Why Do NRIs Receive Income Tax Notices? Top Reasons and How to Handle Them

“Synopsis”

Non-Resident Indians (NRIs) are often surprised when they receive income tax notices from Indian tax authorities—especially if they no longer reside in India. The reasons may range from non-filing of returns, mismatched income, high-value transactions, or simply not updating PAN details. This blog explores the common triggers for income tax notices for NRIs and gives you actionable ways to prevent them or respond calmly and legally if you receive one.

1. Non-Filing of Income Tax Returns

One of the most common reasons NRIs receive notices is failing to file ITRs even when they are legally required to. If you earn rental income, interest income, or capital gains in India, and taxes have been deducted at source (TDS), you must file an ITR—especially if you want a refund.

How to Avoid:

• File your return if your Indian income exceeds the basic exemption limit or if TDS has been deducted.

• Use the correct ITR form for NRIs (typically ITR-2 or ITR-3).

2. Mismatch in Reported Income vs Form 26AS

The Income Tax Department cross-verifies your return with Form 26AS and AIS (Annual Information Statement). If the income declared doesn’t match the details in these forms—due to underreporting, missed entries, or timing differences—a notice may be triggered.

How to Avoid:

• Always reconcile your Form 26AS, AIS, and bank entries before filing.

• Disclose all taxable income, including small interest amounts.

3. High-Value Transactions

If you’ve made large investments, purchased property, or deposited high amounts into bank accounts, these are reported to the tax department. If no return is filed or if the income sources are unclear, expect a query.

How to Avoid:

• Keep documentation for all big-ticket transactions.

• Report the source of funds when required, especially for foreign remittances or property sales.

4. Non-Disclosure of Foreign Income or Assets

NRIs who return to India temporarily or who stay beyond 120 days may become Residents or RORs, which requires them to disclose global income and foreign assets. Not doing so may trigger notices under the Black Money Act.

How to Avoid:

• Determine your residential status correctly.

• If resident, disclose foreign accounts and income in Schedule FA.

5. PAN Not Updated or Aadhaar Not Linked

Not updating your NRI status with banks, mutual funds, or the IT department can lead to improper TDS deductions or system mismatches. Additionally, failing to link Aadhaar and PAN may result in deactivation, causing processing issues.

How to Avoid:

• Update your PAN profile with the correct residential status.

• Link your Aadhaar and PAN before the due date, even as an NRI (unless exempted).

6. Capital Gains on Shares or Property

Many NRIs invest in Indian stocks, mutual funds, and real estate. Capital gains from these are taxable. Failing to report them, or misclassifying long- and short-term gains, often results in scrutiny.

How to Avoid:

• Keep track of all capital gains transactions.

• File returns even if the capital gains are offset by losses—disclosure is key.

7. Not Responding to Previous Notices

Sometimes NRIs receive notices under Section 139(9) (defective return), 143(1)(a) (income mismatch), or 148 (reassessment). Ignoring these notices can escalate the situation.

How to Avoid:

• Always check your registered email and the e-filing portal for notices.

• Respond within the deadline mentioned—usually 15 or 30 days.

8. Incorrect or Missing Bank Details

Many NRIs forget to update their non-resident bank accounts (NRE/NRO) with the Income Tax Department. This may result in refund failures or mistaken assumptions by the tax authorities.

How to Avoid:

• Update IFSC codes and bank account types in your ITR.

• Use NRO accounts for receiving taxable income in India.

9. Incorrect TDS Credit Claims

Claiming TDS credits not reflected in Form 26AS or overstating them can trigger tax notices.

How to Avoid:

• Match your TDS claims with actual TDS deposited as per Form 26AS.

• Avoid manual entries unless verified with a CA or consultant.

10. Income from Multiple Sources

Some NRIs have income from dividends, stock trading, freelance work, and more. Not consolidating all income sources correctly can lead to tax mismatches.

How to Avoid:

• Consolidate all income, even if it is minor.

• Maintain clean financial records, including foreign income if applicable.

What to Do If You Receive a Tax Notice

1. Don’t Panic: Most notices are informational or rectifiable.

2. Understand the Section: For example, Section 143(1)(a) relates to mismatches, while 139(9) refers to a defective return.

3. Check for Clerical Errors: Sometimes small issues (wrong IFSC code, mistyped PAN) cause automated notices.

4. Consult a Tax Expert: Especially for Section 148 or foreign asset notices, professional advice is critical.

5. Respond on Time: Use the Income Tax e-Filing portal to file your response within the deadline.

Conclusion

NRIs must be extra cautious with Indian tax compliance, as even small oversights can trigger automated income tax notices. Understanding your responsibilities—filing timely, reporting all Indian income, and matching Form 26AS—will help you stay out of trouble. Always maintain transparency, and seek expert help when in doubt.