Filing your NRI return for NRO interest, Indian rent and dividends

The simplest Indian return, ITR-1 (Sahaj), is restricted to ordinarily resident individuals. A non-resident cannot use it, regardless of how small or simple the income is. That single rule trips up a lot of NRIs who file the easy form online, get it processed, and only later find the return was defective or the treaty rate was never applied.

For an NRI with interest, rent and dividend income — but no business or profession — the correct form is ITR-2. It has the schedules that ITR-1 lacks: a residential-status section that establishes you as a non-resident, a place to report income taxed at special or treaty rates, and the Schedule TR / FSI fields if any foreign tax credit is in play. It also lets you map each piece of income to the right head, so rent is taxed as house property (with its deduction) rather than lumped in as other income.

The practical consequence is simple: file on ITR-2 and the treaty rate and the house-property deduction have somewhere to live. File on the wrong form and they don't, and the refund you were owed quietly disappears.

Each stream has its own default deduction at source and its own treaty position. Knowing which is which is what turns an over-withheld year into a refund.

On interest, the bank withholds a flat 30% (plus cess) under Section 195 unless you have already lodged a valid treaty claim with it. Most treaties cap interest far lower — commonly 10% to 15% — so a large slice of what was deducted is recoverable on the return.

On rent, the deduction at source is on the gross rent, but the tax you actually owe is computed after a flat 30% standard deduction on the net annual value — the rent after any municipal tax you paid (Section 24(a)) — and after any interest you pay on a home loan for that property. So the taxable rent is meaningfully smaller than the figure the tenant withheld against.

On dividends, Indian companies and mutual funds withhold under Section 195 — typically around 20% plus cess for a non-resident — and again the treaty usually brings the final rate down to 10% to 15%, with the excess refundable through the return.

The lower rate in your country's treaty is not applied by the bank or company unless you have actively claimed it. To do that for the year, two documents matter: a Tax Residency Certificate from your country of residence, and a Form 10F (filed electronically as Form 41 from FY 2026-27 under the Income-tax Act 2025) filed on the Indian tax portal. Together they let you take the treaty rate (Section 90) on the return even where the deductor withheld at the full 30%.

If those were already given to the bank during the year, it may have withheld at the lower rate to begin with, and the return simply confirms the position. If they weren't — which is common — the return is where the treaty rate is claimed for the first time, and the gap between 30% and, say, 12.5% comes back as a refund.

Where you have also paid tax in your country of residence on the same income and want to set Indian tax against it (or claim credit the other way), that brings Form 67 and the foreign tax credit rules (Rule 128) into the picture. That is a larger topic and is covered on the dedicated foreign tax credit page below.

Anjali lives in Dubai and is a non-resident for the year. Two things flow in from India: ₹8,00,000 of interest credited on her NRO fixed deposits, and ₹4,80,000 of rent (₹40,000 a month) from a flat she lets out in Bengaluru.

Her bank withheld 30% plus 4% cess on the interest — about ₹2,49,600 — under Section 195, because she never lodged a treaty claim with it. The India-UAE treaty caps interest at 12.5%, so on the return she claims that rate: ₹8,00,000 at 12.5% is ₹1,00,000 of Indian tax due on the interest. The difference of roughly ₹1,49,600 on the interest component is refundable.

The tenant deducted tax on the gross rent during the year. On the return, the rent is taxed as house-property income: ₹4,80,000 less the flat 30% standard deduction (Section 24(a)) of ₹1,44,000 — she pays no municipal tax on the flat, so the net annual value is the full rent — leaves ₹3,36,000 taxable, before any home-loan interest she pays on that flat. So the tax on the rent is computed on a base a third smaller than the amount withheld against.

Filed on ITR-2, with the treaty rate claimed on the interest and the house-property deduction taken on the rent, Anjali's correctly computed liability is far below what was deducted across the year, and the excess is refunded after the return is processed. Filed on the wrong form, none of that relief has anywhere to go.

Missing the due date doesn't shut the door for the year. A return filed after the deadline is a belated return under Section 139(4), and for income earned in the year to 31 March 2026 (assessment year 2026-27) you can still file it up to 31 December 2026 — or before the assessment is completed, whichever comes first. That window is usually wide enough for an NRI who simply lost track of the date abroad.

Filing late does carry a cost, but a modest and predictable one. There is a fixed late fee under Section 234F: ₹1,000 if your total income for the year is ₹5 lakh or less, and ₹5,000 if it is above that. On top of the fee, interest runs under Section 234A on any tax that was still unpaid from the original due date — so if you actually owe tax, the longer you leave it the more the interest adds up, which is the real reason to file the belated return sooner rather than at the very end of the window.

