ITR-2 for NRIs: which form, which schedule, and the errors that trigger notices — what ITA 2025 actually says

ITR-2 for NRIs: which form, which schedule, and the errors that trigger notices — what ITA 2025 actually says

Every July, the same claim circulates in NRI WhatsApp groups: "If your Indian income is below the exemption limit, you don't need to file, and any ITR form will do." Both halves are wrong. The form you file is not interchangeable, the wrong schedule inside the right form is what actually triggers a notice, and "below the limit" does not mean "no filing obligation" for a large share of NRIs. With the 31 July 2026 deadline for Tax Year 2025-26 (Assessment Year 2026-27) approaching, this is the year to get it right — because the Income-tax Act, 2025 (ITA 2025) came into force on 1 April 2026 and has renamed the forms and returns you will rely on for the next cycle.

What the law actually says

For the income you earned in FY 2025-26 (the year you are filing now), the Income-tax Act, 1961 still governs the computation, and the CBDT notified ITR-1 through ITR-7 for AY 2026-27 on 30 March 2026. The Income-tax Act, 2025 applies to income of Tax Year 2026-27 onwards. So this filing season you compute under the 1961 Act but should already know the 2025 vocabulary, because next year the same documents carry new names.

The residence test that decides whether you are an NRI at all is Section 6 — and this is unchanged between the two Acts. You are a non-resident for a tax year if you fail both the 182-day test and the 60-day-plus-365-day test. That single determination drives which ITR form you may use.

For NRIs the choice is narrow. ITR-2 is the return for an individual (resident or non-resident) who has income from salary, more than one house property, capital gains, income taxable at special rates, or foreign assets — but no income from business or profession. If you have Indian business or professional income, you move to ITR-3. ITR-1 (Sahaj) is barred to non-residents entirely — an NRI can never file ITR-1, regardless of how simple the income looks. That single fact resolves most of the confusion: for the typical NRI with rent, bank interest, and some capital gains, ITR-2 is the form.

The forms you attach and reconcile against also have new ITA 2025 names you should recognise. Your consolidated tax-credit statement, Form 26AS, is renamed Form 168 under ITA 2025. If you remit money out of India, the self-declaration Form 15CA is now Form 145, and the accompanying CA certificate Form 15CB is now Form 146. This year's return still refers to 26AS/15CA/15CB in the utility; from Tax Year 2026-27 you will see Form 168/145/146.

Practical implications for NRIs

Consider a concrete case. You live in Dubai, you are an NRI under Section 6, and in FY 2025-26 you had ₹4,20,000 of rent from a Bangalore flat, ₹90,000 of NRO savings interest, and a ₹1,80,000 long-term capital gain from selling listed Indian shares. That is three income heads — house property, other sources, and capital gains — which means ITR-2, and it means at least three schedules that must each be filled correctly.

The "I'm below the limit" myth fails here on two counts. First, an NRI does not get the Section 87A rebate under either the old or new regime, so the effective tax-free ceiling residents enjoy does not extend to you. Second, and more important, the tenant paying your rent must deduct TDS under Section 195 at NRI rates — not the 1% under Section 194-IA that applies to resident landlords — and your NRO interest is deducted at 30% plus surcharge and cess. That TDS is already sitting in your Form 26AS (Form 168 under ITA 2025). If you do not file, you do not reclaim it. For most NRIs, filing is how you get money back, not how you pay more.

The notices arrive when the schedules disagree with the department's own data. The recurring triggers are: capital gains reported in the wrong schedule or netted incorrectly (STCG under Section 111A and LTCG under Section 112A must be separated, each at its own rate); Schedule FA (Foreign Assets) left blank — NRIs are generally not required to disclose foreign assets, but taxpayers who wrongly tick "resident" then face a mismatch; the residential-status page in the return contradicting your actual day-count; and TDS claimed in Schedule TDS that does not tie to Form 26AS/Form 168 rupee-for-rupee. The department's system auto-matches, and a ₹500 mismatch is enough to generate a Section 143(1) intimation.

Now take a second scenario that produces a different trap. You moved from London back to India in November 2025 after nine years abroad. For FY 2025-26 you may qualify as Resident but Not Ordinarily Resident (RNOR) rather than non-resident. RNOR is still assessed inside the same Section 6 framework, but it changes your form logic: your foreign income earned before the move is generally not taxed in India, yet the moment you tick "resident" (even RNOR) the return may open Schedule FA and Schedule FSI. Filing ITR-2 with the correct RNOR sub-status — and completing the Double Taxation Relief schedules only where a treaty genuinely applies — is what separates a clean return from a mismatch notice. The single most expensive error a returning NRI makes is choosing the status that "feels right" instead of the one the day-count produces.

