NRI Returns, Refunds and Lower TDS

Tax on a non-resident’s Indian income is mostly collected at source, and usually at rates set without regard to the person’s total income. Interest on an NRO account, rent from an Indian flat and the price of a property sold here all reach the non-resident net of tax. Whether the non-resident must then file a return, which form to use, how to recover excess deduction, and how to stop the excess being deducted in the first place are separate questions. This guide takes them in that order and links the guides that cover the general procedure.

Which Act applies

• AY 2026-27 (FY 2025-26) and earlier: the return is filed under section 139 of the 1961 Act. The special provisions for non-resident Indians are in Chapter XII-A, sections 115C to 115I. Deduction from payments to non-residents is under section 195. Lower-deduction certificates are under section 197.
• Tax year 2026-27 onwards: the return is filed under section 263 of the 2025 Act, and the non-resident Indian provisions are sections 212 to 217. Deduction is under section 393(2), Table Sl. No. 17. Certificates are under section 395.

	1961 Act	2025 Act
Duty to file	s.139(1)	s.263(1)(a)
NRI definitions	s.115C	s.212
No return needed if only investment income or long-term gains, fully deducted	s.115G	s.216
Special provisions continue after becoming resident	s.115H	s.217(1)
Choosing out of the special provisions	s.115I	s.217(2)
Payee’s application for a lower or nil deduction certificate	s.197, Form 13	s.395(1), Form No. 128 (rule 213)
Payer’s application to fix the taxable proportion	s.195(2)	s.395(2), Form No. 129 (rule 214)
Branch’s application to receive without deduction	s.195(3), Forms 15C and 15D (rule 29B)	s.395(1), Form No. 126 (rule 209)

When a non-resident must file

Under section 263(1)(a)(iii) of the 2025 Act, a person other than a company or firm files a return if total income, before the deductions listed there, “exceeded the maximum amount which is not chargeable to income-tax”. Section 139(1) of the 1961 Act is to the same effect. Residence does not change the test, but a non-resident’s total income includes only income received in India or accruing or arising here (section 5(2)). A person with a business or capital loss to carry forward must also file, under section 263(1)(a)(viii).

There is one exemption specific to non-resident Indians. Under section 216 of the 2025 Act, a non-resident Indian need not file under section 263(1) if:

• “(a) his total income during the tax year consisted only of investment income or income by way of long-term capital gains or both; and”
• “(b) the tax deductible at source under the provisions of Chapter XIX-B has been deducted from such income.”

“Investment income” and “long-term capital gains” here have the narrow meanings in section 212. They cover only income from a “foreign exchange asset”: a “specified asset” listed in section 212(e), such as shares in an Indian company, debentures of or deposits with an Indian public company, or Central Government securities, acquired with convertible foreign exchange. Section 115G of the 1961 Act is the same. Rent and gains on Indian property are outside it, and so is income from any asset bought with rupees earned in India.

Even without a duty to file, the return is the only way to claim a refund of tax deducted in excess. It is also the way to claim treaty relief and to carry losses forward.

Which form

The ITR-1 form under rule 12(1)(a) of the 1962 Rules is for “an individual who is a resident other than not ordinarily resident”. The portal’s ITR-2 FAQ for AY 2026-27 states that ITR-2 applies to individuals, “Resident or Non-Resident”, and Hindu undivided families without income from business or profession. A non-resident with business or professional income files ITR-3.

The portal’s ITR-2 manual notes three points for non-residents:

• residential status and the condition relied on are selected from drop-down menus in Part A;
• where total income exceeds Rs 1 crore, Schedule AL lists assets and liabilities, but a non-resident or RNOR lists “only the details of assets located in India”;
• Schedule FA (foreign assets) “need not be filled up” by a non-resident or RNOR.

The ITR-2 FAQ also states that the rebate under section 87A is available only to a resident individual. A non-resident pays tax from the first rupee above the basic exemption, under whichever regime applies.

A worked example of a non-resident’s ITR-2 is in How to file ITR-2 as an NRI with India-source income only.

What to have ready

• The residential status workings for the year. See Residential Status: Resident, RNOR and Non-Resident.
• Form 26AS and the AIS, to match every deduction against the income it relates to. See Reconciling AIS, TIS and Form 26AS.
• TDS certificates (Form 16A and its 2026 Rules successor) from banks, tenants and buyers.
• For property sold: the sale deed, cost and improvement records, and the buyer’s certificate of tax deducted. See Buying Property from a Non-Resident.
• For treaty relief: the tax residency certificate and Form No. 41 (Form 10F). See Treaty Relief.
• An Indian bank account, pre-validated on the portal, for the refund. The refund guide quotes the portal’s statement that “It is now compulsory to pre-validate your bank account”.

