How to File Your Indian Income Tax Return as an NRI for FY 2025-26 – The Traps Most Guides Miss
How to File Your Indian Income Tax Return as an NRI for FY 2025-26 – The Traps Most Guides Miss
By C. Thiruvenkatam | Daily Hind News | 22 June 2026
Most NRI tax guides cover the basics correctly. What they rarely explain is where things go wrong quietly – the return filed on time, with the right form, that still results in a tax notice six months later because one schedule was filled incorrectly.
The costliest NRI filing mistake is paying 31% on NRO interest when the DTAA treaty entitles the filer to pay 15%. This happens not through ignorance of DTAA but because the NRI correctly fills Schedule OS with the interest income and then fails to declare the treaty rate in Schedule SI. The income tax portal accepts the return. The refund never arrives. A notice comes eventually.
That is the kind of detail this guide is about. The deadline is July 31, 2026. The form is almost certainly ITR-2.
1. Do you need to file?
You are required to file if any of the following applies to FY 2025-26:
- Your India-sourced income before deductions exceeds Rs 2.5 lakh under the old regime, or Rs 3 lakh under the new regime [Editor: confirm whether the new regime basic exemption for NRIs was raised to Rs 4 lakh for FY 2025-26 under Budget 2025, as it was for residents – verify at incometax.gov.in]
- You have capital gains from the sale of Indian property, shares, or mutual funds, regardless of amount
- TDS has been deducted on your Indian income and you want a refund
Even below these thresholds, filing is worth serious consideration. A clean annual return builds the paper trail that simplifies large repatriation requests. Banks and tax officers handling Form 15CA/15CB compliance look for consistent filing history.
2. Which ITR form – and why ITR-1 is not an option
ITR-1 is available only to resident Indians. As an NRI, you cannot use it.
ITR-2 covers nearly every NRI situation: NRO account interest, rental income from Indian property, capital gains on shares and property, dividends from Indian companies, and pension from Indian sources. If your India-sourced income comes from any combination of these, ITR-2 is your form. Deadline: July 31, 2026.
ITR-3 is for NRIs who run a business or practice a profession with income sourced from India. Most NRIs living abroad do not fall into this category.
If the e-filing portal suggests ITR-4 for you, check your residential status setting first. ITR-4 is the presumptive scheme form and most NRIs have no reason to file it.
One consequence of the form choice that many NRIs overlook: the old versus new tax regime election for AY 2026-27 must be made within your original ITR filing. For non-business taxpayers using ITR-2, you can switch between regimes annually by simply selecting at the time of filing. Miss the July 31 deadline and a belated return may lock you into the new regime default, losing access to Section 80C, Section 24(b) on home loan interest, and other old-regime deductions.
3. Confirming your NRI status for FY 2025-26
Residential status under the Income Tax Act is determined purely by days spent in India during FY 2025-26 (April 1, 2025 to March 31, 2026). Passport type, visa category, and where your employer is based do not factor into it.
You are an NRI for tax purposes if you stayed in India for fewer than 182 days during FY 2025-26.
Count carefully. Day of arrival counts as a day in India. Day of departure counts as a day in India. A business trip that felt short may add up faster than expected.
RNOR – the status returning NRIs often miss:
If you have been an NRI for nine of the last ten years and returned to India recently, you may qualify as Resident but Not Ordinarily Resident (RNOR). RNORs are taxed only on India-sourced income and foreign income received in India – not on their full worldwide income. This transitional status can last up to three years after return. If you came back to India during FY 2024-25 or FY 2025-26, check your RNOR eligibility before assuming you have full resident status and tax scope.
In the ITR portal, this selection is in the personal information section. Getting it wrong – selecting Resident instead of NRI – causes Schedules FA (foreign assets), FSI (foreign source income), and TR (tax relief) to appear in your form. If you are a genuine NRI and these schedules appear, your residential status is set incorrectly. Stop and correct it before proceeding.
4. What India taxes you on, and what it does not
As an NRI, India taxes only income that arises or is received in India.
