NRI Tax Return Filing for AY 2026-27 – The Complete Guide to getting it Right this July

Every July, thousands of NRIs file their Indian Income Tax Return the wrong way. 

The NRI filing process is genuinely different from what a resident Indian does – and the guidance available online is mostly written for residents. 

This guide covers everything – Residential status, ITR form selection, RSUs and ESOPs, Foreign Tax Credit, Form 10EE, Schedule FSI and the Specific AY 2026-27 changes that affect NRI filings this year. 

The First Thing to get Right: AY 2026-27 is still governed by the Old Act 

Before anything else – one critical clarification that is confusing thousands of NRIs right now. 

The Income Tax Act, 2025 came into force on 1 April 2026. Many NRIs assume this means their current ITR filing must follow the new Act. It does not. 

The Income Tax Department has confirmed: for AY 2026-27 (income earned in FY 2025-26), the provisions of the Income Tax Act, 1961 still apply. The new ‘Tax Year’ concept applies only from FY 2026-27 onwards. The ITR forms currently available on the e-filing portal for AY 2026-27 are old-Act forms – ITR-1 through ITR-7 under the 1961 Act framework. 

When the IT Act 2025 refers to sections like 393(2) or Section 263, these apply only from Tax Year 2026-27 (income earned from 1 April 2026 onwards). Your current filing – for income earned up to 31 March 2026 – uses the old Act entirely. 

Step 1: Determine your Residential Status – Everything flows from this 

Residential status is not your passport, visa category or country of employment. It is determined by one thing only: The number of days you were physically present in India during FY 2025-26 and the preceding years. 

Non-Resident (NRI): Present in India for fewer than 182 days in FY 2025-26. Only Indian-source income is taxable. 

Resident but Not Ordinarily Resident (RNOR): Present in India for 182 or more days in FY 2025-26 but does not meet the full ROR conditions. Broadly applies to returning NRIs who have recently come back. Global income generally remains outside Indian tax during this period. 

Resident and Ordinarily Resident (ROR): Meets both residency tests – present for 182+ days in the current year, and resident in 2 or more of the last 10 years, and present for 730+ days in the last 7 years. Globally taxed on all income. 

The Deemed Resident trap: An Indian citizen with Indian-source income exceeding ₹15 lakh who is not liable to tax in any other country (e.g., many Gulf-based NRIs) is deemed resident in India – even without 182 days of physical presence. For FY 2025-26, this is governed by Section 6(1A) of the Income Tax Act, 1961. 

Getting this wrong does not just affect which form you file. It determines whether your foreign salary, overseas rental income, foreign investments and retirement account earnings are taxable in India at all. 

 Step 2: Choose the Correct ITR Form – NRIs cannot file ITR-1 

ITR-1 (Sahaj) is exclusively for Resident individuals. NRIs and RNORs cannot file ITR-1 – confirmed by the Income Tax Department. If your pre-filled return defaults to ITR-1, do not accept it. 

 The Income Tax Department released ITR-2 on 27th May 2026. Online filing and Excel utility are both available on the portal for AY 2026-27. Filing the wrong form results in a defective return notice – requiring correction within a deadline, failing which the return is treated as invalid. 

Step 3: New Tax Regime vs Old Tax Regime – What NRIs must know 

The New Tax Regime under Section 115BAC is the default for all taxpayers including NRIs for AY 2026-27. 

 Critical – NRIs cannot claim Section 87A rebate. The enhanced ₹60,000 rebate making income up to ₹12 lakh tax-free is available only to Resident individuals. NRIs pay tax from the first rupee above the basic exemption limit – ₹2.5 lakh under the Old Regime, ₹4 lakh under the New Regime. 

When the Old Regime may still make sense for NRIs: If you have significant deductions – home loan interest under Section 24(b), HRA, health insurance premiums under Section 80D – compute both regimes before filing. For non-business NRIs, the regime choice can be changed every year directly in the ITR – provided it is filed by the due date of 31 July 2026. 

Step 4: What Income must be Reported 

As an NRI, only income that accrues or arises in India or is received in India is taxable. 

Always taxable for NRIs: 

• Rental income from Indian property 
• Capital gains from sale of Indian property, shares or mutual funds 
• Interest on NRO accounts and Indian FDs 
• Salary for services rendered in India 
• Dividend income from Indian companies 
• Royalty or consultancy fees paid by Indian entities 

Not taxable for NRIs: 

• Salary earned and received outside India 
• Interest on NRE accounts (exempt under FEMA conditions) 
• Interest on FCNR deposits 
• Income earned entirely outside India 

Even if your income is below the exemption limit – File if TDS was deducted.  

