5 NRI Tax Mistakes That Cost Lakhs — What Every Indian Expat Must Know Before Filing

Why NRI Tax Filing Demands Special Attention in 2025
NRI investment in Indian real estate and equities has surged significantly in recent years. With India being the world’s largest recipient of remittances and NRI deposits in Indian banks exceeding ₹17 lakh crore, the income tax implications for Indian expats have never been more significant. Yet the complexity of NRI-specific provisions — including DTAA benefits, TDS on property sales, NRE vs NRO account treatment, and capital gains exemptions — means that errors are extremely common, and extremely expensive.
“We regularly meet NRI clients who have been paying 30% TDS year after year without realising they could have legally reduced it to 10–15% through DTAA. Others have sold property and paid full capital gains tax when they were entitled to significant exemptions under Sections 54 and 54EC. These are not small amounts — in many cases, the savings run into lakhs per year.”
— CA Bipin Kumar Jha, Partner, B M C & Associates
MISTAKE 1:  Not Claiming DTAA Benefits and Paying Double Tax
❌  The Problem:  India has signed Double Taxation Avoidance Agreements (DTAA) with 95+ countries including the USA, UK, UAE, Canada, Australia, Singapore, and Germany. Under DTAA, NRIs are legally entitled to either pay tax in only one country or claim credit for taxes paid in India against their foreign tax liability. Yet a large number of NRIs either do not know about DTAA or fail to submit the required documents to their Indian income sources — and end up paying tax twice on the same income.
💸  Cost Impact:  On NRO interest income of ₹5 lakh, default TDS is 30% = ₹1.5 lakh. With UAE DTAA, the applicable rate reduces to 12.5% = ₹62,500. Annual overpayment: ₹87,500 per year, per year, every year.
✅  BMC’s Fix — How to Claim DTAA Benefits:
•    Obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence
•    Submit Form 10F to every Indian income source (bank, tenant, broker) before the start of each financial year
•    Ensure your PAN is linked and valid to facilitate reduced TDS deduction
•    File Form 67 BEFORE submitting your ITR (not after) to claim Foreign Tax Credit — this sequence is mandatory
•    For NRO account interest, explicitly cite the DTAA article and applicable rate when submitting Form 10F

“The most expensive inaction we see is NRIs who know about DTAA but keep saying they’ll deal with it next year. Each year of delay is a permanent loss. DTAA is not a loophole — it is your legal right as a treaty-country resident.”
— CA Saroj Jha, Partner, B M C & Associates
MISTAKE 2:  Missing Capital Gains Exemptions on Property Sales
❌  The Problem:  When an NRI sells Indian property, the buyer is required to deduct TDS at 20% (for long-term gains) on the entire sale consideration — not just the gain. This often results in massive TDS deductions running into tens of lakhs. Many NRIs accept this as final and do not file a return to claim the excess back, nor do they invest to claim statutory exemptions that could eliminate the tax entirely.
💸  Cost Impact:  On a property sold for ₹1.5 crore with a gain of ₹60 lakh, TDS deducted = ₹30 lakh (20% of sale value). Actual tax liability after Section 54 exemption (reinvestment in another property) = ₹0. Avoidable overpayment: ₹30 lakh.
✅  BMC’s Fix — Key Capital Gains Exemptions for NRIs:
•    Section 54: Invest long-term capital gains from property sale into another residential property within 2 years (or construct within 3 years) to claim full exemption
•    Section 54EC: Invest up to ₹50 lakh in specified bonds (NHAI, REC) within 6 months of sale to claim exemption — available to NRIs
•    Section 54F: If you sell any asset other than a house property, invest the entire sale proceeds (not just gain) in a residential property to claim exemption
•    Apply for a Lower TDS Certificate (Form 13) from the Income Tax Department before the sale transaction — this prevents excess TDS from being deducted at source
•    Always file ITR after property sale even if TDS covers the full liability — to claim refund of excess TDS deducted

