Why do NRIs receive such notifications?
India gets financial data from over 100 countries annually through a system known as the Common Reporting Standard (CRS). This system is designed to share information to combat tax evasion.
Through CRS, India can access details such as:
- foreign bank accounts
- interest, dividends, and overseas income
- assets like investments and real estate held abroad
However, issues can arise when an NRI mistakenly files as a resident taxpayer in India. If the tax system identifies someone as a resident but their CRS data shows foreign assets, it creates a mismatch and triggers a notification.
Have you filed an ITR as a resident?
Many NRIs living in the UAE accidentally declare themselves as residents for various reasons, including:
- not updating their PAN to NRI status
- continuing to use an old resident savings account
- Indian accountants may not specialize in NRI taxation
In such cases, the tax system views them as residents, who are required to declare all foreign assets. NRIs, on the other hand, are exempt from these obligations.
Who actually qualifies as an NRI?
According to Indian tax law, you are considered an NRI if you:
- spend fewer than 182 days in India during a financial year, or
- stay less than 60 days in the current year and less than 365 days in the preceding four years.
Importantly, factors like passports or visas don’t determine this status; only the actual number of days physically spent in India counts.
Resident account causes trouble
NRIs can’t use resident savings accounts anymore. The FEMA regulations dictate that these accounts should be converted. If an NRI continues using a resident account, the tax system may mistakenly classify them as a resident, which can lead to notifications.
Do you know Schedule FA and Schedule FSI?
- Schedule FA = Foreign assets (like foreign bank accounts, real estate, stocks)
- Schedule FSI = Foreign Income (such as salaries, interest, and rent earned abroad)
These schedules only apply to resident taxpayers, not NRIs. If a notice requests you to complete these declarations, it will be treated as a resident declaration.
How NRIs can quickly resolve issues
The following steps can help clarify your status:
- Verify your NRI status for 2024-25 by counting your days in India.
- Use the correct ITR form; NRIs generally use ITR-2.
- If you qualify as an NRI, don’t fill out Schedule FA/FSI.
- Update your PAN and bank KYC to reflect your NRI status.
- Convert your resident savings account to an NRO/NRE account.
- Seek advice from a tax expert specializing in NRIs instead of a general accountant.
Are there any penalties?
Yes, if you accidentally declare yourself as a resident and fail to report foreign assets, penalties may apply, including:
- fines of up to 1 million rupees (approximately 41,000 dirhams) per foreign asset under the Black Money Law
- FEMA violations
- tax audits or reassessments
Correcting your status can prevent these issues.
Do NRIs disclose their bank accounts at all?
Not always. The Income Tax Department stated in 2017 that you only need to disclose foreign bank accounts if:
- you do not have an Indian bank account and want to claim an income tax refund, or
- your Indian income (like rent) will be directly transferred to a foreign bank account.
If none of these apply, NRIs aren’t required to report foreign accounts or assets.
Conclusion
If you receive a notice about foreign assets, it generally points to a paperwork issue. More likely than not, your PAN or bank account shows you as a resident. Rectifying your status should resolve the problem.