Banks deduct TDS at 30% on NRO interest regardless of your actual income level. If your total Indian income is below ₹4 lakh under the New Regime, the entire TDS is refundable – but only if you file an ITR. The refund does not come automatically. 

Step 5: RSUs and ESOPs – The Most Misunderstood NRI Tax Issue 

For NRI professionals working at multinational companies – Google, Microsoft, Amazon, Meta, Accenture, EY, Deloitte, KPMG, Infosys, TCS or any employer granting stock compensation – RSU and ESOP taxation is the most common source of double taxation and incorrect filing. 

Step 6: Foreign Tax Credit – Who files Form 67 and Who does not 

This is one of the most widely misunderstood areas in NRI taxation and requires specific clarification. 

Form 67 is filed by Resident taxpayers – not by NRIs or RNORs. 

An NRI or RNOR filing an Indian ITR for income sourced in India does not file Form 67. As an NRI or RNOR, your Indian-source income is taxed only in India – there is no foreign tax on the same income that requires a credit. Form 67 applies where the same income is taxable in both India and another country. 

Form 67 becomes relevant only when you become ROR because as an ROR taxpayer, your global income becomes taxable in India. If your foreign salary, overseas rental income or foreign capital gains are also taxed in your country of residence, you then file Form 67 to claim credit for the foreign tax paid against your Indian liability. This is coordinated through Schedule FSI (which reports the foreign income) and Form 67 (which claims the credit). 

The Form 67 deadline for ROR taxpayers: Form 67 must be filed on or before the ITR due date – 31 July 2026. Filing it late or after the ITR risks losing the Foreign Tax Credit for the year entirely, even where the foreign tax was correctly paid. 

What to prepare for Form 67: 

• Foreign tax return or assessment notice showing the exact tax paid 
• Evidence of the nature of income – salary slip, dividend statement, rental agreement 
• DTAA-based computation of the credit available 

The credit is limited to the lower of: the Indian tax on that income, or the foreign tax paid. 

Step 7: Form 10EE and Form 68 – For Returning Indians who have become ROR 

These forms are not filed by NRIs or RNORs. They apply only when you have become a Resident and Ordinarily Resident (ROR) after returning to India. 

Form 10EE – Relief for Foreign Retirement Accounts 

Returning Indians who have become ROR and hold foreign retirement accounts – 401(k), Traditional IRA, Roth IRA, UK pension schemes, Canadian RRSPs – may be eligible for tax deferral under Section 89A through Form 10EE. 

Without Section 89A relief, India taxes the annual accrual of earnings inside these accounts – interest, dividends, capital gains – every year once you become ROR. Section 89A defers this taxation to the year of actual withdrawal, eliminating the annual tax drag and matching the US/UK/Canada treatment. 

Form 10EE must be filed by the ITR due date – 31st July 2026 for most returning NRIs who are now ROR. Missing this deadline loses the Section 89A benefit for that year entirely. 

Qualifying accounts include 401(k), Traditional IRA, Roth IRA, UK pension schemes and Canadian RRSPs. HSAs do not qualify. The USA, UK and Canada are among the notified countries. 

Form 68 – Relief Under Section 89A for Other Foreign Income 

Form 68 is filed by ROR taxpayers claiming relief under Section 89A provisions for specified foreign income scenarios beyond retirement accounts. Like Form 10EE, this is not applicable to NRIs or RNORs – only to taxpayers who have become full residents after returning to India. 

Both Form 10EE and Form 68 must be filed within the ITR deadline. Once you miss the deadline for the year, the relief cannot be carried forward. 

Step 8: Schedule FSI and Schedule FA – Clarifying who must file what 

Schedule FSI – For ROR Taxpayers with Foreign Income 

Once you become ROR, foreign income is taxable in India and must be reported under Schedule FSI – covering foreign salary, interest, dividends, rental income, capital gains and pension. 

Schedule FSI is not filed by NRIs or RNORs – because their foreign income is not taxable in India and therefore does not require disclosure in the Indian ITR. 

Schedule FSI works directly with Form 67 – the foreign tax credit computation and the FSI income disclosure must be consistent. Discrepancies between them are one of the most common reasons ITR processing is delayed or notices are issued. 

Schedule FA – For ROR Taxpayers with Foreign Assets 

Schedule FA is mandatory for ROR taxpayers only. NRIs and RNORs are completely exempt from Schedule FA. 

