Why NRIs Get ITR Notices? A Complete Guide

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If you’re an NRI with any financial connection to India, now is the time to act. The Indian Income Tax Department has significantly ramped up its tech infrastructure. With AI-powered tracking systems and real-time data sharing, they’re issuing 300% more tax notices to NRIs than ever before.

In this blog, I’m deconstructing the reasons why NRIs are being placed under the scanner, and what you need to do by March 31st to prevent yourself from landing on the radar.

The New Age of Tax Scrutiny for NRIs

The tax office now relies on instruments such as the Annual Information Statement (AIS) and Tax Information Network to access a 360-degree picture of your Indian financials. That once “they may not catch it” psychology? Forget about it. All discrepancies, lost return, and big-ticket transactions get flagged automatically.

Let us outline precisely why the notices happen.

Top 7 Reasons Why NRIs Get Tax Notices

1. Non-Filing of ITR If your taxability in India is more than ₹2.5 lakhs, ITR must be filed. Even if it’s less, excessive-value transactions such as property buying, large deposits in NRO, or heavy investments can even lead to notices.
2. Income Mismatches If the TDS in Form 26AS is not what appears in your ITR, a notice under Section 143(1) is sure to follow. Even minor mismatches such as overlooked NRO interest are enough to create red flags.
3. Unreported Taxable Income You are taxed on:

• Rental income from Indian properties
• Capital gains from Indian assets
• NRO account interest
• Any income arising in India

Registry offices and banks now automatically report this information to tax authorities.

1. Suspected Tax Evasion Big investments with no reported income? That’s a prompt trigger. Even if money arrived from overseas, you have to demonstrate the source or be scrutinized.
2. Faulty Returns Wrong residence status, defaulted income schedules, or disallowed deductions taken (such as usual deduction for salary income by NRIs) may trigger Section 139(9) notices.
3. Large Value Transactions Without ITR The tax department is monitoring:

• Property transactions above ₹30 lakhs
• Investments exceeding specified limits
• Remittances above ₹7 lakhs
• Significant NRO/NRE deposits

Failing to file ITR along with these transactions? That’s a red flag.

1. DTAA Compliance Issues To avail DTAA benefits (reduced tax on NRO interest, etc.), you require:

• Form 10F
• Tax Residency Certificate (TRC)
• Beneficial ownership declaration
• Missing documents = refused benefits + notices.

Action Plan You Can Take

Following is what you have to do immediately:

1. File Your ITR Immediately Though your income is exempt, file a nil return if you had high-value transactions. It demonstrates transparency and keeps you away from radar.
2. Reconcile Income & TDS Download your Form 26AS and AIS from the tax portal. Cross-check all the entries, in particular:

• NRO interest
• Rent received
• Any foreign Indian income

1. Document for Fund Transfers Have ready:

• Salary slips/bank statements from overseas
• Tax paid overseas proof
• FIRC certificates

These indicate your income is real foreign income.

1. Report Exempt Income Clearly Report:

• NRE interest
• FCNR interest
• Foreign income

Use the ‘Exempt Income’ schedule in ITR to make it clear.

1. Online File DTAA Docs Ensure to electronically submit:

• TRC
• Form 10F
• Beneficial ownership declaration

This is required to claim DTAA benefits.

1. Declare High-Value Transactions Be proactive. Announce all significant investments or purchases with source of funds. It creates a clean record of finances.
2. Consult an NRI Tax Specialist Don’t play games. A professional will ensure that you rectify problems before they become notices. By the time a notice arrives, it’s already too late.

Conclusion

The Indian tax system is no longer passive – it’s proactive, automated, and AI-driven. For NRIs, the best way to stay clear of unwanted scrutiny is total transparency and timely action. File returns, match your data, disclose income, and submit documentation.

You’re not just filing taxes. You’re protecting your global financial standing.

FAQs’

1. Is filing ITR mandatory for NRIs?

Ans- Yes, if your Indian income exceeds ₹2.5 lakhs or you’ve done high-value transactions.

2. What is Form 26AS and why is it important?

Ans- It tracks TDS and financial transactions. Mismatches with ITR lead to notices.

3. What qualifies as high-value transactions?

Ans- Property deals, mutual fund investments, or deposits over ₹10 lakhs.

4. Can I ignore income where tax was already deducted?

Ans- No. You must still report it, even if TDS is done.

5. What happens if I claim DTAA but don’t submit TRC?

Ans- Your claim can be rejected, and you’ll receive a notice.

6. What is Form 10F?

Ans- A declaration for DTAA that confirms you don’t have a permanent establishment in India.

7. Are NRE and FCNR interest taxable?

Ans- No, but still report them as exempt income.

8. What’s the deadline for compliance?

Ans- March 31st of every financial year is critical for all tax actions.

9. Is rental income from Indian property taxable for NRIs?

Ans- Yes, and it must be reported even if rent is collected abroad.

10. Should I hire a tax consultant?

Ans- Yes, especially one who specializes in NRI tax matters. It can save you from penalties and legal issues.

Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.