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NRIs are subject to TDS if they have earned any income in India. As per the recent update by CBDT on September 27, 2023, Non-resident Indians (NRIs) looking to prevent tax deductions on the income earned in India now have a revised procedure to obtain tax deductions at source (TDS).
Unlike resident Indians, NRIs cannot avoid the deduction of TDS using Form 15G/H. Instead, they must apply directly to the assessing officer for issuing a zero TDS certificate. Let’s understand what is the procedure for NRIs to obtain TDS certificates.
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 -
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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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.
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.
The steps to file Form 13 for applying to the AO to obtain a lower deduction certificate are given below -
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).
After applying for a lower or nil TDS rate using Form 13, the following steps occur:
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.
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.
Given below are the documents that are required to be submitted along with the Form 13 -
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.
Have tax-related queries or need expert assistance? Talk to our experts now!
NRIs must apply for a reduced or zero TDS certificate instead of using Form 15G/H as residents do. The process includes submitting an online application using Form 13 and verifying it with a Digital Signature Certificate (DSC).
NRIs have the option to apply for lower TDS rates or claim exemptions by obtaining a Certificate of Lower Deduction or No Deduction from a chartered accountant. This certificate, necessary for particular transactions, helps minimize the TDS liability for NRIs.
Unlike Indian residents. NRIs cannot use Form 15G/H to lower the deduction of TDS on their incomes. Instead, they are required to apply to the assessing officer for a reduced or zero TDS certificate. This certificate prompts the income payer to either deduct taxes at a lower rate or not at all.
Processing the LDC typically requires 3-6 weeks, as it involves the assessing officer sending the application to the TDS officer and their seniors. The validity of the LDC is provided for a specific fiscal year at a particular rate that is aligned with the actual capital gains.
Under Section 195 of the Income Tax Act, the payor is obligated to deduct TDS from payments made to NRIs or other non-resident entities. The individual making such remittance to a non-resident must e-file and submit the following certificates of information: An undertaking of the TDS in Form 15CA.
The TDS rate is 30% for the properties sold before 2 years. Such gains are called short-term capital gains and are taxed at higher rates of 30%. On the other hand, when a resident purchases property from an NRI, they have to deduct TDS at 20% for the properties held for more than 2 years.
