How Can NRIs Lower TDS on Income Generated From India?

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For those who love to travel, managing money when earning in India as a Non-Resident Indian (NRI) can be both fun and tough.

It’s important to understand TDS according to Section 195 of the Income Tax Act. This helps with following tax rules for transactions across borders.

If you’re an NRI, you can look into investments that save you taxes and get back TDS.

Some options are life insurance plans, NPS, and ELSS mutual funds.

These let you secure your financial future and also lower your taxes.

Make the most of these opportunities to do well financially in the global economy.

Let’s understand the ways that NRIs can use to lower TDS on Income generated from India.

TDS on Payments to Non-Residents

Section 195 of the Income Tax Act, 1961 (also known as the ‘IT Act’) says that if someone needs to pay money to a person who lives outside India (called a Non-Resident or NRI), they must take out a part of that money as tax(TDS) before paying it, only if the money being paid is considered income for the NRI in India.

Tax-Saving Tactics for NRIs

How NRIs Can Reduce TDS Under Section 195

  • NRIs might face situations where more tax is deducted from their income (TDS u/s 195) than their actual yearly tax liability.
  • Section 197 of the IT Act allows NRIs to apply for reduced or zero TDS using Form 13.
  • Form 13 includes info like name, PAN, past 3 years’ income, and current year’s estimated tax.

Know more about it through consultation with CA from our team at: 

  • You must note that for property sale, buyers deduct 20% TDS; NRIs can use Form 13 to reduce excessive withholding.
  • Tax Deductors can also apply via Form 15E for correct TDS amount determination.
  • Tax treaty rules can offer lower TDS rates; NRIs need documents (e.g., Tax Residency Cert.) for this.
  • Example: UAE NRI’s Indian interest income faces 30% TDS; with proper docs, it could be 12.5% based on the India-UAE tax treaty.

Utilize Double Taxation Avoidance Agreements (DTAA)

  • NRIs can use Double Taxation Avoidance Agreements (DTAA) to reduce TDS deductions.
  • DTAA agreements are signed between India and foreign states.
  • This is particularly relevant for Interest Income from NRO A/c, Government Securities, Loans, and Fixed Deposits with Companies.
  • Without DTAA benefits, NRO FD interest faces a 30.90% TDS rate in India.
  • DTAA provisions offer lower and advantageous tax rates for Interest Income based on different nations.
  • These rates can range from 10% to 15% under DTAA agreements.

TDS Exemption Forms for NRIs

  • NRIs can prevent TDS on their income by submitting Form 15G or Form 15H to Indian income tax authorities.
  • Form 15G is intended for individuals and HUFs, while Form 15H is for senior citizens.
  • These forms are applicable when the NRI’s total income is below the taxable threshold.
  • NRIs are eligible for exemptions on specific income types, including long-term capital gains on equity shares and equity-oriented mutual funds.
  • They can also claim exemptions on interest from NRE and FCNR deposits, along with income from savings schemes like PPF and NSC through these forms.

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TDS & Income Tax on Crypto & Virtual Assets

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