Taxable in India:
- Interest on NRO savings and fixed deposits – at source (TDS) and in your ITR
- Rental income from Indian property – after a standard 30% deduction on gross rent
- Capital gains from the sale of Indian property, shares, or mutual funds
- Dividends from Indian companies – TDS applies above a threshold
- Any salary for work physically performed in India and received in India
Not taxable in India:
- Interest on NRE accounts – savings and fixed deposits both
- Interest on FCNR(B) deposits – regardless of amount
- Foreign salary earned and received outside India
- Capital gains on assets held entirely outside India
The moment you return to India permanently and your status changes to Resident, NRE and FCNR interest becomes taxable. Until then, it is tax-free regardless of how large the balance is.
One point worth noting: NRIs do not qualify for the Section 87A rebate. A resident Indian with income up to a certain threshold gets a rebate that eliminates tax liability. NRIs do not. The tax starts from the first rupee above the basic exemption limit.
5. How DTAA actually works in the ITR filing process
India has Double Taxation Avoidance Agreements with over 90 countries. Under most of these treaties, the TDS rate on NRO interest is capped at 15% for NRIs who are tax residents of those countries – compared to the standard 31.2% (30% plus cess) that banks deduct by default. For someone with Rs 5 lakh of NRO interest in a year, the difference between 31.2% and 15% is approximately Rs 81,000.
Claiming that treaty rate requires two documents:
Step 1 – Tax Residency Certificate (TRC): Issued by your country of tax residence. In the US, this is IRS Form 6166 (Certification of US Tax Residency), obtained by submitting Form 8802 to the IRS – allow 6-8 weeks. In the UK, HMRC issues a certificate of residence on application. UAE residents apply to the UAE Ministry of Finance. The TRC confirms that you are a tax resident of that country for the relevant period.
Step 2 – Form 10F: Filed online on the incometax.gov.in portal. Paper Form 10F has not been accepted since October 2023. This is a self-declaration that supplements the TRC with details the certificate may not include: your taxpayer status, Tax Identification Number, Indian address, and period of residency in the treaty country. Form 10F details must match your TRC exactly. A name mismatch or a TIN that differs from the TRC will cause the payer to reject the DTAA claim and deduct at the standard rate.
File Form 10F before submitting your ITR. Then submit both documents to your Indian bank and any other payers before income is credited to you – this allows the payer to deduct TDS at the treaty rate from that point forward. If TDS was already deducted at 31.2% before you submitted these documents, you claim the excess back through your ITR as a refund.
The DTAA reduced rate is chosen in the ITR itself, which is covered in the next section.
6. Schedule SI – the schedule most NRIs fill wrong
This is the part of ITR-2 that determines whether your DTAA claim actually works.
Schedule OS is where you declare NRO interest income – the amount, the payer, the TDS. That much most filers do correctly.
What many miss is Schedule SI (Special Income). This is where you explicitly elect the special rate for income that should not be taxed at the normal slab rate. For NRO interest claimed under a DTAA treaty, you enter the income in Schedule SI and select the applicable treaty rate – for example, 15% under Article 11 of the India-US treaty. Without this entry, the portal treats the income as regular other-source income and applies the slab rate, even if your TRC and Form 10F are in order.
The same logic applies to capital gains. If you have long-term capital gains on Indian shares taxable at 12.5%, they go in Schedule CG and are also referenced in Schedule SI to ensure the flat rate applies rather than the slab rate.
Most tax notices that NRIs receive after apparently correct filings trace back to Schedule SI being left empty while Schedule OS was filled.
7. Capital gains: property, shares, and the TDS problem
Selling Indian property:
When an NRI sells immovable property in India, the buyer is responsible for deducting TDS under Section 195 – not the NRI seller. The standard rates are approximately 20% of the gain for long-term (property held over 2 years), plus surcharge and cess, and 30% for short-term, plus surcharge and cess.
