A friend of mine — 8 years in Dubai, decent savings — got a notice from the Income Tax department last year. He'd been filing returns wrong the entire time. Not out of dishonesty, but because NRI tax rules are genuinely confusing and most CAs in India don't specialize in NRI taxation.
Mistake 1: Not Filing Returns At All
"I don't earn in India, so I don't need to file." I hear this constantly. It's wrong.
If your Indian income (rental, FD interest, capital gains) exceeds ₹2.5 lakh in a financial year, you must file. Even if TDS has been deducted. Even if you think it's all settled. The filing is what keeps you compliant.
Mistake 2: Confusing NRE and NRO Tax Rules
**NRE account interest: Tax-free in India.** This is the big benefit of NRE accounts.
**NRO account interest: Fully taxable.** And banks deduct TDS at 30% on NRO interest for NRIs. If your total income is in a lower slab, you're overpaying and need to file a return to claim refund.
Many NRIs keep large amounts in NRO accounts unnecessarily, paying 30% TDS on interest when they could repatriate to NRE and earn tax-free interest.
Mistake 3: Wrong Residential Status
Your tax status — Resident, Non-Resident, or Resident but Not Ordinarily Resident (RNOR) — determines what income India can tax. Get this wrong and everything cascades.
The key rule: If you're outside India for 182+ days in a financial year, you're generally NRI for that year. But there are additional conditions around 60-day visits. Track your travel days carefully.
Mistake 4: Ignoring TDS on Property Rental
If you own property in India and it's rented out, the tenant is supposed to deduct 30% TDS before paying you rent. Most tenants don't know this. Most NRIs don't enforce this. And then the IT department sends notices to the NRI.
Get a TDS certificate from your tenant. File your returns. Claim deductions on maintenance, property tax, and home loan interest against rental income.
Mistake 5: Not Planning for Return
When you return to India permanently, your RNOR status gives you 2-3 years where your foreign income isn't taxed in India. But you need to plan the transition — when to move funds, when to close foreign accounts, when to change your residential status.
Starting this planning 12-18 months before return saves significant money. Most people start after they've already landed, and by then some optimization windows have closed.
**Bottom line:** Get a CA who specifically handles NRI taxation. Generic CAs miss nuances that cost you lakhs. The fee for specialized advice is a fraction of what you'd lose to mistakes.