Penalty for Non-Declaration of NRI Status in India

a) Tax Penalty

If you fail to declare your NRI status and are treated as a resident, your global income may be taxed in India. Non-disclosure could lead to:

• Penalties under Section 271F: A fine of ₹10,000 for failure to file an Income Tax Return (ITR).
• Interest under Section 234A/B/C: For delay in filing or paying advance tax.

b) Concealment of Income

Under Section 270A, misreporting or underreporting income due to incorrect residential status can result in:

• Penalty of 50% of the tax due (for under-reporting).
• Penalty of 200% of the tax due (for deliberate concealment).

2. Impacts of Not Declaring NRI Status

a) Taxation of Global Income
If NRI status is not declared, you may be treated as a resident, and your global income becomes taxable in India, leading to:

• Double taxation if taxes are also levied in your country of residence.
• Loss of DTAA benefits.

b) Loss of NRI-Specific Exemptions

NRIs enjoy specific tax exemptions, such as:

• Tax-free interest on NRE accounts.
• Exemptions on certain foreign income under DTAA.
• Failure to declare NRI status may result in losing these benefits.

c) Issues with Bank Accounts
NRIs are required to convert resident bank accounts into NRO/NRE accounts. Non-compliance may lead to:

• Freezing of bank accounts.
• Penalties under the Foreign Exchange Management Act (FEMA).

d) FEMA Violations
Non-disclosure of NRI status can breach FEMA regulations, resulting in:

• Penalties up to 300% of the amount involved in violations.
• Legal action or restrictions on remitting funds.

e) Compliance Risk for Investments

• Investments made under resident schemes may become invalid for NRIs.
• Tax authorities may scrutinize gains from such investments.

3. Legal Repercussions
Non-declaration may result in investigations by:

• The Income Tax Department for tax evasion.
• The Enforcement Directorate for FEMA violations.
  Repeated non-compliance may attract prosecution, fines, or imprisonment under tax laws.

Steps to Rectify Non-Declaration

1. File a Revised ITR: Declare correct residential status and recompute tax liabilities.
2. Seek DTAA Benefits: Use the Double Taxation Avoidance Agreement to avoid paying tax twice.
3. Regularize Bank Accounts: Convert resident accounts into NRO/NRE accounts.
4. Voluntary Disclosure: Inform authorities and pay penalties to avoid harsher consequences.