Did you know that a single oversight in TDS deduction can cost you months of waiting for tax refunds? As an NRI earning income from India, you face automatic tax deductions on almost everything - from rent payments to mutual fund redemptions.
Here's the reality: Your Indian income gets hit with TDS the moment it's credited to your account. Whether it's the 31.2% slashed from your rental income or the 20% deducted from dividends, these aren't just numbers on paper. They directly impact your cash flow and investment returns.
The landscape changed significantly in 2024, with capital gains rates jumping from 10% to 12.5% for long-term holdings. Strategic planning can help you minimize deductions, claim legitimate exemptions, and get faster refunds.
This guide breaks down everything you need to know about TDS rates for NRIs, exemptions, lower deduction certificates, and the refund process. You'll learn which income sources escape TDS entirely, how to apply for reduced rates through Form 13, and the exact steps to claim your money back from the tax department.
Key Takeaway
Understanding your TDS obligations as an NRI helps you optimize tax payments and avoid unnecessary deductions on Indian income.
Here's what you'll learn:
- Current TDS rates across rental income (31.2%), property sales (12.5%-30%), dividends (20%), and capital gains (12.5%-30%)
- Tax-free opportunities including NRE and FCNR deposit exemptions that can save thousands in annual taxes
- Lower TDS certificate process through Form 13 on TRACES portal to prevent excessive deductions
- Refund claim procedures including ITR filing requirements, Form 26AS tracking, and expected processing timelines
- DTAA benefits that can significantly reduce your tax burden when properly leveraged
TDS Applicability on Common NRI Income Types
Understanding where TDS applies helps you plan your investments and income sources strategically. Let's break down the rates for each income category with real examples.
Rental Income from Indian Property
Your rental income faces one of the highest TDS rates among NRI income sources. Tenants must deduct 31.2% TDS (30% base rate plus 4% health and education cess) from every rent payment, regardless of the amount.
Real-world example: Priya, an NRI in California, rents out her Mumbai apartment for ₹50,000 monthly. Her tenant deducts ₹15,600 as TDS each month, so Priya receives only ₹34,400. Over a year, that's ₹1,87,200 in deductions against her ₹6,00,000 annual rental income.
The tenant becomes responsible for deducting TDS before paying rent, depositing it with the government by the 7th of the following month, filing quarterly TDS returns (Form 27Q), and issuing you a TDS certificate (Form 16A).
Critical compliance point: When annual remittances exceed ₹5,00,000, tenants must file Form 15CA online and obtain Form 15CB from a Chartered Accountant. Missing this step can result in penalties equal to the undeducted amount.
If your actual tax liability is lower than 30%, apply for a lower TDS certificate through Form 13 before the rental year begins to prevent excessive deductions.
Sale of Property by NRIs
Property transactions trigger mandatory TDS under Section 195, with rates depending on your holding period. The buyer must deduct TDS before making payment.
Real scenario: Rajesh sold his Bangalore apartment (purchased in 2020) for ₹1.2 crore in August 2024. Since he held it for over 24 months, the buyer deducted 14.95% TDS (₹17,94,000). His actual capital gains after deductions were only ₹30 lakhs, making his real tax liability around ₹3.75 lakhs. He'll claim the excess ₹14.19 lakh refund by filing ITR.
Planning tip: Consider getting a lower deduction certificate before selling property if you expect minimal capital gains. This prevents locking up large amounts with the tax department.
Interest on NRO vs NRE Fixed Deposits
This is where smart account selection makes a massive difference to your tax outflow.
Example comparison: Vikram has ₹50 lakhs to park in fixed deposits earning 7% annually.
- In NRO FD: Annual interest = ₹3.5 lakhs. TDS deducted = ₹1.09 lakhs (31.2%). Net received = ₹2.41 lakhs
- In NRE FD: Annual interest = ₹3.5 lakhs. TDS = Zero. Net received = ₹3.5 lakhs
By choosing NRE over NRO, Vikram saves ₹1.09 lakhs annually in TDS. Over 5 years, that's ₹5.45 lakhs in savings, which can be reinvested for compounding returns.
Action step: If you have repatriable funds, always park them in NRE or FCNR accounts rather than NRO accounts to avoid TDS entirely.
Dividends from Indian Companies and Mutual Funds
Since April 1, 2020, dividends became taxable in the hands of investors. Companies and mutual funds must deduct 20% TDS plus applicable cess (20.8% total) on dividend payments to NRIs.