The TDS is deducted on the full sale consideration, not the actual gain. For a property purchased at Rs 40 lakh and sold at Rs 80 lakh, the TDS is calculated on Rs 80 lakh at the applicable rate – not on the Rs 40 lakh gain. This can result in substantial excess TDS.
To address this, an NRI seller can apply for a lower TDS certificate under Section 197 from the assessing officer before the sale completes. This certificate directs the buyer to deduct TDS only on the actual capital gain. Apply at least 6-8 weeks before the expected sale date – the process takes time, and the certificate must be in hand before the transaction closes. Once issued, provide it to the buyer; without it, the buyer is obligated to deduct at the full rate and can face liability if they do not.
Selling shares and equity mutual funds:
Long-term capital gains (held over 12 months): 12.5% above the Rs 1.25 lakh annual exemption, under Section 112A. Short-term capital gains (held under 12 months): 20% under Section 111A. [Editor: confirm these rates are current for FY 2025-26 – both were revised in Budget 2024 and should apply.]
Your broker or AMC deducts TDS at source. File ITR-2, report the gains in Schedule CG, and recover any excess TDS as a refund.
8. Form 15CA and 15CB – when you need them
Before your Indian bank transfers money abroad from an NRO account, it needs Form 15CA. For most remittances where the amount exceeds Rs 5 lakh (or in all cases of certain transaction types), a Chartered Accountant must also certify Form 15CB first.
Form 15CB: The CA reviews your source of funds, applicable tax rate, DTAA benefits if claimed, and confirms that taxes have been properly paid or deducted. The CA signs and uploads the certificate.
Form 15CA: Filed by you (or your CA on your behalf) on the income tax portal after obtaining Form 15CB. It declares the nature of the remittance and the taxes applicable. Part C of Form 15CA is used for remittances requiring a CA certificate; Part A/B for smaller or exempt amounts.
The bank will not process the international transfer without these forms. Getting them organised takes one to two weeks even with a CA ready to act. If you are planning a significant NRO remittance, initiate the CA process well before you need the money moved.
Repatriation from NRO accounts is subject to a cumulative limit of USD 1 million per financial year. This limit covers all your NRO accounts across all banks combined. Amounts above this limit require RBI approval through your authorised dealer bank.
NRE and FCNR accounts are freely repatriable with no annual ceiling.
9. Common errors that invite notices
These are the errors seen frequently enough to be worth naming explicitly.
Wrong residential status in the portal. The status determines everything downstream. Selecting Resident when you are an NRI brings Schedules FA, FSI, and TR into scope and may classify foreign income as taxable. Check the personal details page first.
Using ITR-1. Not available to NRIs. A return filed in the wrong form is a defective return under Section 139(9).
Filling Schedule OS without Schedule SI. Income declared in the correct schedule, treaty rate never elected. Result: taxed at slab rate, refund never materialises, notice possible.
Claiming Section 87A rebate. NRIs do not qualify. The portal may allow this entry; it will be disallowed in processing and can trigger a demand.
Form 10F filed after the ITR. The DTAA claim requires Form 10F to precede the return. Filing in the wrong order can result in the bank’s standard TDS rate being treated as correct even if you had the TRC.
PAN-Aadhaar not linked. NRIs without Aadhaar must update their NRI status on the income tax portal to prevent their PAN from becoming inoperative under Section 206AA, which would result in TDS being deducted at 20% regardless of the applicable rate.
AIS/Form 26AS mismatch. Before submitting, cross-check every income figure in your return against your Annual Information Statement and Form 26AS. Any discrepancy – even a rounding difference – can trigger an automated notice under Section 143(1)(a).
E-verification delay. After submitting the ITR, you have 30 days to e-verify it through Aadhaar OTP, net banking EVC, or by sending the signed ITR-V to CPC Bengaluru. Miss the window and the return is treated as never filed.
