NRI Taxation in India: Myths, Realities & Benefits of Filing Tax Returns

NRI

NRI Taxation in India: Myths, Realities & Benefits of Filing Tax Returns

NRI

No, NRIs Are Not Exempt from Income Tax in India

A widely circulated misconception on social media claims that from April 1, 2025, all Non-Resident Indians (NRIs) will be exempt from paying income tax in India if their Indian income is below ₹12 lakhs. This is completely inaccurate.

The zero-tax benefit for income up to ₹12 lakhs introduced in the Union Budget 2025 is exclusively for Resident Individuals who opt for the New Tax Regime. It is not applicable to NRIs, Hindu Undivided Families (HUFs), or non-resident taxpayers.

What Has Actually Changed?

Under the New Tax Regime, effective from April 1, 2025, resident individuals earning up to ₹12 lakhs annually can avail a rebate of ₹60,000 under Section 87A, effectively reducing their tax liability to zero. However, this rebate is not available to NRIs.

On the contrary, NRIs will now be required to file their Income Tax Return (ITR) in India if their total Indian income exceeds ₹4 lakhs in a financial year starting April 1, 2025. Until FY 2024–25, this threshold was ₹3 lakhs under the new regime.

When Is an NRI Required to File a Tax Return in India?

As per Indian tax laws:

  • NRIs must file a return if their total taxable income in India exceeds ₹4 lakhs from FY 2025–26 onward (₹3 lakhs for FY 2024–25).

  • They are taxed only on income earned or accrued in India, not on their global income.

Common Reasons NRIs Avoid Filing Tax Returns

Despite being liable, many NRIs fail to file returns due to:

  • Misunderstanding the legal requirement.

  • Perception of income being too small.

  • Dependence on Tax Deducted at Source (TDS) as full and final tax.

  • Lack of time or documentation.

  • Belief that TDS eliminates the need for return filing.

Why NRIs Should File Their Tax Returns in India

Even if not mandatorily required, filing a return offers several benefits:

✅ Claim Refund for Excess TDS

Most of an NRI’s income in India — including interest on NRO accounts, dividends, rental income, and capital gains — is subject to TDS at flat rates. Often, the actual tax liability is lower than the TDS deducted. Filing a return is the only way to claim a refund for such excess deduction.

✅ Avoid Future Tax Notices or Litigation

Non-filing may lead to scrutiny assessments, reopening of cases, or notices for source of funds (especially in property transactions). Filing a return prevents avoidable litigation and establishes a clear record with the Income Tax Department.

✅ Helpful for Overseas Tax Reporting

Indian tax returns act as a supporting document while reporting Indian income in the home country. This ensures compliance with global tax laws and transparency.

✅ Claim Foreign Tax Credit (FTC)

Filing a return enables NRIs to claim credit in their home country for taxes paid in India, thus avoiding double taxation.

NRI

✅ Ease of Financial Transactions and Loan Processing

Having a regular tax filing history in India is helpful when applying for loans, buying property, or conducting high-value transactions in India.

Read More: Preparing for a GST Department Audit: Key Steps and Focus Areas

It is important to stay informed and compliant, especially with evolving tax laws. The new rebate of ₹60,000 under Section 87A is a welcome move—but it benefits only Resident Individuals, not NRIs.

Regardless of income thresholds, NRIs are strongly advised to file their Income Tax Return in India to claim refunds, stay compliant, and avoid potential legal complications in the future.

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Preparing for a GST Department Audit: Key Steps and Focus Areas

GST

Preparing for a GST Department Audit: Key Steps and Focus Areas

GST

Receiving a GST audit notice from the department can be an intimidating experience for any business. However, with timely preparation and a systematic approach, it is possible to handle the audit process efficiently and avoid penalties. This guide outlines the essential steps to take upon receiving a GST audit notice, key reconciliation tasks, common audit focus areas, and best practices to ensure compliance.

1. Understand the Audit Notice

The first and most crucial step is to thoroughly review the audit notice. It typically contains vital information such as the scope of the audit, audit period, the legal provision under which it is initiated (usually Section 65 or 66 of the CGST Act), and the details of the audit officer. Businesses should also take note of any deadlines for document submission or meetings.

