ITR Filing for NRIs: The Mistakes That Trigger a Scrutiny Notice

Assuming you are an NRI with an NRO account, a rental flat in Bengaluru, some listed Indian equity, and a US brokerage that occasionally credits INR dividends into the NRO, your ITR for FY 2025-26 (AY 2026-27) is not a formality. The Annual Information Statement now aggregates a much wider set of Indian financial-transaction feeds than it did a few cycles back, and the categories where NRI returns can pick up a scrutiny notice under Section 143(2) or a defective-return notice under Section 139(9) tend to be a small, recognisable set. A common one is not aggressive planning. It is arithmetic on the residency test.

1. Miscounting days in India

Residential status flows from Section 6 of the Income-tax Act, 1961. The base test is 182 or more days in India during the FY, or 60 or more days in the FY plus 365 or more days in the preceding four FYs. The carve-outs matter more than the base test for most NRIs.

Situation                                          60-day threshold becomes
Indian citizen leaving India for employment        182 days (departure year)
Visiting Indian citizen or PIO, Indian income ≤ ₹15L   182 days
Visiting Indian citizen or PIO, Indian income > ₹15L   120 days

Section 6(1A) is a separate deeming provision: an Indian citizen with Indian-source income above ₹15 lakh who is "not liable to tax in any other country or territory by reason of his domicile or residence or any other criterion of similar nature" is deemed a resident. The wording is "not liable to tax in another country", not "not tax-resident anywhere". Whether a given individual falls into this provision depends on the interaction of Indian citizenship, the ₹15 lakh Indian-income threshold (measured on income other than foreign-source income), and whether the country of residence imposes a personal tax liability under a comparable criterion. Zero foreign withholding on salary is not, by itself, the statutory test.

Two common miscounts: counting only nights in India rather than days of physical presence (the widely-followed operational practice, supported by case law, counts any day on which the individual is physically in India, so both the arrival day and the departure day usually count as days in India), and ignoring the 120-day rule when Indian income crosses ₹15 lakh. The 15-lakh test is on income other than foreign-source income, so NRO rent plus Indian dividends plus capital gains on listed equity can push the threshold without anyone noticing.

The safe habit is to reconcile passport stamps against travel entries reflected in the AIS (where reported) before deciding which residency box to tick.

2. The Section 87A rebate that does not apply

For FY 2025-26 the resident rebate under Section 87A is up to ₹12,500 in the old regime if total income is at or below ₹5 lakh, and up to ₹60,000 in the new regime if total income is at or below ₹12 lakh. The statutory opener reads "An assessee, being an individual resident in India". A non-resident is not eligible for the rebate under either regime.

Filing utilities that default the rebate on because total income sits below the threshold can produce a return that claims a rebate a non-resident is not entitled to. If picked up on processing, the department adds the wrongly-claimed rebate back and issues a demand. The safer habit is to verify the residency flag on the return before signing off.

3. NRO interest that never made it to the ITR

Interest on an NRO savings account or an NRO fixed deposit is taxable in India at applicable slab rates. Bank TDS for a non-resident on NRO interest is generally 30 per cent plus surcharge and cess, unless a lower-rate certificate under Section 197 is in place or a treaty-favourable rate under Section 90 read with the applicable DTAA is claimed with a valid Tax Residency Certificate and, where the TRC is short on prescribed particulars, Form 10F. Form 15CA/15CB is the remittance-reporting mechanism under Section 195(6) and Rule 37BB, not the treaty-rate application.

Two failure modes here. First, an NRI reads a WhatsApp forward that "NRE is tax-free so NRO is too" and skips the NRO interest line. It is not the same account and NRE tax-free status under Section 10(4)(ii) does not extend to NRO. Second, the assumption that "TDS is already deducted, so nothing more to do" ignores the fact that TDS at a flat 30 per cent slab may be higher or lower than the actual liability once slabs and treaty relief are applied. The ITR is where the reconciliation happens, and a refund is only paid on a filed return.

The AIS aggregates interest-payment reporting from banks that report Statement of Financial Transactions. If the interest figure on the ITR is lower than the aggregated AIS figure, the mismatch is one of the standard triggers for a departmental query.

4. Wrong regime, wrong form, wrong opt-out

From AY 2024-25 the new regime under Section 115BAC is the default. FY 2025-26 slabs, verified against the TRACES table published after Finance Act 2025:

Slab                                Rate
₹0 - ₹4,00,000                       Nil
₹4,00,001 - ₹8,00,000                5%
₹8,00,001 - ₹12,00,000               10%
₹12,00,001 - ₹16,00,000              15%
₹16,00,001 - ₹20,00,000              20%
₹20,00,001 - ₹24,00,000              25%
Above ₹24,00,000                     30%

Old regime slabs are unchanged. NRIs do not get the resident senior or super-senior enhanced basic exemption of ₹3 lakh or ₹5 lakh; the ₹2.5 lakh floor applies regardless of age.

Form 10-IEA is where the choice of regime is exercised, but only for filers with business or professional income. A salaried or capital-gains-only NRI chooses old regime inside the ITR itself at filing time. Assuming that Form 10-IEA is the mandatory route for everyone often leads to a missed filing window when the return is finally prepared in October.

