From capital gains, business income to rent in India — NRIs must know these tax rules before ITR filing

The deadline for filing Income Tax Returns (ITR) for non-audit taxpayers is generally July 31st of the following fiscal year. For the upcoming fiscal year 2024-25 (assessment year 2025-26), the final date for filing an ITR is Thursday, July 31, 2025. It is mandatory for all citizens and entities falling under the income tax jurisdiction of India to file their ITR.

Each year, the Central Board of Direct Taxes (CBDT) releases updated ITR forms and utilities, both online and offline, to accommodate changes in tax guidelines and provisions. This helps to ensure a smooth and hassle-free filing process for individuals and entities.

According to income tax laws, all individuals earning income in India are required to pay taxes based on their applicable tax rate. As for NRIs (non-resident Indians), the question of whether they need to pay income tax is an important one. NRIs are also required to file income tax returns in specific circumstances.

Before knowing the tax rules, how do we ascertain residential status?

As per taxation rules, you are considered an Indian resident for a financial year if you satisfy any of the conditions below:

You are considered a resident for tax purposes in India if you spend 182 days or more in the country during a financial year. Alternatively, if you've stayed 60 days or more in the previous year and 365 days or more in the past four years, you're also classified as a resident.

Indian citizens working abroad, ship crew, or Persons of Indian Origin (PIO) only need to meet the 182-day rule. However, if such individuals earn over ₹15 lakh from Indian sources (excluding foreign income), the 60-day rule becomes a 120-day rule.

If none of these conditions apply, you're treated as a Non-Resident Indian (NRI).

To qualify as a Resident but Not-Ordinary Resident (RNOR), one must have been a non-resident for 9 out of the last 10 years and stayed in India for 729 days or less in the last 7 years.

CA Akshay Jain, Direct Tax Partner, NPV & Associates LLP, clarified: "An individual is considered an NRI under Indian tax laws if they do not satisfy any of the following conditions:
> Stayed in India for 182 days or more during the financial year, or
> Stayed in India for 60 days or more in the financial year and 365 days or more in the past 4 years.
If neither condition is met, the individual is considered an NRI for that financial year. NRIs are taxed only on income earned or received in India. There is no tax on foreign income unless it is received in India."

NRIs and taxes

The following are a few sources of income that are taxable in India for NRIs:

•    Salary received in India or for services rendered in India
•    Income from house property in India
•    Capital gains on Indian assets (like shares, mutual funds, real estate)
•    Income from fixed deposits, savings accounts, or other Indian bank accounts
•    Interest from NRO (Non-Resident Ordinary) accounts 
 
NRIs and tax slabs

In the Old Tax Regime, NRIs below 60 years of age have a basic exemption limit of Rs 2.5 lakh, while senior citizens have a limit of Rs 3 lakh. In the New Tax Regime for the financial year 2024-25, the basic exemption limit is Rs 3 lakh.

ITR Forms

NRIs can use ITR-2 if they are not having income from business/profession in India. NRIs having income from business or profession in India should use ITR-3 for filing the income tax return. 

ITR-2 is specifically designed for a wide range of taxpayers, particularly salaried employees and pensioners. This form will be applicable retrospectively from April 1, 2025, marking the commencement of the current financial year.

Typically, individuals who receive a salary or pension and have investments in equity shares and mutual funds utilize ITR-2 for filing their income tax return. Salaried individuals are required to use ITR-2 if they own more than one house property, possess assets located outside India, or if their total income exceeds Rs 50 lakh.

It is important to note that taxpayers with salary or pension income, earnings from multiple house properties, or capital gains from property or other investments are eligible to file their income tax return using ITR-2. All income generated from capital gains, whether from long-term or short-term investments, should be disclosed in this particular ITR form.

Also, NRIs can use ITR-3. ITR-3 is meant for individuals, whether they are residents or non-residents, as well as Hindu Undivided Families (HUF) with income falling under the category of Profits and Gains of Business or Profession. ITR-3 is for individuals and HUFs, including NRIs, with income from business or profession.

NRIs with income from salary, rent, or capital gains (not business) should use ITR-2.

ITR-1 is not applicable to NRIs, regardless of income type.

Tax filing process

Check Residential Status: As per Section 6 of the Income Tax Act, you're considered a non-resident if you spent less than 182 days in India during the financial year, or less than 60 days with under 365 cumulative days over the past four years (subject to certain exceptions).

Prepare Required Documents: Gather important documents such as PAN, passport, visa or residency proof, NRO/NRE bank account details, Form 26AS, AIS/TIS, TDS certificates, and income proofs (e.g., interest, rent, dividends).

Select the Right ITR Form: Choose the appropriate return form based on your income sources.

Access the e-Filing Portal: Log in at incometax.gov.in using your PAN as the login ID.

Enter Information Accurately: Fill in personal details, income, deductions, and bank account info for any refund.

Submit and Verify: File the return and e-verify it within 30 days to complete the process.

Due Date for filing ITR

•    Normal deadline: July 31, 2025 (for FY 2024–25 / AY 2025–26)
•    With audit (business income): October 31, 2025
•    Belated Return Deadline: December 31, 2025

TDS is deducted at higher rates for NRIs on certain incomes (e.g., capital gains, rent, interest). Therefore, in order to receive the refund of excess TDS deducted, NRIs should file their Income Tax return.