Kuwait NRI income tax scrutiny: what the notice means, and the 10% DTAA rate on NRO interest

Short answer: if you were a non-resident (or RNOR) that year, India does not tax salary you earned and were paid in Kuwait (salary for work done in India is different, see below). A scrutiny notice over money you sent home is about proving where the money came from, not about tax on the salary.

Kuwait charges individuals no personal income tax, so most Kuwait NRIs never think about Indian tax until a notice arrives. It usually starts with a report, not an officer. Banks and other entities report large cash deposits, fixed deposits, interest and other specified transactions to the Income Tax Department through the Statement of Financial Transactions (SFT), and they appear in your Annual Information Statement (AIS). If no Indian return is on file for that year, the system sees money it cannot explain.

What arrives depends on where you stand:

Your first three steps:

Is your Kuwait salary taxable in India? Not if you were a non-resident that year. A non-resident is taxed in India only on income received in India, or accruing or arising in India (Section 5(2) of the Income-tax Act, 1961). Salary for work done in Kuwait and paid into your Kuwait account is neither, and sending it home later does not turn it into Indian income. Salary for work done in India, or paid straight into an Indian account, is a different matter. An Indian citizen with more than ₹15 lakh of Indian income who is not liable to tax in any other country, which is the position in Kuwait, is treated as resident but not ordinarily resident (RNOR) under Section 6(1A) (from FY 2020-21), and Kuwait salary earned and paid in Kuwait still stays outside Indian tax: see the deemed-resident rule for Gulf NRIs. Otherwise your status turns on your days in India: our days-in-India guide covers the 182-day and 120-day tests. A notice issued today about an earlier year still cites these 1961 Act sections; only a notice about income from 1 April 2026 (tax year 2026-27 onward) will cite the Income-tax Act 2025 and its new section numbers.

The risk is the burden of proof: it is on you to show where reported money came from. If you cannot, the officer can treat it as unexplained money under Section 69A and tax it under Section 115BBE of the 1961 Act at 60% plus surcharge and cess, with no basic exemption, deduction or loss set-off against it. That rate is aimed at money you cannot explain. Money you can show came from your Kuwait salary through banking channels should not be added, but the officer decides on the evidence you file.

That is what happened in a case the Ahmedabad bench of the Income Tax Appellate Tribunal decided on 24 April 2026 (Outlook Money report). An NRI employed in Kuwait had filed no original return for AY 2019-20. SFT data showed about ₹2.50 crore in an HDFC Bank account, about ₹1.10 crore at ICICI Bank and a small life-insurance policy. The year was reopened and the officer added the whole ₹3.63 crore as unexplained money under Section 69A. He produced National Bank of Kuwait statements, salary records and Indian bank statements showing his Kuwait salary reaching his NRE accounts through banking channels. The first appeal accepted most of the ICICI balance and deleted the insurance addition, and the tribunal deleted the remaining ₹5.52 lakh of ICICI. The ₹2.50 crore HDFC balance went back to the officer because a complete transaction-wise reconciliation was not available, with the direction that no addition be made if it is shown to be overseas income remitted to India.

The lesson is the trail, transaction by transaction. Keep these ready for every year you sent money home:

Reply by the date on your own notice. If that date has passed or is close, get a CA on it at once: a late reply or a request for more time is better than silence, and a reconciled reply at the query or show-cause stage is far cheaper than an appeal after the addition is made. Whether to file returns for earlier years is a call a CA makes after reading the notice.

Separate topic: this part is about NRO interest only. NRE interest is already tax-free in India for a non-resident.

A ₹15 lakh NRO FD in SBI at 7% earns ₹1,05,000 in annual interest. SBI withholds under Section 195 of the Income-tax Act (Section 393(2) of the Income-tax Act 2025 for interest credited from 1 April 2026) at the default non-resident rate of 30% plus surcharge and cess: ₹31,500 before cess, deducted before the credit hits the account.

India-Kuwait DTAA Article 11 caps interest withholding at 10% for Kuwaiti residents furnishing a valid TRC + Form 10F (Form 41 from 1 April 2026). Correct TDS on the same ₹1,05,000 is ₹10,500 at the treaty rate. Recoverable per FD per year: at least ₹21,000.

Across 5 Assessment Years under Section 119(2)(b) condonation (CBDT Circular 11/2024), the same gap recovers as at least ₹1.05 lakh of principal, with no Section 244A interest on a condoned claim.

India and Kuwait signed the DTAA on 15 June 2006. It came into force on 17 October 2007, was notified by CBDT Notification 277/2007 dated 27 November 2007, and has applied in India from 1 April 2008; a Protocol signed on 15 January 2017 amended it from 26 March 2018. Article 11 caps interest withholding at 10% for Kuwaiti residents; Article 10 caps dividends at 10%.