2. Verify GST Returns and Conduct Reconciliations

Before the audit begins, businesses must ensure that all GST returns—GSTR-1, GSTR-3B, GSTR-9, and GSTR-9C (if applicable)—are filed and reconciled with their financial records. Key reconciliation areas include:

  • Sales and purchase ledgers vs. GST returns

  • Input Tax Credit (ITC) claimed vs. GSTR-2B

  • Output tax liability vs. sales registers

  • E-invoice and E-way bill data vs. GSTR-1 and sales registers

Maintaining an accurate stock register and general ledger is also essential, as discrepancies here are common triggers for scrutiny.

GST

3. Organize Required Documents

Proper documentation is critical during a GST audit. Businesses should organize and keep ready the following:

  • GST registration certificate

  • All filed GST returns (monthly and annual)

  • Tax invoices and e-way bills

  • Purchase and sales registers

  • Input and output tax ledgers

  • Stock and expense registers

  • Trial balance, profit & loss statement, and balance sheet

  • Bank statements

  • All reconciliation workings and justifications for past entries

Digital organization of these files by GSTIN, financial year, and document type can significantly ease the audit process.

4. Key Areas of Focus for GST Auditors

Audit officers often focus on common areas of non-compliance. Businesses should proactively verify:

  • Excess ITC claimed or mismatch with GSTR-2B

  • Non-payment to suppliers within 180 days and reversal of ITC, if applicable

  • Undisclosed or under-reported outward supplies

  • Valuation discrepancies or under-valuation of supplies

  • Reverse Charge Mechanism (RCM) compliance

  • Tax liability on advances and time of supply

  • Transactions with related parties

  • Apportionment of ITC between taxable, exempt, and non-GST supplies

5. Specific Compliance Checks That Attract Penalties

Even in the absence of major discrepancies, auditors frequently verify smaller compliance points that carry direct penalties. Businesses should review:

  • Filing of ITC-04 for goods sent to job workers

  • Declaration of all bank accounts linked to the business in the GST portal (failure to declare can attract a penalty of ₹25,000 per undeclared account)

  • HSN code reporting: Ensure the top five HSNs are updated and match invoices and returns

  • GSTR-1 summaries: Ensure document summaries and HSN tables are correctly filed

  • Updated business addresses: Any change in the principal or additional place of business must be updated within 30 days

  • E-invoice and e-way bill data: Must match GSTR-1; any mismatch can lead to per-invoice penalties

6. Voluntary Correction and DRC-03

If any past errors or shortfalls are discovered during pre-audit checks, businesses can voluntarily pay the differential tax using Form DRC-03. This proactive step is often viewed positively and may help in mitigating penalties or interest.

7. Representation and Legal Awareness

While a business owner may choose to appear before the officer, it is advisable to nominate a knowledgeable person such as the accounts head or GST consultant for representation. All submissions must be in written form and duly acknowledged by the officer.

It also helps to be familiar with the key legal provisions related to audits:

  • Section 65 – Departmental Audit

  • Section 66 – Special Audit by Chartered Accountant or Cost Accountant

  • Section 70 – Power to summon documents or persons

  • Rule 101 – Procedure of audit

GST

8. Importance of Professional Assistance

Engaging a Chartered Accountant or GST expert can prove invaluable. They can conduct a pre-audit review, simulate likely questions, and help in preparing reconciliations and documentation. Their support ensures that the business is well-prepared and compliant, significantly reducing audit risks.

Read More: Claiming Delayed Income Tax Refunds: Relief Through CBDT’s Special Provisions

A GST audit is not just a compliance exercise—it is a test of the accuracy, transparency, and discipline of your tax practices. Being proactive, meticulous, and professionally guided can ensure a smooth audit experience and protect your business from unnecessary financial and legal exposure.

