The 2025 tax season is shaping up to be a challenging one for Non-Resident Indians (NRIs), with the Income Tax Department’s new forms for FY 2024-25 (Assessment Year 2025-26) already released but crucial utilities, like ITR-2, facing delays. Tax experts are sounding the alarm, warning NRIs of potential pitfalls and hefty tax bills if they don’t prepare early and accurately.
Why NRIs Face a Potential Tax Shock
The primary concern for NRIs stems from the delay in the release of the ITR-2 utility. This form is essential for millions of NRIs and Overseas Citizens of India (OCIs) who don’t have business or professional income in India. Without it, many are left in limbo, unsure how to proceed with their filings.
The risk of error is significant. TaxBuddy, a digital tax filing platform, highlighted a case where an NRI, Rahul, faced a tax demand of Rs 59,904 because he mistakenly assumed his income was below the taxable limit after deductions. This underscores the need for NRIs to have a clear understanding of the specific tax rules that apply to them. With over 4.5 crore NRIs and OCIs globally, the potential for widespread misunderstanding and compliance issues is immense.
Key Tax Filing Requirements and Changes for NRIs
Extended Due Date and Penalties
The good news is that the due date for NRI tax filings for FY 2024-25 has been extended to September 15, 2025. However, missing this deadline can lead to:
- Interest under Sections 234A, 234B, and 234C.
- Penalties ranging from Rs 1,000 to Rs 5,000 under Section 234F, depending on income levels.
Crucial Residency Status
Determining your residency status is the cornerstone of your tax liability. You’re considered an NRI for FY 2024-25 if you spent:
- Fewer than 182 days in India during FY 2024-25, AND
- Less than 60 days in FY 2024-25 combined with fewer than 365 days over the preceding four years.
Even a single extra day in India can alter your residency status and, consequently, your tax obligations.
Which ITR Forms to Use
NRIs must use either ITR-2 or ITR-3. ITR-1 and ITR-4 are not applicable to NRIs.
- ITR-2: For individuals without income from business or profession.
- ITR-3: For those earning income from business or professional activities.
Essential Documents
Be sure to gather the following documents for a smooth filing process:
- Passport: To verify your travel days.
- NRO/NRE/FCNR bank statements
- Form 26AS
- Annual Information Statement (AIS)
- Taxpayer Information Summary (TIS)
- Form 10F
- Tax Residency Certificate (TRC)
Taxability of Income
For NRIs, only income earned or accrued in India is taxable. Foreign income is generally exempt unless it’s received in India. While interest earned on NRE and FCNR accounts is exempt, it still needs to be disclosed in your tax return. Foreign assets typically don’t require reporting.
Impact of Recent Tax Changes
Disclosure of Assets and Liabilities
Starting from FY 2024-25, NRIs filing ITR-2 only need to disclose their Indian assets and liabilities if their gross taxable income exceeds ₹1 crore. Importantly, foreign assets remain exempt from disclosure in ITR-2.
Capital Gains Tax Regime
A new capital gains tax regime, effective from July 23, 2024, requires separate reporting of gains accrued before and after this date. The ITR-2 has been updated to facilitate precise calculations for both short-term and long-term capital gains.
Double Taxation Relief and Foreign Tax Credit
If you’re an NRI seeking relief under Double Taxation Avoidance Agreements (DTAA), you must submit Form 10F and a Tax Residency Certificate (TRC) from your foreign tax authority. Form 10F is valid for one year from filing.
Crucially, to claim credit for taxes paid abroad on income also taxable in India, NRIs must submit Form 67 before filing their ITR. Failing to do so could result in the denial of your foreign tax credit, even if a DTAA applies.
Prepare Early to Avoid Surprises
With the increasing digitization and rigor of tax compliance, early preparation is your best defense against penalties and unexpected tax demands. Start compiling your documentation now and confirm your residency status to ensure a smooth and compliant tax season.
Are you an NRI preparing for your tax filing this year? What aspects are you most concerned about?