TDS for NRIs – All You want to Know

Income earned or accrued by NRIs in India is subject to tax in India. Section 195 of the Income Tax Act covers Tax Deducted at Source (TDS) on payments made by non-resident Indians. The rates and conditions for TDS are different for Non Resident Indians compared to Indians. Let us see the TDS terms on different sources of income.

Tax Treatment on NRI Term Deposits

Tax on Interest earned from Bank Accounts

Interest earned on Non Resident Ordinary Account (NRO) is taxable. A TDS of 30% is applicable on it. But interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts is not taxed in India. Therefore there is no tax deducted at source.

Must Read – Tax Planning for NRIs

Tax on Dividends

There is no tax and therefore no TDS is deducted on dividend earned on equity shares and mutual funds.

Tax on Capital Gains

If an NRI earns short term capital gains by selling equity shares or equity mutual funds, the gains are subject to 15% TDS. Equity mutual funds are mutual fund schemes that have 50% or more investments in equities.

Short term gains are profits made by selling equity shares or equity mutual funds within a year of purchase.

Tax on Other Income – One can earn income through other means such as rent or income from professional services. Here are the TDS rates for such other income –

IncomeTDS
Rent30%
Professional Services10%
Royalty10%
Technical Fees10%
Any income that does not fall in any of the above categories30%

Important Points To Remember –

  • An education cess of 3% is applicable to all the TDS.
  • If the income earned is more than Rs. 10,00,000, a surcharge of 10% is applicable.
  • If you buy any property or make an investment when you are a resident Indian but earn income when your status changes to NRI, then the rules applicable to NRI will be in force for tax matters.
  • NRIs have to file income tax returns if he/she has earned income more than Rs. 2,00,000 or any income via short term or long term capital gains.

Sometimes it is a challenge for Non-Resident Indians (NRIs)to handle taxation matters when there are amendments to existing rules and provisions.

Amendments regarding TDS for NRI policyholders

To simplify matters, here is a brief overview on taxation rules that have been amended recently and impact NRI policy holders –

  1. Payments made by policy holders of Life Insurance, Annuity Products, Pension Plans and Health Insurance products who are NRIs will be subject to TDS. Life insurance policies that are exempt from this are those policies that are exempt under section 10(10D) of the Income-Tax Act 1961. There is also a provision in section 197A by which self-declaration in Form No.15G/15H for non-deduction of tax at source can be submitted by the policy holder.
  2. The policyholder will need to submit the following documents to ascertain the applicable tax rate
  • – Tax Residency Certificate (TRC), duly verified by the Government of the country of which the policyholder is a resident.
  • – Self attested Form 10F (since the TRCs issued by different countries may not contain all the particulars mandatorily required to be included under section 90(4) or 90A (4) of the Income-tax Act.
  1. The Indian central Government has entered into Double Taxation Avoidance Agreement (DTAA) with many countries so that a taxpayer (who is resident of one of these countries) can claim beneficial provisions either of DTAA or of the domestic law to be applicable.
  2. The rate of TDS will be determined as per rules of Income Tax Act 1961 and DTAA with residence country of the policy holder if it has been signed. For availing the benefits of DTAA, a policy holder needs to submit a Tax Residency Certificate (TRC) containing defined particulars and other required documents. The maximum rate will be 30% + surcharge and education cess.

Hope this clarifies matters related to TDS and recent taxation amendments regarding insurance policies for NRIs. Feel free to ask your questions in query section.

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Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice & TFL Guide Blog in 2009. "The Financial Literates" is a dream & mission to make Indians Financial Literate.

18 COMMENTS

  1. Will it be possible to file returns, if the interest income generated from NRO bank deposits are below the taxable limits (i.e. less than 2.5 Lakhs)

  2. Sir / Madem,

    I am staying in Saudi Arabia on Short term work visa, getting only Per diem (living expenses) from company.

    My question,

    If I get 50$ amount per day as Per diem from company (It is not a salary) and in that I spend 35$ for living expenses and save 15$ per day.

    and transfer 15$*30=450$ in my India saving account, Do I have to pay tax on this 450$ ?

    Obviously, Whatever the salary I am withdrawing in india, my company is deducting tax and then I am getting my salary, so India salary tax I am paying fairly, but question is specific to Per diem (living expenses) saving.

    Regards,

    • Hi

      While replying to Mr. Girish’s query on long term capital gains on equity mutual funds, you have mentioned that the NRI concerned may have to pay tax in his/her resident country, depending on DTAA. My brother lives in Singapore. If he earns long term capital gains from the sale of equity mutual fund units in India, does he have to pay taxes for such gains in Singapore under DTAA?
      Is it not taxable in India?

      • Dear Visakan,

        Taxation rule on equity mutual fund has been changed. So according to the new rule, your brother has to pay tax on the long-term gain on equity mutual fund in India if the gain is above Rs 1 lakh. He does not have to pay tax in Singapore.

  3. I am on NRI having pension policy in India with out life cover due to that 31% TDS is deducted on my gains. I am from Malaysia how I can claim this TDS.

  4. I found short term capital gains on equity/debt investments is taxable and subject to TDS for NRIs – 15% that you mentioned.
    Is it taxable and also subject to TDS for long term capital gains (holding period > 1 year?) of NRIs – because it is tax-exempt for residents?
    please let me know.

  5. Hi hament

    Yousful artical thanks

    Please late me know if i arned NRO A/C Intrest of 15000 INR How much TDS Applicable, i have to pay or didected outomaticaly in A/ C .

    I dont have any income from india i am working in UAE.

    Thanks in advance for your fevorable respons.

  6. 1. Please produce a TABLE comparing tax benefits available to RESIDENTS vs. NON-RESIDENTS. It will be most helpful.
    2. TDS for house rental income – is this only if MONTHLY rent exceeds Rs 50,000 only? Or, the tenants in India of a NRI, need not deduct TDS if monthly rent is less than Rs 50000?

    Thnaks

  7. What if being the NRI for the last 10 years, if someone hasn’t the taxes and there was an income from Indian resources like bank interest, rent etc. How that person can start filing it without the penalty?

  8. I am NRI in UAE. I had invested in ICICI Mutual fund scheme for 3 yrs., which has matured on 21 st May. 2018.
    They have deducted almost 15% of capital gain.
    My questions are 1. Is 3 yrs. considered short term or long term gain?
    2. As I understand that their only 15% part was invested in Equity.
    3. The TDS Mutual Fund came into existence since March or April 2018.
    4. Is it justifiable to deduct, even though invested was done 3 yrs. ago.
    Please clarify whether this deduction is OK.

  9. Dear Dr. Thariani,

    There is 15% tax rate if you redeem the amount from equity mutual funds before on year. If you are investing in SIP mode and if it has not completed one year then AMC will deduct 15%.

  10. Hi
    Can please help to know after paying tds through challan 281,when can i file return. After how many day i can file return?

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