banks

Why NRIs must check AIS: The income tax department uses AIS data for automated mismatch detection. If your AIS shows Rs. 3 lakh in NRO interest but your ITR reports only Rs. 2 lakh, you will receive a notice under Section 143(1)(a) for the difference. Similarly, if a property sale appears in AIS but not in your ITR, expect a demand notice.

How to access: Login to incometax.gov.in, go to Services, then Annual Information Statement. Review each entry, and use the feedback mechanism to report incorrect information (e.g., transactions that do not belong to you or duplicate entries).

21. What Is Section 54 Exemption for NRI?

Short answer: Section 54 allows NRIs to claim exemption from LTCG tax on sale of a residential house property by reinvesting the capital gain in another residential house property in India, subject to a maximum exemption cap of Rs. 10 crore (introduced from AY 2024-25 onwards).

Conditions for claiming Section 54:

Asset sold must be a long-term residential house property (held for more than 24 months)
New house must be purchased within 1 year before or 2 years after the sale date, OR constructed within 3 years of the sale date
New house must be in India (overseas property does not qualify)
Maximum exemption is Rs. 10 crore -- gains above this are taxable even if fully reinvested
Only one new residential property can be purchased for claiming exemption (the option to buy two properties for gains up to Rs. 2 crore is available once in a lifetime under Section 54(1) proviso)
Lock-in period: The new house cannot be sold within 3 years of purchase; if sold, the exemption is reversed and becomes taxable in the year of sale

If you cannot buy immediately: Deposit the capital gain amount in a Capital Gains Account Scheme (CGAS) with a designated bank before the ITR filing due date. The amount must be utilized for house purchase/construction within the prescribed 2/3-year window.

Alternative -- Section 54EC: Instead of buying a house, NRIs can invest up to Rs. 50 lakh in specified bonds (NHAI, REC, PFC, IRFC) with a 5-year lock-in to claim LTCG exemption under Section 54EC.

22. Do US NRIs Need to File FBAR?

Short answer: Yes. US-based NRIs (including US citizens, Green Card holders, and US tax residents) must file FBAR (FinCEN Form 114) if the aggregate maximum balance across all foreign financial accounts exceeded USD 10,000 at any point during the calendar year.

FBAR (Foreign Bank Account Report) is a US reporting requirement under the Bank Secrecy Act, administered by FinCEN (Financial Crimes Enforcement Network). It is separate from your US tax return (Form 1040) and is filed electronically through the BSA e-filing system.

What counts as a "foreign financial account" for US NRIs:

NRE and NRO savings and fixed deposit accounts in India
Indian mutual fund holdings (each folio is considered a separate account)
Indian PPF, EPF, and NPS accounts
Indian demat accounts holding stocks
FCNR deposits in Indian banks
Any other financial account outside the US where you have signature authority or financial interest

The USD 10,000 threshold is aggregate. If you have Rs. 3 lakh in an NRO account, Rs. 2 lakh in an NRE FD, and Rs. 4 lakh in mutual funds, the total converts to roughly USD 10,800 at current exchange rates -- and FBAR filing is triggered.

FBAR deadline: April 15 with automatic extension to October 15. No extension request needed.

Penalties for non-filing: Non-willful violation: up to USD 10,000 per account per year. Willful violation: the greater of USD 100,000 or 50% of the account balance. These penalties are severe and are actively enforced by the IRS.

US NRIs should also check if they need to file FATCA Form 8938 (for higher thresholds: USD 50,000 on last day or USD 75,000 at any time for US residents; higher for expats).

23. What TCS Applies When Sending Money Abroad?

Short answer: Under Section 206C(1G) of the Income Tax Act, Tax Collected at Source (TCS) applies on foreign remittances under the Liberalised Remittance Scheme (LRS) at 5% above Rs. 7 lakh per financial year, with a higher rate of 20% for non-specified purposes and a reduced rate of 0.5% for education loans.

TCS rates for FY 2025-26 on LRS remittances:

Purpose	Up to Rs. 7 Lakh	Above Rs. 7 Lakh
Education (with loan from financial institution)	Nil	0.5%
Education (without loan)	Nil	5%
Medical treatment	Nil	5%
Other purposes (investment, travel, gifts, etc.)	Nil	20%
Overseas tour packages	5% (no threshold)	20%

Important clarifications:

The Rs. 7 lakh threshold is an aggregate annual limit across all purposes under LRS
TCS is collected by the authorized dealer bank or tour operator at the time of remittance
TCS is not a final tax -- it is adjustable against your total tax liability when you file your ITR. If your total tax payable is less than TCS collected, you get a refund
NRIs sending money abroad from NRO accounts for legitimate purposes also face TCS if the remittance qualifies under LRS

Exception for NRIs: Repatriation from NRE/FCNR accounts is not subject to TCS as these are foreign currency accounts with already-remitted funds. TCS primarily affects Residents using LRS or NRIs remitting NRO funds.

24. Can NRI Create HUF?

Short answer: Yes. An NRI can be the Karta (head) of a Hindu Undivided Family (HUF) under Indian law, and the HUF is treated as a separate taxable entity with its own PAN, its own exemption limit, and its own set of deductions -- potentially saving Rs. 1.2 lakh or more in taxes annually.