MISTAKE 3:  Choosing the Wrong ITR Form
❌  The Problem:  NRIs are required to file ITR-2 (for rental income, capital gains, or salary) or ITR-3 (for business/professional income). However, a very common error is filing ITR-1 (Sahaj) — which is designed for resident individuals and is not applicable to NRIs in any circumstances. This leads to defective return notices, rejection, and potential penalties. Similarly, some NRIs with business income in India incorrectly file ITR-2 when ITR-3 is mandatory.
💸  Cost Impact:  Defective return notices, mandatory rectification filings, and late fees under Section 234F (₹5,000 for income above ₹5 lakh). In severe cases, best judgement assessment by the tax department.
✅  BMC’s Fix — Correct ITR Form Selection:
•    ITR-2: For NRIs with salary income, rental income, capital gains from property or securities, or foreign income — this covers the majority of NRI situations
•    ITR-3: For NRIs who have business or professional income from India (consultancy fees, trading profits, etc.)
•    ITR-1 and ITR-4 are not applicable to NRIs — never use these forms
•    For FY 2025–26, NRIs must also disclose interest earned in all Indian accounts exceeding ₹50,000 in the ITR-2 schedule — a new reporting requirement
•    Always cross-check your Form 26AS and AIS (Annual Information Statement) before filing to ensure all income sources are captured

MISTAKE 4:  Misunderstanding NRE vs NRO vs FCNR Account Tax Treatment
❌  The Problem:  Many NRIs are unclear about how income from their different Indian bank accounts is taxed — and this confusion leads to either under-reporting (attracting penalties) or over-reporting (paying unnecessary tax). The rules are actually straightforward but widely misunderstood: NRE and FCNR accounts have specific tax-free provisions while NRO accounts are fully taxable.
💸  Cost Impact:  NRIs unnecessarily paying 30% tax on NRE interest (which is tax-free) or failing to report NRO interest (which is taxable) both create problems. Penalties for under-reporting can be 200% of the tax evaded.
✅  BMC’s Fix — Account-wise Tax Rules:
•    NRE (Non-Resident External) Account: Interest is completely tax-free in India under Section 10(4)(ii). However, it must still be reported in your ITR under the exempt income schedule
•    FCNR (Foreign Currency Non-Resident) Account: Interest is tax-free and freely repatriable under Section 10(15)(iv)(fa). Reporting is still required
•    NRO (Non-Resident Ordinary) Account: Interest is fully taxable in India at slab rates with TDS at 30%. This is where DTAA benefits can reduce TDS to 10–15%
•    Strategy: NRIs who do not need immediate access to Indian funds should consider moving money from NRO FDs to NRE FDs to eliminate the tax burden legally
•    All foreign bank account balances above ₹1 crore must be disclosed in Schedule FA of the ITR

MISTAKE 5:  Not Filing ITR Because ‘TDS Was Already Deducted’
❌  The Problem:  A widespread misconception among NRIs is that once TDS has been deducted on their Indian income, no further action is required. This belief leads to two serious problems: first, NRIs miss out on refunds for excess TDS deducted (TDS on NRO interest is 30% but actual slab liability may be lower); second, non-filing when obligated attracts penalties and can trigger scrutiny notices from the Income Tax Department.
💸  Cost Impact:  TDS on NRO account at 30% for income of ₹3 lakh = ₹90,000 deducted. Actual tax at slab = ₹25,000. Refund unclaimed: ₹65,000 — permanently lost if ITR not filed within the deadline. Late filing penalty under Section 234F: up to ₹5,000.
✅  BMC’s Fix — When NRIs MUST File ITR:
•    File ITR if total Indian income exceeds ₹2.5 lakh (Old Regime) or ₹4 lakh (New Regime for FY 2025–26)
•    File ITR even if income is below the threshold if TDS has been deducted and you want a refund
•    File ITR if you have sold property or shares in India, regardless of whether TDS was deducted
•    File ITR if you want to carry forward capital losses to offset against future gains (filing on time is mandatory for this)
•    File ITR if you have foreign assets or income that needs to be declared in Schedule FA
•    Deadline for FY 2025–26: 31st July 2026 (subject to extension). Missing this triggers Section 234F penalties plus interest under Section 234A