Section 90(2) of the Income-tax Act gives the assessee the right to invoke the treaty rate where it is more beneficial than the domestic rate. The deductor (Indian bank or AMC) applies the treaty rate only after TRC from the Kuwaiti Ministry of Finance and Form 10F are on file at the NRI cell, until then, the Section 195 default of 30% plus surcharge and cess remains the operative rate.

The deductor has no financial incentive to alert the customer to this. The Section 195 default is procedurally simpler and carries no penalty risk for the bank.

The Kuwait TRC is issued by the Ministry of Finance, not the Public Authority for Civil Information.

You apply with your Civil ID, your salary certificate, your residence permit, and proof that you live and work in Kuwait. Under Article 4 of the treaty, an Indian national counts as a Kuwait resident only if present in Kuwait for at least 183 days in the fiscal year, so keep your travel record.

Cost: a nominal fee, if any. Timeline: 2-3 weeks if your documents are clean.

Your TRC need not show every detail. Anything it leaves out (status, nationality, tax identification number, period of residence, address) you declare in Form 10F under Rule 21AB (Form 41 under Rule 75 from 1 April 2026). For an individual in Kuwait, the identification number to give is your Civil ID number.

Once you have the TRC, Form 10F is a 5-minute filing on incometax.gov.in. You log in with PAN, fill six fields, upload the TRC as a PDF, submit.

Download the acknowledgment. Share it with your Indian bank. The next interest credit cycle should apply 10% TDS instead of 30%.

If it doesn't, call the branch. Give them the acknowledgment number and the Article 11 reference. Most branches reset the rate within 2 weeks.

Form 10F / Form 41 covers the period of your TRC. Get a fresh TRC and file a fresh form for each financial year, before your bank's first interest credit of that year, or your bank reverts to the default rate.

Here's the part most Kuwaiti Indians miss. Section 119(2)(b) of the Income-tax Act lets you go back up to 5 past Assessment Years (CBDT Circular 11/2024) and claim the treaty rate you should have had.

You file a condonation application with the Principal Commissioner or Commissioner of Income-tax who has jurisdiction over you, for a claim of up to ₹1 crore for a year (larger claims go higher, under CBDT Circular 11/2024). Attach your TRC, Form 10F, 26AS for each year, and the refund computation. The circular asks for the application to be decided within six months where possible.

The refund comes back as principal only: CBDT Circular 11/2024 allows no Section 244A interest on a belated claim admitted through condonation, so budget for the principal.

If you have a scrutiny, AIS or 148A notice, a CA reads it, reconciles your remittances against the AIS and files the reply by its date, at a fixed fee quoted in writing first.

For the treaty rate: you upload your 26AS. We read every TDS entry, show you the gap at the 10% treaty rate, quote the full recoverable amount.

If you want us to take it on, a Kuwait-specialist CA files the current-year ITR at 10% and a Section 119(2)(b) condonation for past years. We handle the AO correspondence under Section 288 so you don't take a flight.

Our fee is a fixed fee for the work, quoted in writing on the free call before any work begins, never a share of the refund. Form 10F / Form 41 renewal after that is a small annual flat fee, no NRI markup. We quote the exact numbers on the call.

If you'd rather book a free CA appointment first and ask questions, that's free, no card, no commitment, 15 minutes.

Q: I work in Kuwait and got an income tax scrutiny notice in India. Is my salary taxable?

A: Not if you were a non-resident or RNOR that year: salary for work in Kuwait, paid in Kuwait, is outside Indian tax (Section 5(2)). The notice is usually about proof, not the salary. Show the trail from your Kuwait salary to each Indian credit, by the reply date on the notice. See the scrutiny section at the top of this page.

Q: What if the reply date on my notice has already passed?

A: Get a CA on it at once. A late reply, or a request for more time through the portal, is better than silence, which leaves the officer to decide on what the AIS shows.

Q: I don't have a PAN, can I still claim?

A: Yes, but you'll need a PAN first. As an Indian citizen you apply on Form 49A (Form 93 for an application from 1 April 2026), not Form 49AA, which is for foreign citizens. Form 10F without PAN is technically possible but banks usually reject it. Get the PAN, it's a 2-week process.

Q: What if my 26AS shows nothing?

A: That usually means your TDS was deducted under the wrong section or your PAN wasn't linked to the bank. We've seen it, we'll diagnose and fix it.

Q: Can I book an appointment without uploading 26AS?

A: Yes. Book free CA appointment. We'll review what you have and tell you honestly whether recovery is worth the fee.

Q: How long does recovery take?

A: Current-year refund: usually a few months after the return is processed. Past-year condonation: CBDT Circular 11/2024 asks for a decision within six months of the application where possible, though we batch the years. No Section 244A interest is paid on a refund allowed through condonation (CBDT Circular 11/2024), so the wait is not compensated.