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Claiming Delayed Income Tax Refunds: Relief Through CBDT’s Special Provisions

Income Tax Refunds

Claiming Delayed Income Tax Refunds: Relief Through CBDT's Special Provisions

Income Tax Refunds

Taxpayers often find themselves in situations where they have paid income tax in excess of their actual liability—either through Tax Deducted at Source (TDS), Tax Collected at Source (TCS), or advance tax. In such cases, a refund can be claimed, provided the return of income is filed within the time limits specified under Section 139 of the Income Tax Act, 1961. This applies even when the taxpayer’s total income falls below the basic exemption limit.

But what happens when a refund claim is delayed beyond the permissible time? Fortunately, the Income Tax Act, through Section 119(2)(b), empowers the Central Board of Direct Taxes (CBDT) to condone such delays and allow refund claims under certain conditions.

Understanding Section 119(2)(b): A Relief Mechanism

Section 119(2)(b) enables the CBDT to issue special or general orders to allow income tax authorities to admit delayed applications for exemptions, deductions, refunds, or any other relief—even after the expiry of statutory time limits. This provision is a safeguard for genuine taxpayers who, due to circumstances beyond their control, miss the due dates.

The CBDT has issued various circulars to operationalize this relief, most notably Circular No. 9/2015, which has been amended from 1st June 2023 to revise the monetary thresholds for refund claims.

Income Tax Refunds

Revised Authorities for Delayed Refund Claims (w.e.f. 1st June 2023)

Refund AmountAuthority to Approve Delay
Up to ₹50 lakhsCommissioner/Principal Commissioner of Income Tax (CIT/PCIT)
₹50 lakhs – ₹2 croreChief Commissioner of Income Tax (CCIT)
₹2 crore – ₹3 crorePrincipal Chief Commissioner of Income Tax (PCCIT)
Above ₹3 croreCentral Board of Direct Taxes (CBDT)

Eligibility Conditions for Delayed Refund Claims

As per the CBDT circulars, the following conditions must be met for claiming a delayed refund:

  1. Reason for Refund: The claim must be due to excess TDS, TCS, or advance tax payment.

  2. Time Limitation: The claim is allowed for only the last six assessment years.

  3. No Interest on Refund: Interest under Section 244A will not be granted on delayed refunds allowed under condonation.

  4. Verification and Assessment: The concerned tax officer will verify the genuineness of the claim and may issue an assessment order if required.

  5. Processing Timeline: Once the condonation application is admitted, the process is expected to be completed within six months.

Important: File Return Even If Income is Below Taxable Limit

Many taxpayers mistakenly assume that if their income is below the taxable threshold, they do not need to file a return. However, this can result in losing the opportunity to claim a refund.

Example: Suppose an individual earns only ₹2,00,000 as interest income during the year, and the bank deducts TDS of ₹20,000. Though the income is below the basic exemption limit, the taxpayer must file the return within the due date under Section 139 to claim the refund.

Due Dates for Filing Return of Income (From AY 2022-23 Onwards)

Category of AssesseeDue Date
Companies, persons requiring audit, and partners/spouses under Section 5A31st October
All other assessees31st July

Note: If the due date is extended by CBDT, the extended date is applicable.

Set-Off of Refund Against Outstanding Demand – Section 245

Section 245 allows the Income Tax Department to adjust refunds against existing tax demands. However, the law is clear that:

  • Refunds can be withheld up to 60 days only if assessment or reassessment proceedings are pending, and with prior approval from the CIT/PCIT.

  • Future or anticipated tax liabilities cannot be a reason to withhold a due refund.

  • Any refund amount not adjusted must be issued to the taxpayer promptly.

Read More: New ITR Forms for AY 2025–26: ITR-1 & ITR-4 Now Allow Reporting of LTCG under Section 112A

While timely filing of income tax returns remains critical for claiming refunds, the CBDT’s power under Section 119(2)(b) offers relief in genuine cases of delay. Taxpayers who have inadvertently missed the deadline but are eligible for a refund due to excess TDS, TCS, or advance tax can apply for condonation and still receive their rightful amount—albeit without interest.

If you believe you’re eligible for a delayed refund, consult your tax advisor or approach the appropriate authority as per your refund amount. Being proactive can help recover significant amounts that may otherwise go unclaimed.

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