Top tax traps NRIs fall into and 8 legal ways to save big on Indian taxes
Nov 10, 2025
Many NRIs face tax troubles due to mistakes in identifying their residential status, paying tax twice on the same income, or being charged high TDS on earnings from India. Knowing the key rules under the Income Tax Act and FEMA helps avoid these issues. It ensures proper tax filing, lowers unnecessary tax outgo, and keeps you fully compliant with Indian regulations.
Misclassifying your residential status can make global income taxable in India
In India, your tax status is based on the days you spend here, not your citizenship. A small calculation error can turn an NRI into a “resident” or “RNOR,” making global income taxable in India. That’s why it’s important to track the days spent in India each year. Careful planning of visits can help avoid unwanted tax surprises.
Earning abroad and in India? Here’s how to avoid double taxation
If NRIs don’t follow DTAA rules, they could end up paying tax twice — in India and in their country of residence. The Double Taxation Avoidance Agreement helps prevent this overlap. To claim credit for taxes paid abroad, NRIs must file Form 10F, a Tax Residency Certificate (TRC), and Form 67. Following these steps ensures fair taxation and smooth compliance.
Why NRIs face higher TDS and how to reduce it legally
TDS on NRI income can go up to 30 percent on rent and 20–30 percent on capital gains, which often exceeds the actual tax due. To avoid this, NRIs can apply for a lower or nil TDS certificate under Form 13, Section 197. This helps match the deduction to the real liability. It also prevents overpayment and long waits for refunds.
Still using your resident savings account? You could be breaking FEMA rules
Once you move abroad, you must convert your Indian savings account into an NRE or NRO account. The NRE account is for foreign earnings, while the NRO account handles income earned in India. Continuing with a normal savings account breaks FEMA rules and can lead to penalties. Interest on NRE deposits is completely tax-free in India.
Even if your income is small, you may still need to file returns in India
If your total income in India crosses 2.5 lakh rupees or you earn capital gains, you must file an Income Tax Return. Filing is important even if TDS has already been deducted, as it helps claim refunds and stay compliant. Missing the due date can attract fines and interest. Timely filing keeps your financial record clean and hassle-free.
NRIs! Don’t report foreign assets in your ITR, here’s why it’s risky
Only Indian residents are required to report their foreign assets under Schedule FA in the tax return. If an NRI fills this section by mistake, it may indicate the wrong residential status and trigger scrutiny from the tax department. Always choose the correct ITR form, usually ITR-2 for NRIs. Double-check all details before submitting to avoid errors and notices.
Stay compliant, save more: The NRI tax checklist that actually works
⦁Track residency days accurately
⦁Use NRE/NRO accounts correctly
⦁Claim DTAA benefits with TRC and Form 67
⦁Apply for lower TDS certificate
⦁File ITRs on time
⦁Keep all tax documents organized
⦁Consult a CA specializing in NRI taxation to optimize tax planning and stay compliant.
[The Economic Times]
