Income-tax Notices and Assessment Proceedings for NRIs: A Complete Guide

Receiving an income-tax notice while living overseas can be concerning. Many NRIs assume that once they move abroad, their Indian tax affairs are no longer under scrutiny. However, with the increasing use of AIS, CRS, FATCA, and other global information-sharing mechanisms, the Income-tax Department is issuing a growing number of notices to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in relation to property transactions, investments, foreign remittances, and other financial activities in India. These include e-campaign communications, notices u/s 143(2), 148A, 148 of the Income-tax Act, 1961("the Act").

Although NRIs are generally taxed only on income that is earned, received, or deemed to accrue or arise in India under the Income-tax Act, 1961 and the applicable Double Taxation Avoidance Agreement (DTAA), the Income-tax Department may initiate scrutiny, reassessment, or penalty proceedings where it believes that:

• Income has been underreported or incorrectly reported,
• Taxable income has escaped assessment,
• A required tax return has not been filed, or
• The correct tax liability has not been paid.

In short, while NRIs are usually taxed only on their India-related income, they are still subject to tax verification and enforcement actions if there are concerns about compliance with Indian tax laws.

Scope of Taxation for NRIs

Determination of Residential Status under the Income Tax Act:

The determination of a taxpayer’s residential status under Section 6 of the Income-tax Act is the starting point for any tax proceeding. Residential status governs the scope of income taxable in India. Where an individual qualifies as a Non-Resident (NRI), only income that is taxable in India can be brought within the ambit of assessment or other proceedings. The conditions for determining residential status are set out in the chart below:

Sources of Information for Initiation of Proceedings under the Act

With the increased use of technology and global information-sharing frameworks, the Income-tax Department can access a wide range of financial data relating to NRIs. Proceedings may be initiated based on information received from:

• AIS, Form 26AS & SFT Reports -Tax records and high-value financial transactions such as large bank deposits, Investments in shares, mutual funds etc.
• Property Registration Records - Purchase, sale, or transfer of immovable property
•  Banking & Financial Intelligence Reports - Information from banks and financial institutions
• Search & Survey Operations - Data gathered during departmental investigations
•  International Information Exchange:

1. Double Taxation Avoidance Agreements (DTAA)
2. Tax Information Exchange Agreements (TIEA)
3. Common Reporting Standard (CRS)
4. Foreign Account Tax Compliance Act (FATCA)

• Data Analytics & Risk Profiling - Used to identify unreported income, undisclosed assets, cross-border transactions, and potential tax non-compliance.

Major Reasons for Opening Cases Against NRIs

Documents Generally Required During Assessment Proceedings in the Case of NRIs

What If You Ignore an Income-tax Notice?

Receiving an income-tax notice in India should never be ignored, even if you are residing overseas. Failure to respond within the prescribed timelines may result in:

• Ex-parte assessments, where tax authorities complete the assessment based on available information without considering your explanation.
• Additional tax demands, interest and penalties arising from alleged under-reporting or non-disclosure of income.
• Denial of DTAA benefits and tax reliefs due to non-submission of supporting documents.
• Further scrutiny of past transactions and tax years, particularly in cases involving property transactions, foreign remittances, investments or significant bank credits.
• Recovery proceedings against assets or bank accounts located in India.

A timely and well-documented response can often prevent unnecessary tax exposure and prolonged litigation.

How AKM Global Can Help

For NRIs, managing tax proceedings from overseas can be challenging. AKM Global provides end-to-end support to help navigate notices, assessments and reassessment proceedings before the Indian Income-tax Department.

Our assistance includes:

• Review of tax notices and assessment of potential exposure.
• Analysis of residential status and DTAA eligibility.
• Preparation and filing of responses along with supporting documentation.
• Reconciliation of AIS, Form 26AS and other tax data.
• Representation before tax authorities and handling departmental correspondence.
• Assistance in reassessment, penalty and appellate proceedings, wherever required.

With extensive experience in advising NRIs and cross-border taxpayers, our team helps clients manage Indian tax proceedings efficiently, regardless of their location.

With the increasing use of data analytics, AIS, CRS, FATCA and international information-sharing mechanisms, the Income-tax Department is issuing a growing number of notices to NRIs and OCIs. While a notice does not necessarily indicate any wrongdoing, it should be reviewed carefully and addressed within the prescribed timelines. Early professional assistance can help mitigate risks, protect treaty benefits and avoid unnecessary tax demands and litigation.

If you have received an income-tax notice in India, AKM Global's tax professionals can assist you at every stage, from evaluating the notice and preparing responses to representing you before the tax authorities and resolving the matter efficiently. Please feel free to write to us at info@akmglobal.in or submit your enquiry here.