Important note: Unlike residents who face TDS only above ₹5,000 annual dividend income, NRIs face 20% TDS from the first rupee. No threshold exemption applies.
Practical example: Anita receives ₹2,00,000 in dividends from her Indian equity portfolio. The paying companies deduct ₹41,600 (20.8%) as TDS, and she receives ₹1,58,400.
NRI restriction: You cannot claim deductions under Chapter VI-A (80C, 80D, etc.) on dividend income.
Capital Gains from Mutual Funds and Shares
The 2024 Budget significantly changed capital gains taxation for NRIs. Understanding these rates helps you time your redemptions strategically.
Annual exemption: ₹1.25 lakh LTCG exempt for equity mutual funds and listed shares in FY 2025-26.
Debt Mutual Funds: Flat 30% TDS plus cess (31.2%) on redemptions, regardless of holding period.
Strategic example: Suresh invested ₹10 lakhs in an equity mutual fund in January 2023. By August 2024, his investment grew to ₹15 lakhs (₹5 lakh gain).
If he redeems after 12 months:
- Gain = ₹5,00,000
- Exempt amount = ₹1,25,000
- Taxable LTCG = ₹3,75,000
- TDS = ₹48,750 (13% of ₹3,75,000)
- Net proceeds after TDS = ₹14,51,250
Tax-saving strategy: Stagger redemptions across financial years to maximize the ₹1.25 lakh annual exemption. Instead of redeeming ₹10 lakhs in one year, redeem ₹5 lakhs each in two consecutive years to utilize the exemption twice.
Looking to optimize your NRI investment portfolio for better tax efficiency? Understanding these TDS implications helps you make informed decisions.
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Who Deducts TDS and When It Must Be Paid
NRIs need to understand who handles their TDS deductions to ensure compliance and proper documentation. The responsibility doesn't fall on you but on the payer of your income.
Tenant, Buyer, AMC, or Company as Deductor
Indian tax laws designate the paying entity as your "deductor."
- For rental income: Your tenant deducts 31.2% TDS from each payment
- For property sales: The buyer deducts TDS before payment
- For dividends: The company or AMC automatically deducts TDS
- For interest income: Banks auto-deduct TDS on NRO accounts (NRE and FCNR accounts are exempt)
TDS Deduction Timeline and Monthly Deadlines
The deductor must cut TDS either at the time of payment or account credit, whichever happens earlier. The tax must reach the government by the 7th of the following month (April 30th for March deductions).
The deductor must issue a TDS certificate (Form 16A) within 15 days after filing. Delayed filing attracts interest of 1.5% per month plus penalties between ₹10,000 to ₹1,00,000.
TAN Requirement for Deductors
Every entity deducting TDS needs a Tax Deduction Account Number (TAN), a unique ten-digit alphanumeric identifier. This applies to tenants, property buyers, and anyone making TDS-applicable payments to NRIs.
Deductors can apply online through the NSDL-TIN website by submitting Form 49B. The process takes 7-10 working days, with fees of ₹65.
Penalty for non-compliance: Failure to obtain TAN or quoting incorrect TAN leads to a ₹10,000 penalty. TDS deposited without valid TAN doesn't get credited to your account, creating refund complications.
Exceptions: Sections 194IA (property purchase), 194-IB (rent payment), 194M, and 194S allow PAN usage instead of TAN.
How to Apply for Lower or NIL TDS Deduction
Form 13 lets you get a certificate for reduced or nil TDS when your actual tax liability is lower than standard rates.
When to apply: Consider Form 13 if your total taxable income falls in lower tax slabs, you have substantial deductions, you're selling property with minimal capital gains, or you want to avoid lengthy refund processes.
Example: Meera rents out her Delhi property for ₹40,000 monthly (₹4.8 lakhs annually). After the 30% standard deduction on rental income (₹1.44 lakhs), her taxable rental income is ₹3.36 lakhs. Her actual tax liability is around ₹33,600, but TDS deducted would be ₹1,49,760 (31.2% of ₹4.8L). By obtaining a Form 13 certificate for 10% TDS, Meera saves ₹1,01,760 in annual cash flow.
