Ever looked at your income from India and wondered—”Why is the amount I received less than expected?” If you’re an NRI (Non-Resident Indian), chances are that the answer lies in a three-letter word: TDS—Tax Deducted at Source. Let’s know more about TDS for NRIs.
Whether it’s rental income, interest from your NRO account, or the sale proceeds from a property in India, the Indian government ensures that taxes are collected upfront through TDS. But understanding how it works—and how to manage or even reduce it—can save you a lot of confusion and money.
In this blog, we break down everything NRIs need to know about TDS in India. No jargon, just clear facts.
The Basics: Why NRIs Need to Care About TDS
TDS is a tax collection mechanism under which the person or entity making a payment—whether it’s a tenant, a bank, or a property buyer—deducts tax upfront before crediting the income to you. This ensures the government receives tax revenue in real time.
As an NRI, you are liable for TDS if you earn any of the following types of income from India:
- Interest on NRO fixed deposits, bonds, or savings accounts
- Rental income from a property in India
- Capital gains from the sale of property, stocks, or mutual funds
- Dividends from Indian companies
However, not all interest is taxable. If you’ve parked money in NRE (Non-Resident External) or FCNR (Foreign Currency Non-Resident) accounts, the interest earned is fully exempt from tax—and hence, no TDS applies.
TDS for NRIs: A Quick Look on Rates
The TDS you pay depends on the nature of the income. Here’s a quick snapshot of the standard rates:
TDS Rates Applicable to NRIs on Different Income Types
| Type of Income | Applicable TDS Rate |
|---|---|
| Earnings from investments like interest and dividends | 20% |
| Long-term capital gains under Section 115E, including: • Shares of an Indian company • Debentures or deposits with Indian public companies • Government-issued securities | 12.5% |
| Long-term capital gains from listed shares and equity mutual funds (as per Section 112A) • 10% for transfers made before 23rd July 2024 • 12.5% for transfers on or after 23rd July 2024 | 10% / 12.5% (depending on transfer date) |
| Other types of long-term capital gains not covered above | 12.5% |
| Short-term capital gains from securities held by FIIs or specified funds (excluding units of mutual funds or UTI) | 20% |
| Interest paid by the Government or Indian entities on foreign currency loans | 20% |
| Royalty payments and fees for technical services made by the Government or Indian companies | 20% |
| Any other category of income not specified above | 30% |
These rates are further increased by:
- A 4% health and education cess, and
- A surcharge (10–37%) if your total income exceeds ₹50 lakh in a financial year.
Important: These are default deduction rates. Your final tax liability may be lower or higher depending on your situation.
Why TDS May Be Higher Than Necessary
In many cases, especially when you sell property or earn large sums of interest, the payer may deduct more tax than you actually owe. This happens because the deductor isn’t always aware of your full tax profile.
Here’s how you can deal with that:
1. Apply for a Lower Deduction Certificate (Form 13)
If you believe your actual tax liability is lower than the default TDS rate, you can apply to the Income Tax Department for a certificate under Section 197.
Once issued, this certificate allows the payer—like a buyer or bank—to deduct tax at the reduced rate mentioned in the certificate.
Pro Tip: Apply for Form 13 well in advance of receiving large payments (like property sale proceeds). Processing can take time.
2. Claim a Refund by Filing Your Tax Return
If excess TDS is already deducted, the only way to recover it is by filing an Income Tax Return (ITR) in India. Once your return is processed, the income tax department will refund the overpaid amount—often within 3–6 months of filing.
Documents That Matter: TDS Certificate & Form 26AS
To track and prove TDS, two documents are essential:
a) Form 16A – Your TDS Certificate
This certificate is issued by the deductor (e.g., a tenant, bank, or buyer). It acts as proof that tax has been deducted and deposited with the Indian government on your behalf.
You’ll need it:
- While filing your ITR
- To claim a refund of excess TDS
- To avoid double taxation under DTAA
b) Form 26AS – Your Tax Passbook
Form 26AS is a consolidated tax statement available on the income tax portal. It shows all TDS entries against your PAN, along with details of payments made.
Tip: Always verify that the TDS shown in Form 16A matches your Form 26AS before filing returns.
What If TDS Isn’t Deducted Properly?
Incorrect or missing TDS deductions can result in complications—both for the payer and the NRI recipient.
- If a buyer fails to deduct TDS on a property purchase from an NRI, they may face penalties, and the NRI may still need to pay the tax plus interest on the shortfall.
- If TDS is deducted at the wrong rate, it could result in excess payment or penalty for short deduction, depending on who’s at fault.
To avoid such issues:
- Always declare your NRI status clearly in relevant documents
- Ensure the deductor has your correct PAN
- Verify deductions are made at applicable rates
- Collect and retain Form 16A for every transaction
DTAA Benefits: Preventing Double Taxation
India has signed Double Taxation Avoidance Agreements (DTAAs) with many countries including the US, UK, UAE, and others. If you’re paying tax on Indian income via TDS, you may be able to offset or reclaim that tax in your resident country, depending on the agreement.
You’ll need:
- A Tax Residency Certificate (TRC) from your resident country
- Form 10F (to be submitted online)
- TDS certificates (Form 16A)
This can help you prevent paying tax twice on the same income.
A Simple Checklist for NRIs
Before you receive any income in India, ask yourself:
- Is this income subject to TDS?
- Is the payer aware of my NRI status?
- Have I applied for a lower deduction certificate (if needed)?
- Am I tracking Form 26AS to ensure the tax has been credited?
- Will I need to file a return for a refund?
- Do I need DTAA documents?
In Conclusion
TDS may seem like a minor deduction—but for NRIs, it’s often the first step in managing Indian taxation. A clear understanding of how it works, where it applies, and how to control over-deduction can save you both money and legal stress.
If you have multiple income sources in India, or planning to invest in India, consider speaking to a tax advisor who understands NRI taxation and DTAA rules. It’s the best way to make sure you’re paying only what you should—and nothing more.
Don’t let TDS catch you off-guard. Stay informed, stay in control.
FAQs
1. Is TDS applicable to all types of income earned by NRIs in India?
No, TDS applies only to taxable income such as rent, capital gains, interest on NRO accounts, and dividends. Interest from NRE and FCNR accounts is tax-free and does not attract TDS.
2. Can NRIs avoid TDS on property sales in India?
You cannot avoid TDS, but you can reduce it by applying for a lower deduction certificate (Form 13) from the Income Tax Department based on your actual tax liability.
3. What happens if the buyer does not deduct TDS when buying property from an NRI?
The buyer can be held liable for the unpaid TDS, along with interest and penalties. NRIs may also face consequences during tax assessment.
4. How can NRIs claim a refund of excess TDS?
You must file an income tax return in India to claim a refund. The refund will be credited after your return is processed by the tax department.
5. What documents help NRIs track TDS deductions?
Form 16A (TDS certificate) and Form 26AS (consolidated tax statement) are essential to track and verify TDS deducted and deposited against your PAN.
6. Is it mandatory for NRIs to file ITR in India if TDS is already deducted?
Yes, if the TDS exceeds your actual tax liability or if you want to claim a refund, filing an ITR is mandatory.
7. Can NRIs benefit from Double Taxation Avoidance Agreements (DTAA)?
Yes, NRIs can claim relief under DTAA by submitting a Tax Residency Certificate (TRC), Form 10F, and relevant TDS documents to avoid paying tax twice.