5. Missing Form 10F or an expired TRC

To claim treaty benefit under Section 90, a Tax Residency Certificate from the country of residence is mandatory. Form 10F is additionally required only when the TRC does not contain the particulars prescribed under Rule 21AB and CBDT Notification 3/2013: status, nationality, tax identification number, period of residential status, and address. Filing Form 10F is electronic on the Income-tax e-filing portal for the relevant assessment year.

A treaty claim on a return that has neither a valid TRC nor a Form 10F where required is the fastest way to have the treaty rate rejected on assessment and the domestic rate applied on the entire relevant income stream.

For India-US filers specifically, the double-tax relief route runs through Section 90 read with Article 25 of the India-US DTAA, with Foreign Tax Credit mechanics in Rule 128 and Form 67. Section 91 is the non-treaty unilateral route and does not apply to India-US or India-UK or any other country with an active DTAA.

6. Belated vs revised: two different dates

For AY 2026-27, the statutory clock (subject to any CBDT extension):

Non-audit individual return (Section 139(1))      31 July 2026
Audit case (Section 44AB)                          31 October 2026
Transfer pricing (Form 3CEB)                        30 November 2026
Belated return (Section 139(4))                     31 December 2026
Revised return (Section 139(5))                     see note below

The Income-tax Department's e-filing FAQ for AY 2026-27 notes that the revised-return window is proposed to be extended to 31 March 2027 by the Finance Bill 2026. The historical statutory revised-return window under Section 139(5) closes on 31 December of the assessment year, i.e. 31 December 2026 for AY 2026-27. Confirm the enacted position before relying on the extended date; a return filed after the enacted revised-return window closes cannot be revised at all.

A belated return can still be filed after 31 July but attracts a fee under Section 234F and loses the right to carry forward certain losses. A revised return is filed only to correct an already-filed return. The two windows are different. Trying to "revise" a return that was never filed is a common source of a defective-return notice.

7. The single-most-missed capital gain

Listed equity capital gains reported by Indian brokers show up in the AIS via SFT feed. Foreign brokerage gains on assets that were held while resident in India are separate. An NRI who moved abroad mid-FY has a period in which foreign gains were taxable in India, and an ITR that reflects only Indian broker feed and not the resident-period foreign gains is a mismatch. The AIS will not catch the foreign leg directly, but a scrutiny opened for any other reason will pull it in.

Similarly, RSU sale proceeds hitting a US brokerage account are received outside India for the purpose of Section 5. First receipt is what controls Section 5(1)(a) and 5(2)(a); later remittance of that money to an Indian bank does not re-trigger Section 5. This is a defensive point rather than a mistake: a returning resident who has already paid US tax on the sale is not adding an India tax charge just by transferring the money home.

What a clean ITR looks like

The operational picture: passport-stamp reconciliation for the day count is done before form selection. The residential-status flag drives eligibility for the 87A rebate and treatment of foreign-source income. NRO interest is picked up from the AIS and reconciled line-for-line. Treaty claims travel with a TRC, and Form 10F is filed for the AY where the TRC is short on prescribed particulars. Regime choice is exercised in-return for non-business filers and via Form 10-IEA for business filers. Belated and revised deadlines are treated as separate. Foreign-broker gains for the resident period are included even when the AIS is silent on them.

None of this needs a specialist for a straightforward NRI file. What needs a specialist is the year of return, the year of departure, and any year the residency box could go either way. Those are the years where the choice of regime, the treaty position, and the timing of NRE-to-Resident redesignation together decide whether the ITR closes cleanly or opens up as a scrutiny file.

A note on what this is. This article is one returnee's working notes, not personalised advice. Numbers age. Rules change. The only person who can sign off on your specific case is a qualified cross-border chartered accountant looking at your full facts. Use this as a checklist of questions to take to that conversation, not as the answer.

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Sources:

• Income-tax Act, 1961 (India Code bitstream, full text as at the bitstream vintage): https://www.indiacode.nic.in/bitstream/123456789/2435/1/a1961-43.pdf . The bitstream PDF is not always current on the latest amendments to Section 6, Section 6(1A), Section 87A, and Section 115BAC; for the currently-applicable text of those sections, cross-check the Income-tax Department portal and the enacted Finance Act for the relevant year.
• Section 6 (residence in India), Section 6(1A) (deemed resident), Section 87A (rebate for resident individuals), Section 90 (treaty override and FTC), Section 115BAC (new regime), Section 139 (return filing windows), Section 143(2) (scrutiny), Section 234F (late-filing fee): as amended and read together with the Finance Act for the relevant year
• Rule 21AB (particulars for treaty relief) and CBDT Notification 3/2013 (Form 10F prescribed particulars): as notified by the Central Board of Direct Taxes; verify current text via the Income-tax Department portal
• Rule 128 and Form 67 (Foreign Tax Credit): as notified by the Central Board of Direct Taxes and updated by CBDT Notification 100/2022
• Income-tax e-filing portal (Form 10F, ITR filing, TRC upload): https://eportal.incometax.gov.in/
• Income-tax Department portal (rate tables, DTAA library, forms): https://www.incometax.gov.in/iec/foportal/
• India-US DTAA, Article 25 (Relief from double taxation): published by the Income-tax Department in the DTAA section of its portal