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tds on non-resident indians

admin | Posted On | July 22, 2025

TDS ON NON-RESIDENT INDIANS: RATES, EXEMPTION AND COMPLIANCES

RATE CHART FOR WITHHOLDING TAX RATE APPLICABLE UNDER VARIOUS SECTION FOR NRI’S:

SectionParticularsTDS Rate
192Payment of salaryNormal Slab Rate
192APremature withdrawal from EPF (No TDS below Rs 30000)10%
194BIncome by way of lottery winnings, card games, crossword puzzles, and other games of any type (Up to Rs.10,000 per transaction- No TDS need)30%
194BBIncome by way of horse race winnings (Up to Rs.10,000 per transaction – No TDS)30%
194EPayment to non-resident sportsman (including an athlete) or an entertainer (not a citizen of India) or non-resident sports association.20%
194EEPayment of amount standing to the credit of a person under National Savings Scheme (NSS)10%
194GPayments such as commission, etc., on the sale of lottery tickets (Up to Rs.20,000 – No TDS)2%
194LBPayment of interest on infrastructure debt fund.5%
194LBA(1)Payment of the nature referred to in Section 10(23FC) (a)5%
194LBA(2)Payment of the nature referred to in Section 10(23FC) (b)10%
194LBA(3)Payment of nature referred to in section 10(23FCA) by business trust to unit holders30%/40%
194LBBPayment of certain income by an investment fund to a unitholder.30%/40%
194LBCIncome from investment in securitization fund30%/40%
194LCInterest for the loan borrowed in foreign currency by an Indian company or business trust against loan agreement or against the issue of long-term bonds*.5%
194LC Interest is payable in respect of Long-term Bond or Rupee Denominated Bond listed on recognized stock exchange located in IFSC4%
194LDInterest on bond (rupee-denominated) to Foreign Institutional Investors or a Qualified Foreign Investor5%
195Income (dividend) on investments made by NRI citizen20%
195Income by way of LTCG referred to in section 115E12.50%
195Income by way of LTCG under section 112(1)(c)(iii);12.50%
SectionParticularsTDS Rate
195Income by way of LTCG under section 112A;12.50%
195Income by way of STCG under section 111A;20%
195Any other income by way of STCG30%
195Any other income by way of LTCG12.50%
195Interest on money borrowed by the government or Indian concern in foreign currency20%
195Income from royalty20%
195Income from technical fees20%
195Any other income (Interest)30%
196BIncome from units of an offshore fund.10%
196BLong-term Capital Gain on transfer of units an offshore fund.12.50%
196CIncome (Interest or Dividend) from foreign currency bonds or GDR of an Indian company10%
196CIncome (including LTCG) from foreign currency bonds or GDR of an Indian company12.50%
196DIncome (excluding dividend and capital gain) from Foreign Institutional Investors.20%

Understanding Who Is an NRI for TDS Purposes:

Under Section 6 of the Income Tax Act, an individual qualifies as an NRI if they either:

  • Stay for less than 182 days in India in the financial year, or
  • Stay less than 120 days if Indiansource income exceeds ₹15 lakh and under 365 days in the preceding four years

Section 195 & TDS: Which NRI Income is liable for TDS

Any entity making payments other than salary to NRIs must deduct TDS under Section 195. This covers:

  • Property sale proceeds, interest (including from NRO accounts and EPF), rental income, dividends, royalties, and professional/technical fees 

Key points:

  • Deduction must happen on accrual basis or payment whichever is earlier.
  • No exemption threshold—every payment trigger TDS.

Exemption mechanism to Reduce or Waive TDS

1. Form 13 – Lower / Nil TDS Certificate (Payeeinitiated)

  • NRIs can apply via Form 13 under Section 197 to reduce or eliminate TDS based on real tax liability.
  • It is to be noted that LDC available under section 197 is valid for a specific payer (TAN) and financial year.

2. Form 15E – Payerinitiated Certificate

  • The payer can file Form 15E (Sec 195(2)) for situations where tax is expected to be lower e.g. rental, interest, or service payments.
  • Requires detailed documents: income estimates, capital gains computations, TRC, Form 10F, PAN etc.

3. DTAA Relief (Double Taxation Avoidance Agreements)

  • NRIs residing in DTAA countries (US, UK, UAE, Canada, etc.) may be eligible for lower TDS rates, exemptions (e.g., services/royalty), or relief under treaty provisions.
  • As per Income tax provision if DTAA benefit is available, then Income tax rate or DTAA rate whichever is lower will be applicable.
  • To claim DTAA benefits, NRIs must submit:
  • TRC (Tax Residency Certificate) from their country,
  • Electronic generated Form 10F,
  • Self-declaration of beneficial interest of owner.
  • PAN to the payer

4. Capital Gains Exemptions (Sec 54/54EC)

  • Relevant when reinvesting capital gains (e.g., into residential property or specified bonds) to claim exemptions.

Compliance Workflow: Deductor & Deductee Responsibilities

For the Payer (Deductor/Buyer/Bank)

  1. Obtain TAN, confirm your PAN, and verify recipient PAN.
  2. Deduct TDS at the mandated time of accrual or payment.
  3. Deposit TDS using Challan ITNS 281 within 7 days of the month following deduction.
  4. Filing of 15CA/CB in case of remittance abroad.
  5. File Form 27Q quarterly (due: 30 July, 31 Oct, 31 Jan, 31 May)
  6. Issue Form 16A within 15 days of return due date.

For the NRI Payee

  1. Update PAN / bank KYC to correctly reflect NRI status to avoid 206AA default rates.
  2. File Form 13 (with CAcertified estimates if needed) to get a lowerTDS certificate.
  3. Submit DTAA documentation (TRC, Form 10F) for treaty benefits.
  4. Check Form 26AS/AIS when filing ITR to ensure TDS credits are reflected.

What If TDS Not Deducted Correctly for NRI’s

  • Nondeduction or default can lead the payer to face:
    • Interest of 1–1.5% per month,
    • Penalties under Sections 271C / 271H vary from Rs 10000 to Rs 1 lakh.
    • Assessee in default under section 201.

Common Pitfalls to Avoid

  • Not converting resident accounts to NRO/NRE poststatus change→ banks apply 30% resident TDS by default.
  • Not applying for Form 13 / Form 15E → TDS is deducted on the full amount rather than actual gains.
  • Ignoring DTAA → delays or refusal of treaty benefits due to missing TRC / 10F.
  • Rent compliance: Tenants must deduct TDS each month at 31.2% since rent income cannot be considered as business income as per latest finance act amendment.
  • Filing of Form 15CA/15CB on time in case of remittance abroad.