NRI Income Tax Return Filing in India: Rent, Capital Gains & NRO Interest

Who Qualifies as an NRI (Residential Status for FY 2024–25)

The Indian tax system defines residents as people who stay in the country for 182 days annually or maintain a 365-day total presence over four years. The Non-Resident Indian (NRI) status applies to individuals who do not fulfill these requirements.

The 60-day residency threshold for Indian citizens and Persons of Indian Origin (PIOs) changes to 182 days. People with Indian income above ₹15 lakh must pay taxes according to special provisions which set the 60-day residency requirement to 120 days. Special provisions of the law grant resident status to Indian citizens who earn more than ₹15 lakh from India and have no tax obligations abroad.

When and Why NRIs Must File ITR

The tax authorities require NRI citizens to file an Income Tax Return (ITR) when their Indian-sourced taxable income reaches more than ₹2.5 lakh during a financial year. Several reasons exist for NRIs to file their income tax returns even when it is not mandatory.

• Bank and buyer TDS on NRO interest and rent and capital gains exceeds actual tax obligations. ITR submission enables taxpayers to request their tax refunds.

The official declaration of NRI status prevents both present and future scrutiny or notice from authorities.

The process of loss carry-forward requires filing ITR before the deadline.

• Proof of Income: Useful for repatriation, loans, or visa applications.

Taxation laws regarding Indian-source earnings apply to NRI status holders.

• NRO Interest: Fully taxable at 30% (plus surcharge and cess).

The interest earned on NRE/FCNR accounts remains completely exempt from taxation by the Indian government.

The taxation system for Rental Income follows ‘Income from House Property’ rules after allowing municipal tax deductions and a standard 30% deduction. Under the tax laws of India all tenants must withhold TDS at the rate of 31.2% when paying rent to an NRI.

Capital Gains:

• Property: Long-term gains (>24 months) taxed at 20% with indexation. From July 2024, LTCG may be taxed at 12.5% without indexation. Short-term gains taxed as per applicable slab.
• The tax rate for STCG (≤12 months) is 15% and LTCG (＞12 months) is taxed at 10% above ₹1 lakh.
• Other Assets: Long-term gains taxed at 20% with indexation (varies by asset). STCG taxed at slab rates.

The tax rate for dividends stands at 20%.

The taxation rate for royalties together with technical fees and lottery winnings falls between 20 and 30%.

TDS and Claiming Refunds

Indian tax authorities subject NRIs to higher TDS rates which apply to NRO interest at 30% and rent at 31.2% and property capital gains at 20% and dividends at 20%.

To recover excess TDS:

• File ITR (usually ITR-2)

The necessary documents for tax filing include Form 16A (TDS certificates), rent agreements and bank statements.

Verify that all income details from Form 26AS and AIS match correctly.

Refunds undergo verification before being sent directly to the pre-validated bank account specified in the ITR.

DTAA – Avoiding Double Taxation

The Double Taxation Avoidance Agreements (DTAA) between India and numerous countries enable NRIs to prevent double taxation on their income.

To claim DTAA relief:

• Obtain a Tax Residency Certificate (TRC) from your country of residence

The tax authority requires the filing of Form 10F in certain situations.

In the ITR you must disclose the treaty rate.

The foreign tax credits for foreign-paid taxes require filing Form 67 before your tax return submission.

Steps to File ITR for NRIs

1. Gather Documents: PAN, passport, bank statements, Form 16A, property papers, and investment details.

Visit the Income Tax Portal website by creating an account or using existing login credentials at www.incometax.gov.in.

3. Select AY and ITR Form: The assessment year 2025–26 corresponds to the financial year 2024–25. The ITR-2 form should be used for filing unless you generate business income during the year.

4. Enter Income Details:

• House Property: You should report your gross rent but you must deduct municipal taxes and the standard 30%.
• Capital Gains: Report sale value, cost, holding period. System computes tax based on type and duration.
• Other Sources: NRO interest, dividends, and any other income.
• Foreign Income: Only applicable if you’re resident or RNOR; otherwise, it’s not reported.

5. Claim Deductions: NRIs can claim Section 80C (LIC, ELSS), 80D (health insurance), and exemptions on reinvested capital gains (e.g. Section 54 or 54EC).

6. Compute Tax and Check TDS: Use Form 26AS to verify TDS. Pay any shortfall via Challan 280.

7. Submit and Verify: Submit the return and e-verify it (using Aadhaar OTP, net banking, etc.)

Example

An NRI earns ₹8 lakh from rent, ₹2 lakh NRO interest, and ₹15 lakh LTCG from property sale.

• Rent: Taxable ₹5.6L (after 30% deduction), tax ≈ ₹24,500; TDS = ₹2.49L
• NRO Interest: Tax = ₹60,000; TDS = ₹60,000
• LTCG: Tax = ₹3L; TDS = ₹15L (assuming full sale value TDS)
• Total tax ≈ ₹3.99L; TDS = ₹18.09L
• Refund = ₹14.1L

This refund can only be claimed by filing ITR.

Common Mistakes to Avoid

1. Wrong Residential Status: Misapplying 60/120/182-day rules leads to wrong ITR forms.

2. Missing Form 67: Required to claim foreign tax credit.

3. Ignoring AIS/26AS: Leads to mismatches and possible scrutiny.

4. Incorrect ITR Form: NRIs with income from rent, interest or capital gains should use ITR-2.

5. Late Filing: Attracts penalties and interest; also causes delay in refunds.

Deadlines and Penalties

For FY 2024–25 (AY 2025–26), the due date is 15 September 2025. Filing after that may attract:

• Interest (1% per month on unpaid tax)
• Late fee up to ₹1,000 (if filed by Dec 31) or ₹5,000 (if filed after Dec 31)
• Disqualification from claiming some deductions or loss carry-forwards

Bottom Line: File your return by Sept 15 and pay any taxes early to avoid penalties and interest.

******

Need Expert Help?

NRI tax matters can be complex. A Chartered Accountant can help you determine your residential status, choose the right ITR form, compute capital gains, claim exemptions, and file Form 67 or TRC for DTAA benefits. Timely, accurate filing ensures maximum refunds and peace of mind. Don’t leave your hard-earned money stuck due to incorrect filings—consult a tax expert today!
Contact Us: +91 8171582583 — We will file your ITR for you!