Step-by-Step Guide to Filing Form 13 on TRACES
Step 1: Register and Login
- Visit the TRACES website
- Register using your PAN and complete verification
Step 2: Fill Application
- Go to "Statements/Forms" > "Request for Form 13"
- Choose "Non-Resident" status and "Original" request type
- Enter your address abroad, state/district in India
- Provide deductor's TAN, income nature, and requested TDS rate
- Upload income computations for current and past 2 years
Step 3: Verification
- Critical: Form 13 now requires Digital Signature Certificate (DSC) for verification
- Obtain DSC from authorized certifying agencies if you don't have one
- Submit after DSC verification
Documents Required and Approval Process
Mandatory documents:
- Signed Form 13 application
- PAN card and passport copies (with entry/exit stamps)
- ITR acknowledgments for previous 2-3 years
- Form 26AS and income computation statements
- Income-specific documents (sale agreement, rental agreement, bank statements)
- Tax Residency Certificate (TRC) if claiming DTAA benefits
Assessing Officer review: The AO examines your income computations, past tax compliance, and supporting documents. The Income Tax Department's software verifies your historical data automatically. Processing typically takes 30-45 days but can extend to 60-90 days during peak seasons.
Validity and Submission of Certificate to Payer
Form 13 certificates typically remain valid for one financial year for recurring income or for specific transactions with defined end dates. The certificate clearly mentions "Valid From" and "Valid To" dates.
Once approved:
- Download the certificate from TRACES portal
- Immediately submit copies to your deductors (tenant, buyer, bank)
- Keep acknowledgment receipts
Deductor's obligations: The deductor must verify certificate authenticity, maintain copies, deduct TDS at the specified rate, and quote the certificate number in quarterly TDS returns.
When dealing with complex calculations, consulting a tax professional experienced in NRI tax filing ensures accurate Form 13 applications.
Get expert guidance on Form 13 applications and TDS optimization. Connect with InvestMates tax advisors today.
Claiming TDS Refunds and Filing ITR as an NRI
Even with strategic planning, you might end up paying excess TDS. The refund process requires systematic approach and proper documentation.
Using Form 26AS to Track TDS Deductions
Form 26AS consolidates every TDS deduction, tax payment, and refund against your PAN.
Access: Login to the Income Tax e-filing portal > "e-File" > "Income Tax Returns" > "View Form 26AS"
Form 26AS shows TDS deducted by all deductors, tax payments, TCS details, advance tax, and refunds received. Before filing ITR, reconcile Form 26AS entries with TDS certificates (Form 16A) and your income records.
Common mismatches:
- Deductor used wrong PAN - contact them for correction
- TDS deducted but not deposited - affects your credit
- Wrong income head - correctable during ITR filing
If you spot discrepancies, contact your deductor immediately for correction statements.
Filing ITR to Claim Excess TDS
Which ITR form: ITR-2 for NRIs with salary, rental income, capital gains. ITR-3 for business/professional income.
Filing deadline: Typically July 31st for the previous financial year. For FY 2025-26 (AY 2026-27), the deadline is July 31, 2026.
Late filing penalties: ₹5,000 if filed after July 31 but before December 31, ₹10,000 if filed after December 31 (₹1,000 for income below ₹5 lakhs).
Why file even below taxable limit:
- Cannot claim TDS refunds without filing ITR
- Banks require ITR for loans
- Needed for visa applications and property transactions
Filing steps:
- Gather documents: Form 26AS, TDS certificates, bank statements
- Login to Income Tax portal and start ITR filing
- Pre-fill data from Form 26AS
- Add income sources and claim deductions
- Verify tax computation matches Form 26AS
- Submit return online
- E-verify within 30 days
Bank account validation: Pre-validate your bank account on the portal under "Profile Settings" > "Manage Bank Account" to avoid refund delays.
Refund Timeline and Processing
Expected timelines:
- Residents: 4-5 weeks after e-verification
- NRIs: 2-6 months due to additional scrutiny
Factors affecting speed: ITR accuracy, bank account validation, refund amount, and pending demands from previous years.
Refund interest: If processing delays, you earn 6% annual interest on the refund from the financial year-end until the refund is issued.
Example: Filing ITR for FY 2025-26 claiming ₹2 lakh refund in July 2026, processed in December 2026:
- Interest period: April 1, 2026, to December 31, 2026 (9 months)
- Interest: ₹2,00,000 × 6% × 9/12 = ₹9,000
Track status: Login to Income Tax portal > "My Account" > "Refund/Demand Status"
Common Mistakes to Avoid During Filing
1. Bank account validation problems: Pre-validate your Indian bank account before filing. Use accounts in your name only.
2. Mismatches between ITR and Form 26AS: Only claim TDS amounts visible in Form 26AS. Mismatches trigger alerts and delays.