A Hindu Undivided Family is a unique concept under Indian tax law recognized under Section 2(31) of the Income Tax Act. HUF is not created by agreement -- it exists by operation of Hindu law among members of a Hindu, Sikh, Jain, or Buddhist family. However, it needs to be formally constituted for tax purposes by creating a deed, obtaining a separate PAN, and opening a bank account.

Tax benefits of NRI HUF:

Separate exemption limit: Rs. 4,00,000 under the new regime (FY 2025-26)
Separate slab rates: The HUF is taxed independently of the Karta's personal income
Section 80C deductions: Up to Rs. 1.5 lakh (under old regime) on investments in the HUF's name
Property income splitting: Transfer property to HUF, and rental income is taxed in HUF's hands
Capital gains from HUF property are taxed separately with their own exemption thresholds

HUF can own:

NRO bank accounts (if Karta is NRI)
Indian mutual funds
Residential and commercial property in India
Fixed deposits, bonds, and listed securities

Constraints: HUF cannot hold NRE accounts. Clubbing provisions (Section 64) may apply if assets are transferred by Karta without adequate consideration. Gift from non-members above Rs. 50,000 to HUF is taxable. Proper documentation and genuine transactions are essential.

25. What Documents Are Needed for NRI ITR?

Short answer: NRIs need their PAN card, Form 26AS, AIS/TIS, Form 16A (TDS certificates), bank statements (NRO/NRE), and a Tax Residency Certificate (TRC) from their country of residence. Additional documents depend on the nature of income.

Essential documents for every NRI ITR filing:

PAN Card -- Your 10-digit Permanent Account Number. If not linked to Aadhaar (NRIs are exempt from mandatory Aadhaar linking), ensure PAN is active.
Form 26AS -- TDS credit statement available on the income tax portal. Verify all TDS entries match your actual income. Download for the relevant financial year.
AIS (Annual Information Statement) -- Comprehensive record of all PAN-linked transactions. Check for completeness and accuracy. Provide feedback on incorrect entries.
Form 16A -- TDS certificate issued by banks (for NRO interest), property buyers (for property sale TDS), and tenants (for rental TDS). These are quarterly certificates under Section 203.
TRC (Tax Residency Certificate) -- From the tax authority of your country of residence. Required for DTAA claims.
Form 10F -- Self-declaration on the e-filing portal for DTAA benefit claims.

Additional documents by income type:

Property sale: Sale deed, purchase deed, indexation computation, registration receipts, Form 15CA/15CB if repatriating
Rental income: Rental agreement, bank statements showing rent receipts, municipal tax receipts
Salary in India: Form 16 from employer
Capital gains (securities): Demat statements, broker contract notes, mutual fund consolidated account statement (CAS)
Foreign Tax Credit: Foreign tax return, W-2/1099 (for US NRIs), tax payment receipts from foreign country
Passport: For residential status determination -- entry/exit stamps

Organize all documents by income type before starting the filing process. Missing documents cause delays, incorrect filings, and potential notices.

Key Takeaways for NRI Taxpayers in FY 2025-26

Residential status determines everything. Get the 182-day / 60-day test right before anything else. Errors here cascade into wrong tax treatment, wrong ITR form, and potential penalties.
NRIs are taxed only on Indian income. But "Indian income" is broader than most people think -- NRO interest, Indian mutual fund gains, rental income, capital gains on Indian assets, and salary for services rendered in India all qualify.
TDS is often over-deducted. Banks deduct 30% on NRO interest. Buyers deduct 20% on entire property sale price. DTAA and Section 197 can reduce this, but most NRIs need to file ITR to claim refunds.
DTAA is your strongest tool. A TRC and Form 10F can cut your tax rate on interest from 30% to 10-15%. Do not ignore treaty benefits.
FEMA compliance is separate from income tax. Converting resident accounts to NRO, using proper remittance channels, and following investment restrictions are non-negotiable. Penalties are severe.
Plan the return to India. RNOR status gives you 2-3 years of foreign income exemption. Time your return to maximize this benefit.
Track everything in AIS. The tax department sees every transaction linked to your PAN. Your ITR must match.

About the Author

CA Mayank Wadhera is a qualified Chartered Accountant, Company Secretary, Cost and Management Accountant, and IBBI Registered Valuer. He leads the NRI taxation practice at MKW Advisors and serves as a regulatory technology expert through DigiComply and Legal Suvidha. With extensive experience in cross-border taxation, FEMA advisory, and DTAA optimization, CA Wadhera has helped thousands of NRIs across the USA, UK, Canada, UAE, Singapore, and Australia navigate India's complex tax and compliance landscape.

Need Expert NRI Tax Help?

Navigating 25 different tax provisions, FEMA rules, and DTAA treaties is not something you should attempt alone. A single error in residential status determination or DTAA documentation can cost you lakhs in unnecessary taxes or trigger enforcement action.

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Disclaimer: This blog is for informational purposes and reflects the law as applicable for FY 2025-26 (AY 2026-27). Tax laws are subject to change through Finance Acts, CBDT notifications, and judicial pronouncements. Individual circumstances vary -- always consult a qualified Chartered Accountant before making tax decisions. MKW Advisors, Legal Suvidha, and DigiComply do not accept liability for actions taken based on this general guidance without professional consultation.

Last updated: March 23, 2026

Top 25 NRI Tax Questions