BT Explainer: NRI tax filing - Key rules on global income, Section 44BBD, TDS mismatch

NRI tax filing: Filing income tax returns (ITR) in India becomes more nuanced when an individual transitions from a Non-Resident Indian (NRI) to a Resident and Ordinarily Resident (ROR). This shift is not merely procedural—it fundamentally changes the scope of taxation. Once classified as ROR, an individual is liable to pay tax in India on their global income, including earnings from overseas salary, foreign investments, rental income, and capital gains.

For Assessment Year (AY) 2026–27, the Income Tax Department has introduced targeted updates in ITR forms that are particularly relevant for NRIs and returning residents. While these changes may appear incremental, they carry important compliance and reporting implications.

A common source of confusion is the difference between the assessment year and the tax year. AY 2026–27 relates to income earned during FY 2025–26, with the filing deadline for most individuals set as July 31, 2026. In contrast, Tax Year 2026–27 refers to income earned in FY 2026–27, for which returns will be filed by July 31, 2027. Understanding this distinction is essential to avoid misreporting or missed deadlines.

New reporting requirements

The updated ITR forms now include dedicated disclosure fields for incomes covered under Sections 44B, 44BB, 44BBA, 44BBC, and the newly introduced Section 44BBD. These provisions apply specifically to non-residents engaged in certain businesses in India, such as shipping, oil exploration, aviation, and turnkey power projects.

These sections operate under a presumptive taxation regime, where a fixed percentage of gross receipts is deemed to be taxable income, eliminating the need for detailed profit calculations and extensive bookkeeping.

CA Aditya Sesh, Founder and Managing Director of Basiz Fund Services, highlights the significance of these changes. “The AY 2026–27 ITR changes for NRIs won't dominate the news cycle, but they deserve serious attention from anyone with Indian income or assets. The headline addition is Section 44BBD: a new presumptive taxation scheme covering non-residents who supply services or technology to India's electronics manufacturing sector, with 25% of specified receipts treated as taxable income,” he says.

Section 44BBD

Introduced through the Finance Act, 2025, Section 44BBD is aimed at incentivising foreign participation in India’s electronics manufacturing ecosystem. Under this provision, 25% of specified receipts earned by non-residents from providing services or technology in this sector will be treated as taxable income.

Sesh points out: “The forms now require turnover and income under this scheme to be disclosed separately rather than reported as a consolidated figure. There is also a practical cashflow consideration—Indian payers will typically deduct TDS on the full gross receipt, often at 10–20%, while the NRI’s actual tax liability arises on only 25% of those receipts. That mismatch gets reconciled at the time of filing, but it requires careful documentation and planning.”

Simplification and data alignment

Beyond new disclosures, the ITR forms have also been streamlined. One notable improvement is the rationalisation of reporting under Section 89A, which provides relief for income from foreign retirement accounts.

According to Sesh: “The forms have also been rationalised in how they handle Section 89A. Relevant information has been consolidated from multiple forms into fewer forms to simplify the process and reduce effort. This aligns with similar provisions in international tax systems. For those with retirement investments abroad, this represents a cleaner arrangement.”

Global reporting

The broader direction of these changes signals a shift towards tighter data integrity and cross-border transparency. With increasing information exchange between tax jurisdictions, accuracy in disclosures has become critical.

Sesh underscores this evolving compliance environment: “On the whole, these forms are considerably simpler to navigate and file than before. However, in terms of accuracy of data, given that this information flows across jurisdictions and feeds into cross-country verification frameworks, the data a filer submits must be precise.”

Policy intent

Another notable inclusion is the disclosure of interest from bonds issued in International Financial Services Centres (IFSCs), which comes with concessional tax treatment for NRIs.

Sesh explains the policy rationale: “The IFSC bond interest disclosure is a considered move, designed to encourage INR-denominated bond issuances, reducing India's foreign exchange exposure while extending tax benefits to NRI investors. It reflects a dual objective—strengthening the currency framework while making Indian fixed income more attractive.”

Choosing the right ITR form

NRIs must also ensure correct form selection. ITR-2 applies to those without business income, while ITR-3 is meant for individuals earning income from business or profession, including those under presumptive taxation schemes.

ITR filing AY2026-27

The latest ITR updates do not introduce sweeping tax changes but instead refine reporting requirements and improve structural clarity. However, for NRIs and returning residents, the implications are significant.

As Sesh concludes: “The real shift in these forms is not in tax rates; it is in data integrity. NRIs and returning residents should engage their advisors early and ensure their documentation is in order well before the filing deadline.”