What to Do When an NRI Receives an Income Tax Notice in India
An Income Tax notice in India creates stress for many NRIs, but it does not mean guilt. A notice means the Income Tax Department needs data, documents, or an explanation. If you act fast and present records in a structured way, you can close most matters at the assessment stage.
1) Why NRIs Are Receiving More Income Tax Notices
Data matching through AIS, TIS, Form 26AS, SFT reports
The Department matches your return with third-party reports from banks, mutual funds, registrars, property registries, and brokers. If AIS shows a transaction but your return does not reflect it, the system flags the gap. This leads to emails, intimations, and then statutory notices in many cases.
High-value transactions in India without a return
Property sale or purchase, large NRO credits, big mutual fund redemptions, and large bank deposits can trigger scrutiny when the return is missing or the income disclosure does not align with data feeds.
TDS form errors and mismatch for NRIs
NRIs face TDS mismatch issues when the buyer or payer uses an incorrect TDS section or form. The mismatch blocks credit in Form 26AS/AIS and creates tax demand risk.
Cross-border reporting under CRS and FATCA
Financial institutions report certain account and investor details under CRS and FATCA frameworks. This increases visibility of cross-border holdings and flows, and it raises compliance checks.
2) What Each Notice Means and What It Requires
Section 142(1): Inquiry and document call
Section 142(1) notice asks you to file a return (if missing) or submit information and documents to support the return and income position. It can ask for bank statements, rent agreements, sale deeds, capital gain working, foreign tax proof, and source details.
What you must do:
- Submit a point-by-point response with uploads through the e-filing portal.
- Provide a clean reconciliation between AIS/26AS and your return.
- Provide a written note on your residential status and income scope.
Section 133(6): Information call to you or a third party
Section 133(6) gives power to seek information from a person, bank, employer, payer, or other third party. In NRI matters, banks receive such notices for NRO credits, interest, or remittance details. Taxpayers can also receive a 133(6) notice for transaction confirmation.
Key point: Non-response creates risk of adverse inference, but additions cannot rest on non-response alone when records exist and get filed at appeal stage.
Section 143(2): Scrutiny selection
Section 143(2) means the Department has selected the return for scrutiny to verify correctness of income, loss or tax. This is the gateway to a detailed assessment.
What you must do:
Treat this as a structured audit.
Submit evidence for each issue: capital gains, rent, interest, TDS, DTAA claims, foreign tax credit, and source trails.
Section 144: Best judgment assessment
Section 144 applies when you do not file a return, do not furnish required details, or do not attend when required. The Assessing Officer (AO) can complete assessment on available material and make additions. This leads to high demands and penalties.
Courts set aside Section 144 outcomes where the taxpayer later offers records and the case needs a fair hearing. In S. S. Traders 2025 (HC) 1651, Madras High Court set aside an order passed under Sections 147 read with 144/144B, gave another chance to submit documents and required a 15% deposit within 30 days.
3) Step-by-Step Action Plan for NRIs After a Notice
Step 1: Verify notice authenticity and timeline
Log in to the Income Tax e-filing portal and check the notice in the e-Proceedings or “e-File” section. Note the DIN, section, assessment year, and due date.
Step 2: Identify the trigger issue
Common triggers for NRIs:
- Property sale: capital gains, TDS credit gap, section 195 or 194-IA mismatch
- NRO interest and TDS rate
- Mutual fund redemptions and capital gains
- Rent income with missing TDS certificates
- Cash deposit or large credits with source questions
Step 3: Build a document pack
Include:
- Passport pages and travel chart for the year (residential status)
- Bank statements for NRO/NRE for the relevant period
- Sale deed, purchase deed, cost proofs, improvement bills
- Rent agreement, rent ledger, municipal tax receipts
- Form 26AS, AIS/TIS download, reconciliation note
- TDS certificates (Form 16A), challans if any
- DTAA documents (see next section)
Step 4: File a structured response
Use a table format inside your submission note: “Notice point your response documents attached.” Keep each response tied to evidence.
Step 5: Use representation power if needed
If you cannot manage uploads and hearings from abroad, appoint an authorised representative in India and keep a signed authority letter ready.
4) Important DTAAs to Consider: Issues, Solutions, and Examples
India has DTAAs with many countries where NRIs live: USA, UK, UAE, Canada, Australia, Singapore, and others. DTAA relief works under Section 90 when you meet treaty conditions and provide documents.
A) Core DTAA documents NRIs must keep ready
- Tax Residency Certificate (TRC) from the country of residence
- Form 10F (for details not covered in TRC)
- Tax Identification Number of that country
- Proof of foreign tax paid or foreign tax return extract (when credit is claimed)
- Tax authorities challenge treaty benefits when TRC or tax proof is missing.
B) Common DTAA issues and solutions
Issue 1:Bank deducts high TDS on NRO interest
Solution: Submit TRC and Form 10F to the bank and claim treaty rate where the DTAA allows a lower rate. If excess TDS has happened, claim refund through return with DTAA schedule support.
Example: NRI in UAE earns NRO interest. Bank cuts TDS at domestic rate. DTAA route can reduce the rate when documents are on file, and refund claim can recover excess deduction.
Issue 2: Salary earned outside India but credited to an Indian account Credit location does not control taxability. Service location and residential status control the outcome, subject to DTAA.
In Gautam Arora v DCIT, ITAT Kolkata held that an NRI who worked in Morocco and stayed outside India for over 182 days qualified for DTAA benefit under Article 15(1) of India–Morocco DTAA, even when salary came to India, subject to proof of tax in Morocco.
Issue 3: Capital gains disputes and treaty claims capital gains taxation depends on asset type and DTAA article. Real estate gains often remain taxable in India under many treaties. Some securities gains have treaty protection in some treaty versions, subject to limitation clauses and amendments.
If you have received an Income tax notice in India and need professional advice, connect with us at enquire@kdpaccountants.com , At KDP Accountants, our team of professionals will help you review the notices, drafting responses, reconcile tax records, and represent you before the Income tax department.
