India ITR Filing for NRIs: When You Must File and How

Being on H-1B in the U.S. does not eliminate your Indian tax obligations. If you earn income from Indian sources — NRO account interest, rental income, capital gains from selling Indian property or stocks — you may need to file an Indian Income Tax Return (ITR) as a Non-Resident Indian (NRI). This guide covers the threshold, the right ITR form, TDS refunds, and how to coordinate the Indian credit with your U.S. Foreign Tax Credit.

When NRIs Must File Indian ITR

NRIs are required to file an Indian Income Tax Return if their total Indian-source income exceeds the basic exemption limit. For the financial year 2025-26 (assessment year 2026-27), the thresholds are:

For NRIs, "Indian taxable income" includes: NRO account interest, rental income from Indian property, capital gains from selling Indian stocks or mutual funds, dividends from Indian companies, and any other income that accrues or arises in India.

Notably, NRE account interest is completely exempt from Indian tax — it does not count toward the ₹2.5 lakh threshold at all. NRO account interest, however, is fully taxable in India.

Even if your Indian income is below the threshold, you should consider filing if TDS has been deducted — because you can only claim a refund by filing an ITR.

NRE vs. NRO Account Tax Treatment in India

The distinction between NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts is central to NRI tax planning in India:

• NRE account interest: Completely exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act. No TDS is deducted. No ITR reporting required for this income. The principal and interest are also freely repatriable. In the U.S., however, NRE interest is taxable as ordinary income (since you are a U.S. tax resident). See our NRE/NRO accounts guide for the full U.S. reporting picture.
• NRO account interest: Fully taxable in India at your applicable slab rate, subject to TDS at 30% (plus surcharge and cess — typically 31.2% total). Banks deduct this TDS automatically and report it via Form 26AS. The 30% TDS is a flat deduction regardless of your actual tax bracket. If your Indian income is modest, the actual tax owed may be less than 30%, and you can claim the excess as a refund by filing an ITR.
• NRO vs. NRE for FBAR/FATCA: Both NRE and NRO accounts must be reported on FinCEN 114 (FBAR) and Form 8938 (FATCA) if the relevant thresholds are met. NRE account tax exemption in India does not affect U.S. reporting obligations.

Which ITR Form to Use: ITR-2 or ITR-3

NRIs cannot use ITR-1. The right form depends on your income sources:

Most H-1B holders in the U.S. with passive Indian income (NRO interest, rental, capital gains from stocks/property) use ITR-2. If you have any Indian business income, contract income, or professional fee income, use ITR-3.

Key schedules within ITR-2 that NRIs typically complete:

• Schedule HP: House property income (rental)
• Schedule CG: Capital gains from stocks, mutual funds, and property
• Schedule OS: Other sources (NRO interest, dividends)
• Schedule TR: Tax relief under the India-U.S. tax treaty
• Schedule FSI: Foreign source income (your U.S. salary, if claiming treaty relief)
• Schedule FA: Foreign assets — required if you have U.S. brokerage accounts, 401(k), RSUs, etc.

Claiming TDS Refunds Through ITR

TDS is the primary reason many NRIs file Indian ITRs even when their income is below the exemption limit. Here is how the refund process works:

• Check Form 26AS: Log into the Income Tax India portal (incometaxindiaefiling.gov.in) and download your Form 26AS for the relevant assessment year. This form shows all TDS deducted against your PAN (Permanent Account Number) by Indian payers — banks, tenants, buyers of property, and companies.
• Verify TDS against your actual income: If NRO interest of ₹1,00,000 was paid to you and the bank deducted ₹31,200 as TDS (30% + surcharge + cess), but your actual tax on that income (given your total Indian income below ₹2.5 lakhs) is zero, you are entitled to a ₹31,200 refund.
• File ITR with refund claim: Report the income in the appropriate schedule, claim the TDS in the Tax Payments schedule, and the difference becomes your refund. The India IT department processes refunds (with interest at 6% per year after a free period) once the return is processed.
• Ensure your bank is linked to PAN: Refunds are credited directly to your Indian bank account. Your bank account must be pre-validated on the IT portal and linked to your PAN.
• TDS on property sale: If you sold Indian property, the buyer was required to deduct TDS at 12.5% for LTCG (for NRI sellers). If your actual capital gains tax is lower than the TDS, the difference is refundable via ITR.

For additional details on how the TDS you paid in India translates to a Foreign Tax Credit on your U.S. return, see the claiming TDS credit guide.

Coordinating the Foreign Tax Credit Between India and the U.S.

If you earn Indian-source income that is taxable in both India and the U.S. (because you are a U.S. tax resident), you face potential double taxation. The India-U.S. tax treaty and the Foreign Tax Credit mechanism in both countries address this:

• On your U.S. return (Form 1116): You can claim a Foreign Tax Credit for taxes actually paid to India on Indian-source income. NRO interest taxed at 30% in India generates a creditable foreign tax for U.S. purposes. The credit is limited to the U.S. tax attributable to the same foreign income. See our Form 1116 guide for details.
• On your Indian return (Schedule TR): If you have income that is taxable primarily in the U.S. under the treaty (for example, certain pension income), you can claim relief under the India-U.S. treaty on your Indian ITR. This prevents India from taxing income that the treaty assigns to the U.S. See our India-U.S. tax treaty guide.
• Timing mismatch: India's financial year runs April 1 – March 31, while the U.S. uses the calendar year. This means income earned in Q1 (January–March) falls in the prior Indian FY but the current U.S. tax year. Keep separate records by calendar year for U.S. purposes and by FY for Indian purposes.
• Currency translation: Report Indian income in USD on your U.S. return using the IRS yearly average exchange rate. Report U.S. income in INR on your Indian ITR using the RBI reference rate or the SBI telegraphic transfer buying rate (as specified in Rule 115).