3. Late e-verification: E-verify within 30 days of filing using Aadhaar OTP, net banking, or signed ITR-V sent to CPC Bangalore.
4. Wrong ITR form: Filing ITR-1 with capital gains or ITR-2 with business income leads to defective return notices.
5. Not reporting foreign assets: NRIs must report foreign assets in Schedule FA. Non-disclosure attracts penalties up to ₹10 lakh under the Black Money Act.
6. Ignoring DTAA benefits: Claim lower tax rates under Double Taxation Avoidance Agreement in Schedule TR to avoid unnecessary higher taxes.
7. Not maintaining documents: Keep rental agreements, sale deeds, and TDS certificates for at least 6 years for potential assessments.
Understanding tax filing requirements for NRIs helps avoid these pitfalls and ensures smooth processing.
Conclusion
Understanding TDS obligations gives you control over your Indian income taxation. We've covered the 31.2% rate on rental income, varying rates on property sales, and complete tax exemption on NRE deposit interest.
Smart tax management starts with choosing the right accounts and timing transactions strategically. Apply for Form 13 certificates proactively to prevent excessive deductions. File your ITR on time even below taxable limits to claim excess TDS back.
Track your deductions regularly through Form 26AS and reconcile before filing returns. DTAA benefits can significantly reduce your tax burden when claimed correctly. Work with tax professionals who understand both Indian and your resident country's tax systems.
Your next step: Review your current income sources, identify where you're overpaying TDS, and take action to optimize your tax position.
Frequently Asked Questions
What are the TDS rates for NRIs on rental income from Indian property?
The TDS rate for NRIs on rental income is 31.2% (30% base rate plus 4% health and education cess). Your tenant must deduct this from each rent payment, regardless of the amount. For annual rent exceeding ₹2.4 lakhs, tenants must also file quarterly TDS returns and issue Form 16A certificates. If your actual tax liability is lower, you should apply for a lower TDS certificate through Form 13 to reduce this rate and improve cash flow.
How does TDS apply to property sales by NRIs in 2026?
For property sales after July 23, 2024, TDS rates depend on your holding period. Properties held more than 24 months face 12.5% TDS on long-term capital gains (13% with cess), while properties held under 24 months face 30% TDS on short-term capital gains (31.2% with cess).
For properties valued above ₹1 crore, additional surcharges can push effective rates to 14.95% for long-term holdings. Buyers must deduct TDS before making payment, and you can claim refunds when filing ITR if your actual capital gains are lower than the TDS deducted.
Are NRE fixed deposits subject to TDS for NRIs?
No, interest earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) fixed deposits is completely tax-free in India and not subject to TDS. This makes them highly attractive for parking repatriable funds. In contrast, NRO account interest faces 31.2% TDS (or higher with surcharges based on total income). Choosing NRE over NRO accounts can save you lakhs in unnecessary tax deductions annually.
How can NRIs apply for lower TDS rates through Form 13?
NRIs can apply for lower TDS rates by filing Form 13 on the TRACES portal. First, register with your PAN, then navigate to "Request for Form 13" under "Statements/Forms." You'll need to provide income computations, past ITRs, passport copies proving NRI status, and supporting documents for your income sources. As of 2024, verification requires a Digital Signature Certificate (DSC). The Assessing Officer reviews your application and typically processes it within 30-45 days. Once approved, submit the certificate to your deductors (tenants, buyers) immediately so they can apply the reduced rate.
Can NRIs claim DTAA benefits to reduce TDS rates?
Yes, NRIs can claim benefits under Double Taxation Avoidance Agreements between India and their country of residence to potentially reduce TDS rates below standard rates.
You need to obtain a Tax Residency Certificate (TRC) from your resident country's tax authorities and submit it to the Indian deductor along with Form 10F. DTAA rates vary by country and income type.
For example, some treaties allow reduced rates on interest income or capital gains. You can also claim these benefits while filing your ITR by filling Schedule TR, even if higher TDS was already deducted, to get refunds of the excess amount.
About the Author
By Prakash
CEO & Founder of InvestMates
Prakash is the CEO & Founder of InvestMates, a digital wealth management platform built for the global Indian community. With leadership experience at Microsoft, HCL, and Accenture across multiple countries, he witnessed firsthand challenges of managing cross-border wealth. Drawing from his expertise in engineering, product management, and business leadership, Prakash founded InvestMates to democratize financial planning and make professional wealth management accessible, affordable, and transparent for every global Indian.