The one thing a belated return gives up is the right to carry forward certain losses — capital losses in particular can't be carried to future years once the return is late. For most NRI passive-income returns that doesn't bite, because the point is usually to recover over-deducted TDS rather than to bank a loss. And a refund is still fully claimable on a belated return: the over-withheld NRO-interest tax comes back exactly as it would have on a return filed on time. Late filing is a small penalty to pay; not filing at all leaves the whole refund with the department.

There is no minimum income you have to earn before you're allowed to file a return to claim a refund. So even if your only Indian income is interest on an NRO account, and even if that income sits below the level at which any tax is actually due, you can — and usually should — file a return purely to recover the tax the bank deducted.

The reason this comes up so often for NRIs is the gap between the deduction rate and the real liability. A bank withholds a flat 30% plus cess on NRO interest under Section 195, regardless of how small the balance is, because that is the default rate for a non-resident who hasn't lodged a treaty claim. But the actual tax on a modest interest figure — after the basic exemption and your slab — is frequently far less, sometimes nothing at all. The only mechanism that reconciles the 30% already taken against the little (or nothing) you truly owe is the return itself.

A return that shows little or no net tax payable is completely valid; "nil return" simply describes a correctly filed return where the computed liability nets to zero or to a refund. Filed on ITR-2, with your treaty rate claimed where a Tax Residency Certificate and Form 10F (filed electronically as Form 41 from FY 2026-27 under the Income-tax Act 2025) support it, the over-deducted TDS is credited back to your Indian bank account after the return is processed. Skip the filing and there is no route for that money to return — it stays with the department by default.

India now has two ways to be taxed, and the new regime is the default. Since assessment year 2024-25 — and continuing for the year to 31 March 2026 — if you do nothing, your return is computed under the new regime (Section 115BAC): lower slab rates, but almost none of the old deductions and exemptions. The old regime is still available, but you have to actively choose it.

For most NRIs the new regime quietly wins, and the reason is structural. The old regime's advantage is the deductions it allows — 80C investments, insurance, and so on — but those mostly reward spending and investing inside India that a non-resident living abroad simply doesn't do. With Indian income that is largely interest, dividends or capital gains and little to deduct against it, the lower new-regime rates leave you better off. The old regime tends to come out ahead only where you have a genuine, sizeable deduction to claim — most commonly interest on a home loan against a let-out or self-occupied Indian property (Section 24(b)) — large enough to outweigh its higher rates. The honest approach is to compute the tax both ways on your actual figures and take the lower; for a typical passive-income NRI that comparison usually points to the new regime.

How you choose matters too. If your Indian income has no business or profession in it — just interest, dividends, capital gains or rent, filed on ITR-2 — you pick the old regime directly inside the return each year, and you can switch your choice year to year. The separate Form 10-IEA, and the one-time-only restriction that goes with it, applies only when you have business or professional income. Note that the special rates that already apply to capital gains and to treaty-rate interest sit outside this choice, so they don't really move the comparison either way.

Before the return goes in, the figures on it should agree with what the tax department already holds. The department keeps two records of your year: Form 26AS, which lists the tax credits — the TDS deducted against your PAN — and the Annual Information Statement (AIS), a far more detailed feed of the transactions banks, companies and registrars have reported, such as interest credited, dividends paid and any property or share sales. When what you file doesn't line up with these, the return draws an automated query.

Mismatches are common and usually innocent. A bank might report interest on a slightly different basis than your certificate, an entry can appear twice, income can be tagged to the wrong year because of when it was credited, or a jointly held account can show the full amount against one holder's PAN. None of these mean anything is wrong with your actual income — but left unreconciled, they are the single most frequent trigger for an adjustment to your return under Section 143(1), which arrives after filing as a demand or a reduced refund and is far more work to unwind than to prevent.

The fix is to reconcile first and file second. You pull both Form 26AS and the AIS, compare them against your own bank, broker and dividend statements, and resolve each difference before submitting. Where an AIS entry is genuinely wrong — duplicated, overstated, or belonging to someone else — the e-filing portal has an AIS feedback facility that lets you flag it as incorrect, duplicate or belonging to another person, so the department's view is corrected at source. The return is then filed to your true income, supported by your documents, and it reconciles cleanly to what the department sees — which is the whole point of doing the matching up front rather than answering for it later.

Which bank account the interest sits in decides whether it is taxed at all, and this catches many NRIs by surprise. Interest on an NRE (Non-Resident External) account or deposit is exempt from Indian tax while you are a non-resident (Section 10(4)(ii)), and interest on an FCNR (Foreign Currency Non-Resident) deposit is exempt too (Section 10(15)(iv)(fa)). No tax is due on either, and because the income isn't taxable, the bank deducts no TDS on it. The exemption is tied to your status, though — the year you become resident again, fresh NRE interest stops being exempt.

