India's ₹12 Lakh Zero-Tax Rule Excludes NRIs — How Indians in Germany Must File Their FY 2025-26 Indian ITR Differently

The ₹12 Lakh Headline That Doesn't Apply to You

When India's Union Budget 2025 announced that individuals earning up to ₹12 lakh would pay zero income tax, WhatsApp groups exploded. Your parents in Pune probably sent you the news with three celebration emojis and a "beta, no tax now!" message.

Here's the catch: this benefit is exclusively for Resident Indians. If you're living and working in Germany — holding a Blue Card, doing your PhD, or building your career — you are almost certainly classified as a Non-Resident Indian (NRI) under the Indian Income Tax Act. And NRIs are explicitly excluded from the Section 87A rebate that makes the ₹12 lakh rule possible.

This means your NRO interest, Indian rental income, and capital gains are taxed from the very first rupee above the basic ₹3 lakh exemption. Let's break down exactly what this means for your FY 2025-26 Indian ITR and how to coordinate it with your 2025 German Steuererklärung (due 31 July 2026).

Why NRIs Don't Get the ₹12 Lakh Zero-Tax Benefit

Under the new tax regime (Section 115BAC), the Indian government introduced a marginal relief mechanism via the Section 87A rebate. For FY 2025-26:

• Resident individuals with total income up to ₹12 lakh (₹12,00,000) get a rebate that effectively brings their tax to ₹0.
• NRIs do not qualify for the Section 87A rebate at all — regardless of how low their Indian income is.

This isn't new. Section 87A has always been restricted to residents. But the gap has become dramatically visible now because the rebate amount has jumped from ₹25,000 (pre-Budget 2025) to ₹60,000, covering incomes up to ₹12 lakh.

The Tax Impact: What NRIs Actually Owe

Let's look at realistic numbers. Under the new tax regime for FY 2025-26, the slab rates apply to everyone — but only residents get the rebate.

The difference is stark. A resident with ₹10 lakh income pays ₹0. An NRI with the same ₹10 lakh pays ₹50,000 plus cess.

A Real-World Example: Rahul's Indian Income

Let's walk through a concrete scenario.

Even though Rahul owes ₹15,080, his TDS was ₹1,05,000 — so he's actually owed a ₹89,920 refund. But he only gets it if he files his Indian ITR. Many NRIs skip filing and lose this refund every year.

How This Connects to Your 2025 German Steuererklärung

Here's where it gets interesting. Germany taxes your worldwide income, including that NRO interest and Bangalore rental income. When you file your 2025 German tax return (due 31 July 2026), you must declare all Indian-sourced income.

The India–Germany DTAA prevents double taxation, but the coordination requires you to:

1. Report Indian income in your German return (Anlage AUS for foreign income)
2. Claim credit for Indian tax paid (Anrechnungsmethode — credit method for most income types)
3. Have documentation — your Indian ITR-V, Form 26AS, and TDS certificates

Notice something critical: because India's NRI tax on ₹5,90,000 is only ~₹15,080 (roughly €168), while Germany's 42% marginal rate on €6,579 produces €2,763, Rahul still owes €2,595 to the Finanzamt. The DTAA credit helps, but Germany's higher rate dominates.

Step-by-Step: Filing Your FY 2025-26 Indian ITR as an NRI

1. Determine Your Residential Status

If you spent fewer than 182 days in India between 1 April 2025 and 31 March 2026, you are NRI. Verify using your passport stamps.

2. Choose the Right ITR Form

• ITR-2: Most NRIs (salary/interest/capital gains/house property income)
• ITR-3: If you have business income in India
• Never ITR-1: This is only for Resident Indians

3. Old Regime vs. New Regime — Choose Wisely

As an NRI, evaluate both regimes:

• New regime (default): Lower slab rates but almost no deductions (no 80C, 80D, HRA, etc.)
• Old regime: Higher slab rates but you can claim deductions under Section 80C (up to ₹1,50,000), 80D (health insurance), and home loan interest under Section 24

4. Collect Your Documents

• Form 26AS / AIS: Download from the Income Tax portal — shows all TDS deducted
• NRO bank statements and FD certificates
• Rental agreement and municipal tax receipts (if claiming deductions under old regime)
• Capital gains statements from brokers (Zerodha, Groww, etc.)
• Form 67 (if claiming foreign tax credit for German taxes on income also taxed in India — less common for NRIs but relevant in some scenarios)

5. File by 31 July 2026

The Indian ITR deadline for FY 2025-26 (AY 2026-27) is 31 July 2026 — coincidentally the same as your German Steuererklärung deadline. If you miss it, you can file a belated return by 31 December 2026, but you'll face:

• Late filing fee: ₹5,000 (₹1,000 if income is below ₹5 lakh)
• Loss of ability to carry forward certain losses
• Potential issues with your German filing if you need Indian documents for DTAA credit claims

Common Mistakes NRIs Make

❌ Assuming the ₹12 lakh rule applies to them — it doesn't. File accordingly.

❌ Not filing the Indian ITR at all — if TDS was deducted at 30% on your NRO interest but your actual rate is 5-15%, you're leaving a refund on the table.

❌ Forgetting to report Indian income in Germany — the Finanzamt can access CRS (Common Reporting Standard) data. Your Indian bank reports your NRO balances to German authorities automatically.

❌ Filing ITR-1 instead of ITR-2 — ITR-1 is invalid for NRIs. The CPC will process it but may issue a defective return notice.

❌ Not coordinating Indian and German filing — file India first (or simultaneously), so you have the ITR-V and tax computation to attach to your German Anlage AUS.

The Timeline That Actually Works

Here's the filing sequence we recommend:

1. Now (July 2026): Gather Indian documents — Form 26AS, AIS, TDS certificates
2. By 31 July 2026: File your Indian ITR for FY 2025-26 AND your German 2025 Steuererklärung
3. If you need more time for Germany: Engage a licensed Steuerberater — this extends your German deadline to 28 February 2027
4. After receiving Indian ITR refund: Keep the refund order for your German records

File Both Returns With Confidence — TaxDost Handles the Complexity

Coordinating an Indian ITR and a German Steuererklärung with DTAA credits is genuinely complex. One wrong exchange rate, one missed Anlage, and you either overpay or trigger a Finanzamt inquiry.

At TaxDost, we specialize in exactly this. Our platform is built for Indians in Germany — we understand NRO accounts, Section 87A exclusions, Anlage AUS, and how to maximize your DTAA credit so you never pay more than necessary in either country.

Your 2025 German Steuererklärung is due 31 July 2026. Don't leave money on the table — and don't let the ₹12 lakh headline trick you into skipping your Indian ITR.

👉 Start your 2025 tax filing at taxdost.de → and let us handle both sides of the border.