The surge in notices underscores the importance of accurate classification and awareness of evolving cross-border reporting systems rather than any targeted scrutiny
Thousands of NRIs living in the UAE have recently received emails or text messages from the Indian Income Tax Department asking them to disclose overseas assets or complete Schedule FA or FSI. While the notices may appear alarming, tax experts emphasize that most of them are automatically triggered due to classification mismatches rather than deliberate wrongdoing.
These notices arise from the Common Reporting Standard (CRS), a global information-sharing system through which over 100 countries, including the UAE, exchange financial data to discourage tax evasion. Under CRS, India receives details of foreign bank accounts, investments, income, and properties held by Indian taxpayers abroad.
Problems typically occur when NRIs mistakenly file their income-tax returns as residents. This misclassification often happens because PAN details are not updated, old resident savings accounts remain active, or tax preparers unfamiliar with NRI rules prepare returns incorrectly. When the tax system sees a return filed under resident status and finds matching foreign assets in the CRS database, it automatically issues a disclosure notice.
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Incorrectly filing as a resident while omitting foreign assets can attract hefty consequences, including penalties under the Black Money Act and possible reassessment. However, timely correction prevents escalation
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Importantly, NRIs rarely need to disclose foreign bank accounts unless they lack an Indian account for refunds or have Indian income deposited abroad
The distinction matters: resident taxpayers must report all overseas assets, whereas NRIs do not submit Schedule FA or FSI unless specific exceptions apply.
Under Indian tax rules, a person is classified as an NRI if they spend fewer than 182 days in India during a financial year or satisfy alternate day-count criteria. The status is determined solely by physical presence in India, not by passport, visa, or residence permit abroad.
Holding a resident savings account further complicates matters, as FEMA rules require NRIs to convert these to NRE or NRO accounts. Continued use of resident accounts may cause the system to treat the individual as a resident, automatically triggering notices.
To correct the issue, NRIs are advised to verify their residency status, use the correct ITR form (generally ITR-2), avoid filling FA/FSI schedules if they qualify as NRIs, and update PAN and bank KYC details. Converting resident accounts to NRO/NRE formats and seeking guidance from NRI-focused tax specialists also helps avoid penalties.
