Most Common Income Tax Notices for NRIs and How to Avoid Them

For Non-Resident Indians (NRIs), navigating the Indian income tax system can be challenging, especially when it comes to filing returns and ensuring compliance. Many NRIs face unexpected income tax notices due to discrepancies in their filings, non-reporting of certain income, or mismatches in TDS payments. These notices can be confusing and time-consuming, but understanding them can help you avoid the common pitfalls.

In this blog, we’ll explore the most common income tax notices received by NRIs, the reasons behind them, and how you can avoid them. We’ll also highlight how timely and accurate tax reporting can save you from potential issues.

Understanding Scrutiny Assessment

When you file your Income Tax Returns (ITR) in India, the Income Tax Department may scrutinize your tax filing to ensure that everything is in order. If there are discrepancies between the tax paid and the tax due, the department may issue a notice under Section 143(2) for further investigation. This could involve the submission of supporting documents, books of accounts, and other clarifications regarding your tax filing.

If you owe additional tax, you’ll be required to pay it, or if you are eligible for a refund, it will be processed accordingly. Here are some of the most common income tax notices NRIs face and how you can avoid them.

5 Common Income Tax Notices for NRIs and How to Avoid Them

1. Failure to File Income Tax Return (ITR)

Why This Notice is Issued: If you fail to file your ITR, especially after conducting high-value financial transactions, the Income Tax Department may issue an “e-Campaign – Non-filing of ITR” notice. These notices are typically sent to your registered mail ID, and can also be accessed via your e-filing portal under pending actions.

How to Avoid:

• Ensure timely filing of your ITR, as any income earned in India, regardless of the amount, requires tax filing.
• Respond to any e-Campaign notices promptly and submit the required documents to demonstrate the legitimacy of your financial activities.
• If you find the process complex, seek assistance from tax experts to ensure accurate tax filing.

To file your taxes accurately and avoid receiving such notices, be sure to refer to our What NRIs & Indian Taxpayers Need to Know

2. TDS Discrepancy Issues

Why This Notice is Issued: This notice occurs when there is a mismatch between the TDS (Tax Deducted at Source) shown in your ITR and the amount recorded in the TDS Reconciliation Analysis and Correction Enabling System (TRACES).

How to Avoid:

• Verify that the TDS deducted from your income matches the amount listed on Form 26AS. 
• If there’s a mismatch, ensure that your employer or the TDS deductor rectifies it by submitting the correct payment to the government and filing a corrected TDS return. 

3. Omission of Additional Income

Why This Notice is Issued: If you fail to report all sources of income, including foreign income, or you don’t update your NRI status with the Income Tax Department, the department may issue a notice. The wrong TDS rate might have been applied, and discrepancies in your income reporting could trigger scrutiny.

How to Avoid:

• Log in to the Income Tax e-portal and ensure your NRI status is updated correctly. 
• Make sure you report all your income sources, including foreign income, and adjust your TDS accordingly. 

4. Unusual or Large Transactions

Why This Notice is Issued: The Income Tax Department’s automated system detects significant, irregular, or high-value transactions that differ from your usual financial activity. This could include large deposits that don’t align with your typical account balance or transaction history.

How to Avoid:

• Notify the Income Tax Department of large transactions and provide explanations where necessary. 
• Regularly monitor your bank accounts for unusual transactions and ensure they align with your reported income. 

5. Incorrect Income Tax Return Submission

Why This Notice is Issued: If there is an error in the ITR form you filed or if your returns are incomplete or incorrect, the Income Tax Department may issue a notice under Section 139(9) requesting a revised return.

How to Avoid:

• Ensure you fill out the correct ITR form and submit all necessary documents. 
• If you find an error in your tax return, file a revised return with accurate information. 
• Consult with a tax professional to avoid mistakes in your tax filing. 

Conclusion

Dealing with income tax notices can be stressful, but proactive and accurate reporting of your income tax returns is crucial for NRIs. By staying on top of the common reasons for tax notices and responding in a timely manner, you can avoid complications and ensure a smooth tax filing experience.

For assistance with tax filing and to avoid potential notices, Brivan Consultants can help guide you through the process, ensuring that all your tax filings are compliant and accurate. Our team of tax experts can provide personalized advice to optimize your tax situation and help you manage your finances efficiently.

Frequently Asked Questions (FAQs)

Q1. What is an income tax notice for NRIs?
As an NRI, if you engage in financial transactions, especially high-value ones, the Indian tax department may take notice. If you fail to file your tax returns or if there are discrepancies in your filings, the Income Tax Department may issue a notice seeking clarification regarding the transactions.