10 Common ITR Filing Mistakes NRIs & Indian Residents Must Avoid (AY 2025-26)

For NRIs and Indian residents, the usual due date for filing an Income Tax Return for the financial year 2024–2025 (AY 2025–2026) is 31 July 2025 unless extended by the Income Tax Department.

Filing income tax returns is generally required if your total income exceeds the basic exemption limit, ₹2.5 lakh under the old tax regime and ₹3 lakh under the new tax regime, though filing may still be mandatory in certain situations even below these limits.

Delaying the filing of an ITR can result in penalties, and mistakes while filing may lead to delays, notices, or additional tax liabilities.

In this blog, we discuss 10 common mistakes made by NRIs and Indian residents while filing their ITR and how to avoid them.

Mistakes NRIs Make While Filing ITR

Below are the top 5 mistakes NRIs make while filing an ITR.

1. Declaring Wrong Residential Status

Although this is the starting point, it is also where many NRIs go wrong. Residential status under the Income Tax Act determines whether your global income is taxable in India. It is not based on where you live alone, but primarily on the number of days spent in India during a financial year.

Common Misconceptions:

• I have an NRI account, so I must be an NRI.
• I work abroad, so Indian tax laws do not apply to me.
• I visited India for less than six months, so I am safe.

However, this is not exactly how it works. Residential status is generally determined by physical presence:

• 182 days or more in India in a financial year, or
• 60 days or more in that year and 365 days or more in the preceding four years
  (with certain relaxations for Indian citizens or Persons of Indian Origin visiting India).

Also, individuals may fall into the RNOR (Resident but Not Ordinarily Resident) category, which has different tax implications. A miscalculation of even a single day can change your residential status.

How to Avoid This Mistake:

• Track your stay in India carefully using passport stamps or travel logs.
• Consult an NRI tax advisor or CA if unsure.
• Do not confuse FEMA residential status with Income Tax Act residential status, as both serve different purposes.

2. Filing the Wrong ITR Form

One of the most common mistakes NRIs make is choosing the wrong ITR form. Many select ITR-1 (Sahaj), but this form is meant only for resident individuals with limited income sources.

If you file the wrong form, your return may become defective or invalid, and you may receive a notice from the Income Tax Department.

How to Avoid:

• Read eligibility criteria carefully before choosing the ITR form.
• Seek professional advice if unsure.

Common applicability:

• ITR 2: If you are an NRI whose income is from sources like one house or property, salary, capital gains, and other sources (except income from business), you must choose ITR-2.
• ITR 3: This form is for NRIs whose income in India is from business or profession.

3. Claiming Foreign Tax Credit Without Filing Form 67

India has Double Taxation Avoidance Agreements (DTAA) with many countries to reduce double taxation. These agreements typically provide tax credit or relief rather than complete exemption in all cases.

NRIs usually need to file Form 67 before filing their income tax return to claim Foreign Tax Credit (FTC). However, there have been cases where delayed filing was accepted based on judicial rulings, so professional guidance is advisable.

Common Errors:

• Filing Form 67 after submitting the ITR, which may lead to rejection of FTC.
• Missing details such as foreign income breakup, taxes paid abroad, or supporting documents.

How to Avoid:

• Ideally file Form 67 before ITR submission.
• Keep documentation ready for foreign income and taxes paid.
• Seek expert help if needed.

4. Misreporting or Skipping Foreign Income

NRIs sometimes assume foreign income never needs reporting in India. Generally, foreign income earned and received outside India by a non-resident is not taxable in India, but reporting requirements vary based on residential status and nature of income.

Clarification:

• RNORs or residents may need to disclose foreign income.
• Income received in India or linked to India may have tax implications.
• When unsure, professional advice is recommended.

5. Ignoring Income From India

NRIs are taxable in India on income earned or received in India.

This includes:

• Interest from NRO accounts
• Rental income from Indian property
• Capital gains from Indian shares, property, or mutual funds
• Dividends from Indian companies
• Any other India-sourced income

Interest earned on an FCNR or NRE account is exempt from tax in India, but for an NRO account, you must report it.

Mistakes Indian Residents Make While Filing ITRs

Below are five common mistakes Indian Residents make while filing ITR

1. Choosing the Wrong Assessment Year

Whenever an individual files the ITR, they may incorrectly select the wrong assessment year, resulting in double taxation and unnecessary penalties.

How to Avoid: Whenever you choose an assessment year, ensure it is correct. For example, for the financial year 2025-2026, the accurate assessment year is 2026-2027.

2. Form 16 for Two or More Employers

It usually happens when a taxpayer changes jobs; they often end up with different Form 16s from each employer while filing their income tax return. When an individual files their income tax return with multiple Form 16s, it can be tricky, and one may not know how to do it correctly. And these are the cases where taxpayers have to aggregate their income from both employers under their income from salary.

How to Avoid: If an individual is unsure about how to file their income tax return with multiple Form 16s correctly, they should seek professional assistance from an expert.

3. Missing Available Deductions

There are certain deductions available to individuals filing tax returns, including expenses, donations, and certain types of income. Such deductions help the taxpayer lessen the burden of their tax liability by reducing their total tax liability. People often miss such deductions because of a lack of proper knowledge and guidance.

How to Avoid: Figuring out how much can be claimed from a particular source is tedious, and hence, one needs the guidance of an expert to determine all the possible deductions the taxpayer can claim.

4. Ignoring Communications and Legal Notices

Taxpayers often ignore legal notices and communications from he income tax department, which leads to heavy penalties and legal action taken against the concerned person.

How to Avoid: Respond to every communication or legal action promptly and take all necessary corrections if there are any additional taxes to be paid or discrepancies.

5. Not Disclosing Liability Details and Foreign Assets

According to the Income Tax Act of 1961, primarily resident Indians and ordinarily resident Indians are required to report their foreign assets, accounts, income, and shares in Schedule FA of the ITR in a specified format. The taxpayer believes that if the income is not taxable in India, then they should not have to report it; however, this is where the mistake is made.

How to Avoid: Regardless of whether the income is taxable in India, the taxpayer must report their foreign income, accounts, shares, assets, and other relevant details to the relevant authorities. In the ITR, there is a schedule for Foreign Assets (FA), which requires the taxpayer to enter all details of foreign shares, mutual funds, employee stock options (ESOPs) of foreign companies, and other relevant information.

File your ITR with Savetaxs and Maximize Your Refunds

ITR filing for NRIs in India can feel overwhelming because the Indian tax law might feel like a maze, which is tough to escape, and this is why, due to a lack of knowledge and guidance, taxpayers are prone to make mistakes while filing ITR, which results in penalties and notices, but not anymore. Experts at Savetaxs are here to rescue from the ocean of penalties, mistakes, and stressful ITR filing sessions.

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