'I’m an NRI, I barely visit India... got I-T notice’: Expert explains why it’s happening now

'I’m an NRI, I barely visit India... How did I get Income Tax notice now'?

This question, posed by a startled Non-Resident Indian (NRI), has become increasingly common. Chartered Accountant Nitin Kaushik recently shared how a client, who rarely visits India, was shocked to receive an income tax notice from Indian authorities.

The client, like many others, assumed that living overseas put him outside the purview of Indian tax laws. “He owned a property in India, had a couple of bank accounts, and conducted a few transactions over the years,” Kaushik explained. “He thought that staying abroad meant staying off the radar — but that’s no longer the case.”

Kaushik warns that the Indian Income Tax Department has ramped up its capabilities, using AI, big data analytics, and global financial reporting tools to monitor financial activity, even beyond borders. “NRIs are being tracked like never before,” he added.

In this case, the client was fortunate. Kaushik’s firm promptly handled the necessary disclosures, cleared dues, and ensured the client was compliant moving forward. But not all NRIs are that lucky — many face steep penalties, reassessments, or even prosecution due to ignorance or oversight.

Here’s what every NRI needs to know to stay out of tax trouble:

Rental income over Rs 2.5 lakh

If you earn rent from Indian property exceeding the basic exemption limit, you must declare it. A tenant’s TDS deduction doesn’t exempt you from filing returns.

Still using a regular savings account in India

NRIs are required to convert domestic accounts to NRO/NRE accounts. Continued use of resident savings accounts is illegal and banks report such misuse.

Sold property in India

Even after TDS on sale proceeds, capital gains must be reported in your return. Simply relying on TDS is not enough.

Made high-value transactions

Large deposits, investments, or foreign remittances are flagged by automated systems.

Crossed the basic income exemption limit

Even passive income like dividends or interest can push you over the ₹2.5 lakh threshold, triggering mandatory filing.

Incorrect DTAA claims

Claiming Double Taxation Avoidance Agreement (DTAA) benefits without proper tax residency proof can lead to the denial of claims and possible scrutiny.

Old transactions

Under Section 148, reassessments can go back six years. Past issues may resurface.

Confused about residential status?

If you've moved recently or have complex travel patterns, misreporting your status can lead to dual taxation or penalties.

Taxpayers should note

Your Indian income tax obligations as an NRI are determined by your residential status for the given financial year, as defined by income tax regulations.

If you are classified as a 'resident,' your worldwide income becomes taxable in India. However, if your status is 'Non-Resident Indian (NRI),' only income earned or accrued within India is subject to Indian taxation.

Examples of income considered earned or accrued in India, and thus taxable for an NRI, include:

> Salary received in India or for services rendered in India.

> Income generated from the house property located in India.

> Capital gains realized from the transfer of assets situated in India.

> Interest income from fixed deposits or savings bank accounts held in India.

> Conversely, any income earned outside of India is exempt from Indian taxation for an NRI.

> Furthermore, it's important to note specific tax treatments for NRI bank accounts:

> Interest accrued on NRE (Non-Resident External) accounts and FCNR (Foreign Currency Non-Resident) accounts is entirely tax-free in India.

> However, interest earned on NRO (Non-Resident Ordinary) accounts is taxable for an NRI.