“We have seen NRIs lose refunds of ₹50,000 to ₹2 lakh simply because they did not file their ITR assuming TDS was the final word. It is not. TDS is an advance tax mechanism — the ITR is where your actual liability is calculated, and where refunds are triggered.”
— CA Manish Mishra, Partner, B M C & Associates
Quick Reference: NRI Income Tax Rates at a Glance (FY 2025–26)

Income Type    Account/Source    Tax Rate for NRI    TDS Rate    DTAA Relief?
Salary (India work)    Indian employer    As per slab    As per slab    ✔ Yes
Rent (Indian property)    Tenant    As per slab    30%    ✔ Yes
Interest — NRO FD    NRO Account    As per slab    30%    ✔ Yes
Interest — NRE FD    NRE Account    Tax FREE    —    N/A
Interest — FCNR    FCNR Account    Tax FREE    —    N/A
STCG — Equity/MF    Demat    15%    15%    ✔ Yes
LTCG — Equity/MF    Demat    12.5% (above ₹1.25L)    10%    ✔ Yes
LTCG — Property    Sale deed    20%    20%+surcharge    ✔ Yes
Dividend    Shares/MF    As per slab    20%    ✔ Yes

NRI Tax Compliance Calendar — Key Dates for FY 2025–26
1.    April 1 — Start of FY: Submit Form 10F to all income sources (banks, tenants, brokers) to activate DTAA benefits for the year
2.    June 15 — Advance Tax: First instalment (15% of estimated tax liability) if total liability exceeds ₹10,000
3.    September 15: Second advance tax instalment (45% cumulative)
4.    December 15: Third advance tax instalment (75% cumulative)
5.    March 15: Final advance tax instalment (100%)
6.    31st July 2026 — ITR Deadline: Filing deadline for FY 2025–26 ITR (AY 2026–27). File before this date to avoid ₹5,000 late fee and interest penalties
How B M C & Associates Helps NRIs Navigate Indian Taxes
B M C & Associates’ dedicated NRI taxation practice covers the full spectrum of compliance and advisory services for Indian expats across the USA, UK, UAE, Canada, Australia, Singapore, and other countries:
•    DTAA analysis and documentation — country-specific strategy for minimising Indian tax liability
•    NRI ITR filing (ITR-2 and ITR-3) from anywhere in the world
•    Lower TDS certificate applications (Form 13) for property transactions
•    Capital gains tax planning and exemption structuring under Sections 54, 54EC, and 54F
•    NRE/NRO/FCNR account restructuring advice for optimal tax efficiency
•    Form 15CA and 15CB certification for repatriation of funds from India
•    FEMA compliance for NRI investments, property purchase, and gift transactions
•    Handling income tax notices and scrutiny assessments for NRI clients
•    Foreign tax credit computation and Form 67 filing

“NRI clients often come to us after receiving a notice or after discovering they have been overpaying for years. Both situations are avoidable with the right advice upfront. Our philosophy is simple: every rupee of tax you legally avoid is a rupee you keep. And for NRIs with property, FDs, or equity portfolios in India, proper planning consistently saves ₹50,000 to ₹2,00,000 or more per year.”
— CA Bipin Kumar Jha, Partner, B M C & Associates

About B M C & Associates
B M C & Associates is a full-service Chartered Accountant firm headquartered in Gurugram, serving NRI clients across India and internationally with 14+ years of experience. The firm’s NRI practice covers income tax, DTAA advisory, FEMA compliance, property transaction guidance, and repatriation planning. Led by CA Bipin Kumar Jha, CA Manish Mishra, and CA Saroj Jha, the firm has a 90%+ client retention rate and offices serving Delhi, Noida, Dwarka, Uttam Nagar, and online clients globally via secure digital platforms.

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B M C & Associates
Email: info@bmcassociates.in
Phone: +91-991-084-9998  |  +91-974-887-3205
Website: www.bmcassociates.in
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