Due date, verification and late filing

For AY 2026-27, Explanation 2 to section 139(1), as substituted by the Finance Act, 2026, makes 31 July the due date for “any other assessee”. That covers a non-resident without business income or audit. From tax year 2026-27, the same date appears as the due date for “any other assessee” in the Table in section 263(1)©.

The return is not complete until it is verified within the time allowed. A non-resident without an Aadhaar number or an Indian net-banking login uses one of the other modes. The modes and time limits are in E-Verifying a Return.

A return filed after the due date is a belated return and carries a fee. A wrong status or a missed schedule is corrected by a revised return. Both are covered in Belated and Revised Returns. Self-assessment tax and interest for any shortfall are covered in Advance Tax and Self-Assessment Tax.

Refunds

Excess deduction is common. Tax may be deducted at the rates in force on the gross payment even though the non-resident’s tax on the year’s total income is lower. A buyer of property may deduct on the full sale price rather than the gain. The refund is claimed in the return and paid after processing to the validated Indian account. Status, failure, reissue and adjustment against other demands are covered in Income-Tax Refunds.

Stopping excess deduction in advance

The payee’s certificate. A non-resident payee can apply to the Assessing Officer for a certificate of deduction at a lower rate or none, under section 395(1) of the 2025 Act (section 197 of the 1961 Act). The form, documents, TRACES steps and validity are the same for residents and non-residents. They are covered in Lower or Nil Deduction Certificates. A non-resident selling property usually applies before the sale, because the certificate must reach the buyer before the deduction is made.

The payer’s application. Where a payer “considers that the whole of such sum would not be chargeable in the case of the recipient”, it may apply to the Assessing Officer under section 395(2) to determine the chargeable proportion. Tax is then deducted only on that proportion (section 395(2)©). Section 195(2) of the 1961 Act was the same. Under rule 214 of the 2026 Rules:

• the application is in Form No. 129 (rule 214(1));
• the Assessing Officer examines whether the sum is chargeable “under the provisions of the Act read with the relevant Double Taxation Avoidance Agreement, if any” (rule 214(2));
• the Assessing Officer considers the recipient’s estimated tax for the year, the tax on the four preceding years, existing liabilities under both Acts, and taxes already paid or deducted (rule 214(3));
• the certificate is valid only for the payment to the named non-resident and for the period stated (rule 214(4));
• a fresh application may be made after expiry, or within three months before it (rule 214(5)).

In GE India Technology Centre, discussed in Paying a Non-Resident: Forms 15CA and 15CB, the Supreme Court described section 195(2) as resting on “the principle of proportionality”. It applies to a composite payment of which only part is income chargeable in India.

A branch receiving without deduction. Section 195(3) of the 1961 Act let certain non-residents carrying on business in India through a branch apply for a certificate to receive payments without deduction (rule 29B, Forms 15C and 15D). Rule 209 of the 2026 Rules carries this into section 395(1), with Form No. 126. It is limited to a banking company or insurer operating through an Indian branch, and to other persons with an Indian branch, at least five years’ Indian business and fixed assets in India above Rs 50 lakh. It is not a route for individual non-residents.

No PAN. A non-resident without a PAN faces deduction at the higher rate under section 397(2)(b)(i) of the 2025 Act (section 206AA of the 1961 Act). For interest, royalty, fees for technical services, dividend and payments on transfer of a capital asset, rule 217 of the 2026 Rules disapplies the higher rate if the non-resident gives the payer the specified details and the tax residency certificate. Rule 37BC of the 1962 Rules was the equivalent.

The non-resident Indian provisions after return

Section 217(1) of the 2025 Act (section 115H of the 1961 Act) lets a non-resident Indian who becomes resident continue the special provisions for investment income from foreign exchange assets, other than shares in an Indian company. The non-resident Indian makes a declaration with the return for the first resident year. The provisions then continue until those assets are transferred or converted into money. Under section 217(2) (section 115I), a non-resident Indian may instead choose, in the return for any year, not to be governed by sections 212 to 216.

Summary

1. Work out the residential status for the year, and identify the Act and the return form: ITR-2, or ITR-3 for business income.
2. Decide whether a return is required, or whether section 216 (section 115G) excuses it. File anyway if a refund, treaty relief or a loss is to be claimed.
3. Reconcile every deduction in Form 26AS and the AIS with the income it relates to.
4. File by the due date, select the residential status correctly, and e-verify.
5. For future payments, apply for a certificate under section 395(1) (Form No. 128), or ask the payer to apply under section 395(2) (Form No. 129), before the payment is made.
6. Without a PAN, give the payer the rule 217 details to avoid the higher rate.

The next guide, Returning to India: RNOR Years and Foreign Assets, covers the change of status on return, the RNOR years and the reporting of foreign assets.