NRO (Non-Resident Ordinary) interest is the opposite. It is fully taxable, and the bank withholds a flat 30% plus cess on it under Section 195 — the default rate for a non-resident — regardless of how small the balance is.

Two things follow on the return. First, the over-deduction on NRO interest is recoverable: most tax treaties cap interest well below 30% — commonly 10% to 15% — so where a Tax Residency Certificate and a Form 10F (electronic Form 41 from FY 2026-27 under the Income-tax Act 2025) support the treaty claim, the difference between the 30% withheld and your treaty rate comes back as a refund through the return. Second, the exempt NRE and FCNR interest still has to be shown — under the exempt-income schedule, not left off — because the bank reports it and your AIS will carry it. Reporting it keeps the exemption intact and stops an otherwise tax-free figure from triggering a mismatch query.

The rent the tenant pays is not the figure you are taxed on — the taxable amount is meaningfully smaller, and the gap is where a refund usually hides. Indian rent is taxed under the head 'income from house property', and the computation runs in a fixed order.

You start with the gross annual rent and subtract any municipal taxes you actually paid during the year; what is left is the net annual value. From that, two deductions come off. The first is a flat 30% standard deduction on the net annual value (Section 24(a)) — it is automatic, covers repairs and upkeep, and applies whether or not you spent a rupee on the property. The second is the full interest you pay on a home loan taken for that property (Section 24(b)); for a let-out flat there is no cap on the interest deduction. What remains after both is the taxable house-property income.

Meanwhile, the tenant has been deducting tax during the year. For rent paid to a non-resident landlord, the tenant withholds under Section 195 on the gross rent — not the resident 5% rule under Section 194-IB, which does not apply to an NRI's rent. So the withholding is on the whole rent, while the tax you owe is on a base already cut by the 30% deduction and any loan interest.

A short illustration. Rent of ₹6,00,000 for the year, municipal tax of ₹20,000 paid, gives a net annual value of ₹5,80,000. The 30% standard deduction is ₹1,74,000, leaving ₹4,06,000 — and if you pay ₹1,50,000 of home-loan interest on that flat, the taxable house-property income drops to ₹2,56,000. Tax is computed on that, the Section 195 TDS on the gross rent is set against it, and any excess withheld is refunded.

Dividends from Indian companies and mutual funds are taxable in your hands as an NRI — there is no separate exemption for them — and they are taxed at your applicable rate as income, reported on the return. Since the dividend distribution tax was abolished a few years ago, the tax sits with the shareholder, not the company.

At source, the company or fund withholds under Section 195 — typically around 20% plus cess for a non-resident. That is a default, not the final word. Most tax treaties cap dividends lower — commonly 10% to 15%, for example 15% under the India-US treaty — and you reach that rate the same way you do on interest: with a Tax Residency Certificate from your country of residence and a Form 10F filed on the Indian portal (filed electronically as Form 41 from FY 2026-27 under the Income-tax Act 2025). With those lodged, the treaty rate (Section 90) applies.

The timing of the documents decides how the benefit reaches you. Give the TRC and Form 10F (or Form 41) to the company or registrar before the dividend is paid, and they withhold at the lower treaty rate to begin with. Lodge them only at return stage — which is common — and the full 20% was already taken, so the return claims the treaty rate and refunds the gap between that and what was withheld. Either way the dividend is reported on the return, reconciled against your AIS, and the credit for the TDS already deducted is set against your final tax.

Filing is not always optional, and two separate triggers decide it. The first is the legal one: if your total Indian income for the year — before any deductions — is above the basic exemption limit, a return is mandatory, even if TDS already covered the tax and nothing more is due. Under the default new regime that exemption is ₹4,00,000 for the year, so Indian income above that means you have to file. The second trigger is practical rather than legal: even when your income is below that limit, you file to get money back, because a return is the only route to recover the 30% (or 20%) that was over-withheld on your NRO interest, rent or dividends.

The form follows the income. With Indian income that is interest, rent, dividends or capital gains and no business or profession, the correct return is ITR-2 — and ITR-1 (Sahaj) is closed to non-residents in any case. The moment there is business or professional income from India in the mix, the form steps up to ITR-3. For most passive-income NRIs, ITR-2 is the answer. The usual filing deadline is 31 July following the financial year for anyone who doesn't need a tax audit.

The trap worth flagging is the Section 87A rebate. For a resident, that rebate can wipe the tax out entirely up to a generous income ceiling, which is why residents on modest incomes often pay nothing. It does not work that way for an NRI: the 87A rebate is available only to residents, so a non-resident does not get it. The consequence is that an NRI can owe Indian tax on a level of income at which a resident neighbour would owe nothing at all — which is exactly why running the actual computation, claiming the treaty rate, and not assuming the rebate will cover it, is what protects the refund.