10. Step-by-step: filing ITR-2 from outside India
- Log in to incometax.gov.in using your PAN as the user ID
- Go to e-File – Income Tax Returns – File Income Tax Return
- Select Assessment Year 2026-27, mode Online, form ITR-2
- In Personal Information: select residential status as Non-Resident. Confirm no Schedules FA/FSI/TR appear after selection
- Under Income Sources:
- Salary (if any Indian salary)
- Schedule HP for rental income from Indian property
- Schedule CG for capital gains – property sale, shares, mutual fund redemptions
- Schedule OS for NRO interest, dividends, and other income
- Under Schedule SI – enter income subject to special rates: DTAA interest rate (e.g. 15% for US/UK), capital gains rates (12.5% LTCG, 20% STCG)
- Enter TDS credits in Schedule TDS – these are pre-filled from Form 26AS if your PAN is linked. Cross-check every figure against Form 26AS and your AIS
- Compute tax, review the summary carefully
- Submit and e-verify within 30 days. Options from outside India: Aadhaar OTP (if Indian mobile linked to Aadhaar is active), EVC via net banking of your Indian bank account, or digital signature certificate
- Download and save the ITR-V (acknowledgement). It will also be sent to your registered email
E-verification is not optional. A filed but unverified return is as if it was never submitted.
Frequently asked questions
My only Indian income is NRE interest. Do I need to file?
No. NRE interest is tax-free in India and does not count as Indian income for NRIs. If it is your only India-sourced income, you have no filing obligation. If you also have NRO interest or rental income, those must be reported.
I am a US citizen and my NRO bank deducted 31% TDS. Can I get it back?
Yes, if you are eligible under the India-US DTAA. The treaty caps interest income tax at 15% (Article 11). Submit your TRC and Form 10F to your bank and claim the excess 16% as a refund in your ITR through Schedule SI. The refund processes to your Indian bank account – pre-validate it in the portal before filing.
My CA in India says I do not need to disclose my US brokerage account in the ITR. Is that right?
For NRIs and RNORs, Schedule FA (foreign assets) is a resident-only schedule. NRIs are not required to report foreign assets in ITR-2 – those schedules do not apply to you. If your CA is referring to ROR residents who have returned to India, that is different. Confirm your residential status for FY 2025-26 and the applicable schedules before filing.
I sold my flat in Chennai. The buyer deducted TDS on the full sale price, not the gain. What now?
File your ITR-2, report the actual capital gain in Schedule CG. The TDS credit for the full amount deducted by the buyer appears in your Schedule TDS. If your actual tax on the gain is lower than the TDS deducted, the difference is refunded to you after ITR processing.
I am an OCI card holder. Are the rules the same for me?
Yes. OCI holders are treated as NRIs for all income tax purposes. The same forms, deadlines, taxable income rules, and DTAA procedures apply. For more on OCI status and what it means financially, see our guide: OCI vs PIO vs NRI
I have both NRO interest and NRE interest. Do I combine them in Schedule OS?
No. NRE interest is exempt and is not reported in Schedule OS. Declare only NRO interest in Schedule OS. NRE interest may be mentioned in the exemption schedule if required by the portal, but it is not taxable income.
Sources and disclaimer
Information is based on the Income Tax Act, 1961 (applicable to AY 2026-27), CBDT instructions on ITR-2 for AY 2026-27, the official income tax portal (incometax.gov.in), NRI Information (nriinformation.com filing guide for AY 2026-27), and applicable India-US, India-UK, and India-UAE DTAA treaty text. Capital gains rates flagged for editor confirmation as these were revised in Budget 2024. This article provides general guidance only and is not professional tax advice. For DTAA claims, capital gains on property, or repatriation compliance, engage a CA with NRI tax experience.
Internal links: NRE vs NRO vs FCNR Account
ITR Filing 2026 – Which Deadline Applies to You
About the author
C. Thiruvenkatam is the founder and editor of Daily Hind News. He covers NRI taxation, banking regulations, and government policy for Indian readers and the global Indian diaspora. Daily Hind News is read by NRIs across the US, UK, Canada, Gulf, Singapore, and Australia. Contact: dailylifearticles@gmail.com
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