I work with NRIs fairly regularly. Not as the primary focus of my practice — cross-border corporate tax is the main work — but NRI tax planning comes up often enough that I’ve seen the same mistakes repeat across clients in different countries, different income brackets, different family situations.

The frustrating part: almost all of them are preventable with basic structuring done before the money moves, not after.

Mistake 1: Keeping NRE and NRO accounts without understanding the difference

Most NRIs have both account types but don’t know what each is for. The distinction matters significantly for taxation and repatriation.

NRE accounts hold foreign income converted to INR. The interest is tax-free in India and fully repatriable. NRO accounts hold India-source income — rent, dividends, sale proceeds from Indian assets. Interest on NRO accounts is taxable in India, and repatriation requires documentation.

The mistake is depositing Indian rental income into an NRE account, or crediting foreign salary to an NRO account. The former is a FEMA violation. The latter creates unnecessary tax complications. Getting this right is not complicated — it just requires knowing the distinction from the start.

Mistake 2: Not claiming DTAA benefits

India has double taxation avoidance agreements with over 90 countries. These treaties determine where income is taxed and at what rate. Most NRIs know the concept of DTAA but very few actively claim the benefits they’re entitled to.

The most common missed claim: lower withholding tax rates on Indian dividend or interest income. Treaty rates are often significantly lower than the default 30% TDS applied by Indian payers. The difference accumulates over years of passive income from Indian investments.

Claiming treaty benefits requires filing a Tax Residency Certificate from your country of residence and submitting Form 10F. Not difficult. Rarely done.

Mistake 3: Ignoring residential status year transitions

The year you leave India — or return — is the most complex year from a tax perspective. Residential status for that year determines what income is taxable in India. Getting it wrong means either over-paying (less common) or under-paying and getting a notice (more common).

The day count rules under the Income Tax Act are mechanical but have exceptions that trip people up, particularly if there’s been intermittent travel. The Citizen Amendment exemptions added another layer. A proper residential status assessment in transition years is not optional.

Mistake 4: Gifting assets to family without checking gift tax and FEMA implications

An NRI wanting to transfer money or assets to parents or a spouse in India often does it informally — direct bank transfer, treated as a gift. For certain relationships this is fine. For others there are gift tax implications in India and FEMA reporting requirements that are simply skipped.

The reporting requirement is the larger risk. FEMA violations are civil, not criminal, but the penalties are real and enforcement has increased meaningfully in recent years.

Mistake 5: Selling Indian property without planning the tax event

Capital gains from property sold in India by an NRI are subject to TDS at source — the buyer is required to deduct 20% or 30% depending on holding period. This often catches NRIs off guard, particularly when the property has been held across generations and the cost basis is unclear.

The cost indexation benefit, the potential for lower effective tax via treaty, the ability to reinvest gains in bonds under Section 54EC — these options exist but must be planned before the sale, not claimed in retrospect.

The common thread across all five: the best time to structure NRI finances is when the NRI status first begins. The second best time is now.