The year you move back to India is rarely a clean switch from non-resident to resident, and that is by design. For the first year or two after returning, many people qualify as RNOR — Resident but Not Ordinarily Resident (Section 6(6)) — and that status changes what India taxes in a way that is genuinely in your favour.

The core of it: an RNOR is taxed in full on Indian income, but foreign income that arises and is received outside India stays outside the Indian net. So your NRO interest, Indian rent, Indian dividends and Indian capital gains are all taxed exactly as they are in a non-resident year — but your overseas salary, foreign bank interest and foreign investment income generally aren't pulled in, even though you're now living in India. The one carve-out is foreign income from a business controlled in, or a profession set up in, India, which does become taxable. That breathing room is the whole reason RNOR status matters in the transition.

Where the RNOR return differs from a full-resident year is mostly the part-year care. Income earned while you were still non-resident is treated on that footing, and income after your status changes on the other — so the year is filed on ITR-2 with the residential-status schedule set to RNOR, not plain resident, and each stream placed against the right period. One more thing to settle: the foreign-asset disclosure question (Schedule FA) is answered on the basis of your status for the year, so it's worth fixing your status precisely before anything goes on the return. The deeper RNOR-and-foreign-income case, including foreign tax credit, is covered on the foreign tax credit page below.

The most common NRI filing of all is the one made purely to get money back: the only Indian income is NRO interest, the bank took 30% plus cess on it under Section 195, and the real liability — after the basic exemption — is little or nothing. A point that surprises people here is what happens to the late fee if this return goes in after the deadline.

The Section 234F late fee has a quiet floor built into it. The fee is normally ₹1,000 where total income is ₹5 lakh or less and ₹5,000 above that — but it does not apply at all where your total income for the year is below the basic exemption limit (₹4,00,000 under the default new regime). So an NRI whose entire Indian income sits under that limit, filing late only to reclaim over-deducted TDS, generally owes no 234F fee even on a belated return. The thing you're filing to recover isn't eaten into by a penalty.

Two cautions keep this accurate. First, it is total income before deductions that is measured against the exemption, so add up every Indian stream — interest, any rent, dividends — before assuming you're under the line. Second, the fee waiver is about the late fee, not the deadline: the refund itself still has to be claimed inside the belated window (generally up to 31 December of the assessment year for the year to 31 March 2026), because once that closes, recovering the refund needs the separate condonation route rather than an ordinary return. Below the exemption and inside the window, though, a refund-only return is about as low-friction as Indian filing gets — there's simply no reason to leave the money with the department.

A refund return isn't only about getting your own money back — where the department takes its time, it pays you interest on the wait, and that interest belongs to you. It runs under Section 244A at 0.5% for every month or part-month (about 6% a year), as simple interest, on the refund amount. For an NRI whose NRO interest was taxed at 30% and who is owed a sizeable refund, that can add a meaningful top-up by the time the money lands.

A few edges are worth knowing so the figure isn't a surprise. The interest generally runs from the start of the assessment year (1 April) up to the date the refund is granted, provided the return was filed on time — file late and the clock typically starts from your filing date instead, so an on-time return earns interest for longer. There's also a threshold: no interest is paid where the refund is less than 10% of the total tax determined, so very small refunds may carry none. And any delay that's down to you — an unverified return, a bank account that isn't pre-validated — is left out of the count, which is another reason to verify promptly and validate the refund account up front.

One practical note for next year's return: the 244A interest you receive is itself taxable, treated as income from other sources in the year you get it (Section 56). It's a small amount relative to the refund, but it's reported, so it's worth noting when it arrives rather than being caught out by the AIS entry a year later.

If you've worked out that the old regime is worth claiming — usually because of sizeable home-loan interest (Section 24(b)) on an Indian property — the next question is which of the familiar deductions a non-resident is actually allowed. The list is shorter than a resident's, and assuming a deduction you can't take is a quick way to file a figure the department later strips out.

What an NRI can claim under the old regime, broadly: Section 80C up to ₹1.5 lakh for eligible items such as life-insurance premiums, ELSS, and the principal repayment on a home loan for an Indian property; Section 80D for health-insurance premiums; Section 80E for interest on an education loan; Section 80G for eligible donations; Section 80TTA for up to ₹10,000 of interest on an Indian savings account; and, importantly, the Section 24(b) home-loan interest that often makes the old regime worthwhile in the first place.

The ones closed to a non-resident catch people out: Section 80TTB — the larger interest deduction for senior citizens — is for resident seniors only, so an NRI senior falls back on the smaller 80TTA instead; and the disability and medical-treatment deductions (Sections 80DD, 80DDB and 80U) aren't available to a non-resident either. None of these exist under the new regime in any case, so they only matter once you've chosen the old one — and they sit alongside the 87A rebate, which a non-resident also can't claim, as the resident-only reliefs to leave out of an NRI computation.