Basic exemption limit for NRIs
For resident Indians, tax is deducted at source only when the income exceeds a certain limit. There are different thresholds for different income sources. For instance, TDS on rent is applicable only when the total rental income exceeds Rs 1.2 lakh per annum.
TDS on bank interest is applicable only where interest earned from a particular branch exceeds Rs 10,000 per annum. In case of NRIs however, every single rupee earned is subject to TDS, that too, at a rate of 30%. In case of bank interest, if India has a Double Taxation Avoidance Agreement (DTAA) with the NRI's country of residence, the NRI may claim a lower TDS rate of 15%.
Individuals need not have to deduct TDS on payments to NRIs
In case of rental income or capital gains from sale of property, the person who pays either the rent or the sale consideration to the NRI is liable to deduct tax at source. Even if that person is an individual, he is expected to obtain a TAN number (Tax Deduction and Collection Account number) and deposit the TDS with the Government.
There is no such requirement in case of rent paid or sale consideration paid to a resident Indian. The income tax laws clearly state that if it is an individual or an HUF who is paying the rent to a Resident, no TDS needs to be deducted.
Easy route to claim exemption
If a resident Indian expects his total income for the year to be less than the basic exemption limit of Rs 1.8 lakh, he can submit form 15G and 15H to his bank and get exemption from TDS on his interest. However, for NRIs, the process is not so simple.
An NRI might want an exemption under two circumstances: either his Indian income is exempt due to benefit available under a DTAA or his total income in India is expected to be less than the threshold of Rs 1.8 lakh.
If the DTAA between the country of an NRI's residence and India allows a lower rate or zero rate of TDS, the NRI would need to submit a tax residency certification from the tax department of the country of his residence.
This will certify that he is a tax paying resident in that other country and that tax on that income is being duly paid in that country. In countries like the US, if an Indian resident is earning income from a US source, and he wants to claim exemption from US withholding tax, he does not need to submit a tax residency certificate issued by the Indian tax authority. He must only fill up a form W8Ben to his payer.
For resident Indians, tax is deducted at source only when the income exceeds a certain limit. There are different thresholds for different income sources. For instance, TDS on rent is applicable only when the total rental income exceeds Rs 1.2 lakh per annum.
TDS on bank interest is applicable only where interest earned from a particular branch exceeds Rs 10,000 per annum. In case of NRIs however, every single rupee earned is subject to TDS, that too, at a rate of 30%. In case of bank interest, if India has a Double Taxation Avoidance Agreement (DTAA) with the NRI's country of residence, the NRI may claim a lower TDS rate of 15%.
Individuals need not have to deduct TDS on payments to NRIs
In case of rental income or capital gains from sale of property, the person who pays either the rent or the sale consideration to the NRI is liable to deduct tax at source. Even if that person is an individual, he is expected to obtain a TAN number (Tax Deduction and Collection Account number) and deposit the TDS with the Government.
There is no such requirement in case of rent paid or sale consideration paid to a resident Indian. The income tax laws clearly state that if it is an individual or an HUF who is paying the rent to a Resident, no TDS needs to be deducted.
Easy route to claim exemption
If a resident Indian expects his total income for the year to be less than the basic exemption limit of Rs 1.8 lakh, he can submit form 15G and 15H to his bank and get exemption from TDS on his interest. However, for NRIs, the process is not so simple.
An NRI might want an exemption under two circumstances: either his Indian income is exempt due to benefit available under a DTAA or his total income in India is expected to be less than the threshold of Rs 1.8 lakh.
If the DTAA between the country of an NRI's residence and India allows a lower rate or zero rate of TDS, the NRI would need to submit a tax residency certification from the tax department of the country of his residence.
This will certify that he is a tax paying resident in that other country and that tax on that income is being duly paid in that country. In countries like the US, if an Indian resident is earning income from a US source, and he wants to claim exemption from US withholding tax, he does not need to submit a tax residency certificate issued by the Indian tax authority. He must only fill up a form W8Ben to his payer.
| Income source | Sub heads | Rate of TDS |
| Bank interest | NRE, FCNR | No TDS |
| NRO | ||
| Interest from other investments | 20% | |
| Dividends | Shares and mutual funds | No TDS |
| Capital gains | Equity shares, mutual funds | No TDS on long term gains; 15% on short term gains |
| Debt mutual funds, debentures | 10% on long term gains, 30% on short term gains | |
| Property, gold | 20% on long term gains, 30% on short term gains | |
| Rent | 30% | |
| Professional services and royalty | Varies between 10- 20%. Click here for details | |
| All other income | 30% |
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