ITR filing 2025: Tax shock ahead? NRIs warned of pitfalls amid changes in rules for FY25

ITR Forms for FY25: The Income Tax Department has notified the income tax return (ITR) forms for the financial year 2024-25 (assessment year 2025-26) catering to all sections of taxpayers, marking the start of India’s annual tax filing season. However, while the department has released software utilities for ITR-1 and ITR-4, utilities for ITR-2 and other forms are still awaited, leaving many taxpayers — especially Non-Resident Indians (NRIs) — in limbo.

ITR-2 is the primary form used by NRIs who do not earn income from business or professional activities in India. The delay in releasing the ITR-2 utility has sparked concern, as millions of NRIs and Overseas Citizens of India (OCIs) rely on this form to comply with Indian tax laws.

According to TaxBuddy, a digital tax filing platform, NRIs must tread carefully to avoid unexpected tax bills. Citing a recent case, TaxBuddy explained how Rahul, an NRI, assumed that since his net income after deductions was under Rs 12 lakh, he owed no tax. However, he faced a tax demand of Rs 59,904 due to incorrect assumptions and a lack of clarity about NRI-specific rules.

India is home to over 4.5 crore NRIs and OCIs worldwide, underscoring the scale of potential impact if tax compliance is misunderstood.

Tax filing requirements for NRIs

For FY 2024-25, the due date for NRI tax filings has been extended to 15 September 2025. Late filings can attract interest under Sections 234A, 234B, and 234C, with penalties ranging from Rs 1,000 to Rs 5,000 under Section 234F, depending on the taxpayer’s income.

Determining residency status is crucial for NRIs, as tax liabilities hinge on it. An individual qualifies as an NRI if they spend fewer than 182 days in India during FY 2024-25 and less than 60 days in the financial year, combined with fewer than 365 days over the preceding four years. Even a single extra day in India could shift residency status and change applicable tax rules.

 

Forms that NRIs should use

NRIs must use either ITR-2 or ITR-3. ITR-1 and ITR-4 are not applicable to them. ITR-2 is for individuals without income from business or profession, while ITR-3 is meant for those earning such income.

Documents essential for NRI tax filing include a passport (to verify travel days), NRO/NRE/FCNR bank statements, Form 26AS, the Annual Information Statement (AIS), Taxpayer Information Summary (TIS), Form 10F, and a Tax Residency Certificate (TRC).

Only income earned or accrued in India is taxable for NRIs, while foreign income remains exempt unless received in India. Foreign assets generally don’t require reporting, although interest earned on NRE and FCNR accounts, while exempt, must still be disclosed in the tax return.

Impact of recent tax changes on NRIs

From FY 2024-25, NRIs filing ITR-2 must disclose Indian assets and liabilities only if their gross taxable income exceeds ₹1 crore. Foreign assets remain exempt from disclosure in ITR-2.

Moreover, the new capital gains tax regime effective from 23 July 2024 mandates separate reporting of gains accrued before and after this date. The ITR-2 has been updated to capture both short-term and long-term capital gains accordingly, helping NRIs achieve precise tax calculations.

Enhanced disclosure norms in ITR-1 and ITR-4 now require details such as life insurance policy numbers under Section 80C and PRAN numbers for NPS investments under Section 80CCD, although these forms are not typically used by NRIs.

Double taxation relief, FTC

NRIs seeking relief under Double Taxation Avoidance Agreements (DTAA) must submit Form 10F and a TRC from their foreign tax authority. Form 10F remains valid for one year from filing. Additionally, NRIs must submit Form 67 before filing their ITR if they wish to claim credit for taxes paid abroad on income also taxable in India. Failure to file Form 67 could lead to the denial of the foreign tax credit, even under applicable DTAA provisions.

Experts urge NRIs to start compiling documentation early and verify their residency status to avoid surprises like Rahul’s. As tax compliance becomes more digitized and rigorous, early preparation remains the best safeguard against penalties and unexpected tax demands.