Lower TDS Certificate for NRI - New TDS Certificate Rules for NRIs

What is TDS for NRIs?

Section 195 of the Income Tax Act pertains to the deduction of TDS on payments made to non-resident Indians (NRIs). Here are some key features of section 195 -

• Section 195 applies to any person who is responsible for paying an NRI. This includes individuals, Hindu undivided families, partnership firms, domestic or foreign companies, non-residents, entities with exempt income in India, or any other legal entity, regardless of whether they have taxable income in India.
• TDS must be deducted on all payments made to an NRI, excluding salary (covered under Section 192) and interest payments (covered under Sections 194LB, LC, and LD).
• The deduction should occur when the amount is credited to the NRI's account or when payment is made in cash or through a bank, whichever happens earlier.
• There is no minimum threshold for TDS deduction on payments to NRIs under Section 195.

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Which Incomes are Commonly Subject to TDS for NRIs?

Non-Resident Indians (NRIs) often have income sources in India such as interest, rent, and dividends, which are subject to tax deduction at source (TDS). The applicability of TDS depends on the type of income earned by the NRI. Payments made to NRIs must comply with income tax laws regarding TDS.

The payer must deduct TDS and deposit it with the Indian tax authorities. TDS rates vary depending on the type of income, such as interest income from bank deposits or rental income from property. Dividends paid by domestic companies are also subject to TDS as defined by tax law.

Payers are responsible for deducting TDS and complying with applicable provisions. NRIs should ensure that the payer is deducting the correct TDS amount and provide any necessary documentation to support the correct tax treatment of their income.

NRIs must report their Indian income and TDS in their tax returns and can claim credit for TDS deducted when filing their tax return. By understanding TDS requirements and ensuring compliance, both NRIs and payers can avoid potential legal issues and penalties.

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Application for Zero or Lower TDS Made by the Payer

If the payer believes that a non-resident in India is not liable to pay tax on the entire amount or a part of it (except for salary), they can apply to the Assessing Officer (AO) by submitting a Form 15E for a lower or nil deduction certificate.

NRIs can prevent tax deductions on income earned in India by obtaining a TDS certificate. Unlike residents, NRIs cannot file Form 15G/H to avoid TDS deductions on their income. On the contrary, they have to apply to the assessing officer for a reduced or zero TDS certificate. This certificate can be used to ask the payer to deduct TDS at a lower rate or not deduct TDS at all.

In other words, individuals having an income exceeding the basic exemption limit cannot use Form 15G/H to reduce TDS rates and have to apply for a zero deduction certificate. For example, an individual with a significant investment of Rs 90 lakh in Fixed Deposits may experience interest losses due to TDS deductions. Such individuals can apply for a zero deduction/lower deduction certificate to the AO.

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What is Form 13?

If you want to apply for a lower deduction certificate, you need to file Form 13 with the assessing officer. The AO then goes through the details of the form and is satisfied; then, he/she can issue a lower deduction certificate.

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How to File Form 13?

The steps to file Form 13 for applying to the AO to obtain a lower deduction certificate are given below -

• Step 1. Log in to the Traces portal.
• Step 2. Navigate to the "Statements/Forms" section.
• Step 3. Click on "Request for Form 13."
• Step 4. Select your residential status.
• Step 5. Choose the request type as "original."
• Step 6. Select the applicable financial year.
• Step 7. Set the application type as "online."
• Step 8. Basic details of the authorized person registered on the TRACES portal shall be auto-populated.
• Step 9. Enter the state and district.
• Step 10. Provide the responsible TAN, nature of receipt, and the required rate of TDS/TCS deduction.
• Step 11. Upload the income and tax liability for the current year and the last four years.
• Step 12. E-verify using Aadhaar OTP, mobile number registered with TRACES, net banking, or digital signature.

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What is the Change in Lower/Nil TDS Application for NRIs?

The CBDT introduced certain amendments and changes to the zero TDS application procedure for NRIs.

One of the major changes in the process of TDS application is the removal of various methods of verification of the application submitted to the assessing officer. The TRACES website has eliminated e-verification options like mobile OTP, Aadhaar OTP, etc. After this amendment, the only method of verification available on the TRACES website is a Digital Signature Certificate (DSC).

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What happens after you apply for lower or nil TDS using Form 13?

After applying for a lower or nil TDS rate using Form 13, the following steps occur:

1. Verification of the Application: The TDS Assessing Officer (AO) reviews the application. This involves checking the reasoning and justification provided by the NRI applicant.
2. System Check: The AO examines the income tax department's software for the recommended TDS rate. The software might suggest a lower, nil, or unchanged rate.
3. Decision by AO:
   • Approval: If the AO grants a lower or nil TDS rate, a certificate is issued to the applicant. The certificate specifies the reduced TDS rate, the time period it applies to, and the TAN and other details of the deductor.
   • Rejection: If the AO and the software both agree that the current TDS rate is appropriate, the application is rejected.
4. Certificate Details: The TDS certificate includes specific details about the approved lower or nil rate, including:
   • The period of validity, which is either for one financial year or for a specific transaction.
   • The TAN (Tax Deduction and Collection Account Number) and other information about the deductor.
5. Explanation for Independent Decision: If the AO grants a TDS rate that is different from the software's recommendation, the AO must provide a justification for the decision.
6. Usage of the Certificate: The lower or nil TDS certificate can be used only for the specified deductor and is not universally applicable across all deductors for the NRI.

The process ensures that the application for a lower or nil TDS rate is thoroughly reviewed and that any decision made by the AO is justified and transparent.

Connect with Tax2win Tax experts to know more about how to lower/nil TDS applications for NRIs.

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What is the Due Date for Filing Form 13?

March 15 is the last date for filing Form 13 every year. For example, if you want to claim the lower deduction of TDS for the year 2023, then the last date to file Form 13 will be 15 March 2024.

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What are the Documents Required to be Submitted with Form 13?

Given below are the documents that are required to be submitted along with the Form 13 -

• Duly signed Form 13
• A copy of the income tax return along with the acknowledgment and enclosures for the previous 3 financial years
• Copies of assessment orders for the previous 3 financial years.
• If assessees have a business or professional income, copies of financial statements and audit reports for the previous years.
• Projected P&L account for the current financial year.
• Income Statement for the previous 3 financial years and the projected computation for the current financial year.
• Copy of PAN card
• The tax deduction account number of all parties responsible fro making the payment.
• E-TDS return acknowledgment for the previous 2 financial years.
• Estimated income for the financial year.
• Other documents depending on the nature of income.
• TDS default that took place earlier.

Once the application is completed and submitted to the jurisdictional assessing officer, the application has to be disposed of within 30 days from the date on which it is received. The assessing officer reviews the information/documents submitted and may ask for further explanations or documents before accepting or rejecting the application.

Understanding the provisions of NRI taxation and filing Forms like Form 13, along with all the relevant documents, can be a little complex and time-consuming. Having said that, it is also common to have tax-related queries. Therefore, getting professional help can help you ensure a smooth tax filing journey.

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