This is a critical distinction that many advisors incorrectly apply. Incorrectly telling NRIs they must disclose their foreign bank accounts and investments in Schedule FA is a common mistake that experienced NRI Advisory Services professionals help taxpayers avoid. They do not. Schedule FA applies only once you become ROR.

As an ROR taxpayer, Schedule FA requires disclosure of every foreign asset – Bank accounts, brokerage accounts, RSUs and ESOPs (whether vested or unvested), foreign shares, ETFs, mutual funds, retirement accounts including 401(k) and IRA, foreign real estate, trust interests and partnership interests. 

The Black Money Act penalty: Failure to disclose foreign assets as an ROR taxpayer attracts ₹10 lakh per assessment year per asset – regardless of the asset’s value. This penalty applies even where all income was legitimately taxed. If you became ROR in an earlier year and missed Schedule FA disclosures, the FAST-DS 2026 scheme – once its commencement date is officially notified – provides a voluntary disclosure window with significantly reduced penalties. 

Step 9: AIS Reconciliation – The Step Nobody Skips in 2026 

Before filing, download your Annual Information Statement from the income tax portal. The AIS captures every piece of income the Income Tax Department already knows about – Salary, NRO interest, Capital gains from every broker and AMC, Dividends, Property transactions, Foreign remittances. 

The Income Tax Department’s AI systems now cross-reference your AIS with your ITR in near real-time. A mismatch does not sit quietly – it generates an automatic compliance notice. 

Check your AIS for: 

• NRO interest – verify the amount matches your bank certificate 
• Capital gains – verify each transaction against your broker’s tax P&L statement 
• Property transactions – verify any property sale reported by the registrar 
• TDS entries – verify every TDS deduction appears in Form 26AS and matches your certificates 

File based on a reconciled, verified income picture. Any AIS income you dispute can be marked as incorrect – but you must have documentation to support the dispute. 

Step 10: Document Checklist – Everything you need before Filing 

All NRIs: 

• PAN card and Aadhaar (for e-verification if linked to Indian mobile) 
• Form 26AS and AIS downloaded from income tax portal 
• Bank account (pre-validated NRO account for refund credit) 
• Passport travel records for residential status determination 

For salary and employment income: 

• Form 16 (if Indian employer) or foreign payslips and tax return 
• RSU/ESOP vesting statements with FMV on vesting date 

For rental income: 

• Rental agreement and rent receipts 
• Municipal tax payment receipts 
• Home loan interest certificate from lender 

For capital gains: 

• Equity and mutual fund capital gains statement (CAMS, KFintech, broker P&L) 
• Property sale deed, original purchase deed, stamp duty receipts 
• Cost of improvement receipts if applicable 
• Form 128 / lower TDS certificate if obtained for property sale 

For returning Indians who are now ROR: 

• Foreign retirement account statements (for Form 10EE) 
• Foreign asset details for Schedule FA 
• Foreign income documentation for Schedule FSI 
• Foreign tax payment evidence for Form 67 

Deadline Summary – Everything in One Place 

 How FinPracto Helps NRIs File Correctly 

At FinPracto, NRI taxation is our core specialisation – not an add-on. We work with NRIs and returning Indians across the USA, UK, Canada, UAE, Singapore and Australia who need accurate, coordinated ITR filing that reflects their actual global tax position. 

Our AY 2026-27 ITR filing services include: 

• Residential status determination – Precise day-count analysis from your actual travel records to confirm NRI, RNOR or ROR status 
• ITR-2 / ITR-3 preparation and filing – Correct form selection and complete income disclosure 
• AIS and Form 26AS reconciliation – Identifying and addressing mismatches before filing 
• Form 67 – Foreign Tax Credit computation, documentation and filing for ROR taxpayers 
• Form 10EE and Form 68 – Section 89A relief for ROR taxpayers with foreign retirement accounts 
• RSU and ESOP taxation – Allocation between India and overseas, perquisite computation, capital gains and double taxation resolution 
• Schedule FSI and Schedule FA – Accurate foreign income and foreign asset disclosure for ROR taxpayers 
• Old vs New Regime optimisation – Computing the beneficial regime for your specific income and deduction profile 
• TDS refund maximisation – Ensuring all excess TDS from NRO interest, property sale or rental income is correctly claimed 
• DTAA benefit claims – Form 41 submission, TRC coordination, reduced TDS on dividends and NRO interest 

Read Also:

• The NRI Financial Calendar 2026-27 – Every Deadline you need in One Place
• Missed Filing Your Indian Taxes? The ITR-U Route could save you from Penalties
• Tax Residency Certificate (TRC) in India
• HSA for NRIs Returning to India – Part 1