A third practical point that catches high-earners: surcharge on capital gains. An NRI with a large LTCG under Section 112A pays not just the headline rate but surcharge and the 4% health and education cess on top. The return computes this automatically only if the gain sits on the correct line of Schedule CG. Enter the same rupee figure on the wrong line and the tax computed can differ by tens of thousands of rupees — and the department's back-end will recompute and issue a demand for the shortfall.

Deductions are the other place NRIs lose money by assuming resident rules apply to them. An NRI filing ITR-2 can claim the 30% standard deduction on house-property income, interest on a home loan for a let-out Indian property, Section 80C for life insurance and ELSS (but not PPF, which NRIs cannot open), Section 80D health-insurance premiums, and Section 80G donations. An NRI cannot claim Section 80TTA/80TTB deductions on savings interest the way residents do, cannot use the Section 87A rebate, and — if the new regime is chosen — forgoes most of these deductions in exchange for lower slab rates. The correct move is to compute liability both ways inside the utility before locking the regime, because for a landlord-plus-interest NRI the old regime with the 30% house-property deduction often wins, while for a pure capital-gains NRI the new regime usually does. This is a per-return calculation, not a rule of thumb, and getting it wrong is a silent overpayment rather than a notice — which is why it is so easy to miss year after year.

Step-by-step: what to do

• Confirm your residential status under Section 6 first. Count your days in India across FY 2025-26. If you are non-resident, lock that into the return's status page before entering any income — this single field decides form eligibility and Schedule FA applicability.
• Choose ITR-2 (not ITR-1, never ITR-1) if you have no Indian business income. If you run a proprietorship or have professional income in India, use ITR-3 instead.
• Download and reconcile Form 26AS (Form 168 under ITA 2025) and the Annual Information Statement before filling anything. Note every TDS entry — rent, interest, capital gains — and its exact rupee amount.
• Fill the income schedules head by head: Schedule HP for house property (claim the 30% standard deduction and any interest), Schedule OS for interest income, and Schedule CG for capital gains — keeping STCG (Section 111A) and LTCG (Section 112A) on their correct lines at their correct rates.
• Enter TDS in Schedule TDS to match Form 26AS/Form 168 exactly. If the tenant's TDS is missing from 26AS, chase the tenant to file, because you cannot claim credit for TDS that does not appear.
• Choose your regime deliberately. The default is the new regime; if the old regime with your deductions produces a lower liability, opt out within the return. NRIs get no Section 87A rebate either way.
• Verify within 30 days using Aadhaar OTP, net banking, or a signed ITR-V. An unverified return is treated as not filed.

FAQ

Can an NRI ever file ITR-1?
No. ITR-1 (Sahaj) is not available to non-residents under any circumstance. Even if your only Indian income is ₹50,000 of savings interest, you must file ITR-2.

Do I need to report my UAE or US salary and bank accounts in the Indian return?
No. As a genuine non-resident, your foreign income and foreign assets are outside the Indian return, and Schedule FA does not apply to you. The error to avoid is mistakenly marking yourself "resident," which pulls global disclosure into scope and creates a mismatch.

What is my deadline?
31 July 2026 for Tax Year 2025-26 (AY 2026-27) if your accounts are not subject to audit — which covers almost all salaried and passive-income NRIs. A belated or revised return can now be filed up to 31 March 2027, but interest and late fees may apply.

If all my TDS is deducted, is filing optional?
No — and it is usually to your advantage. NRI TDS rates (30% on NRO interest, Section 195 on rent) are almost always higher than your actual slab liability, so filing ITR-2 is how you claim the refund. Skipping it means leaving that money with the department.

I sold Indian mutual funds and shares — does that alone force ITR-2?
Yes. Any capital gain, however small, requires Schedule CG, which ITR-1 does not contain and which non-residents cannot use anyway. Report equity LTCG under Section 112A and equity STCG under Section 111A on their separate lines, and reconcile the buy/sell values against the AIS so the pre-filled figures match your broker statements.

Which forms will change names next year?
For Tax Year 2026-27 (filed in 2027), the vocabulary shifts to ITA 2025: Form 26AS becomes Form 168, Form 15CA becomes Form 145, and Form 15CB becomes Form 146. The ITR-2 structure and the Section 6 residence test carry over, so the workflow above stays valid — only the document names update.

For your specific situation — day-count, capital gains splits, and matching your TDS to Form 26AS (Form 168 under ITA 2025) — book a consultation at harunraaj.com.

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