For Non-Resident Indians (NRIs), navigating the tax system in India can be challenging, especially when it comes to Tax Deducted at Source (TDS) on various income sources like rental income, interest, dividends, and capital gains. NRIs are often subject to TDS on their Indian income, which can sometimes result in higher tax deductions than necessary. To mitigate this, apply for a Lower TDS Certificate for NRIs, allowing them to reduce the TDS amount withheld on their income. Here’s everything you need to know about obtaining a Lower TDS Certificate and ensuring compliance.
What is TDS for NRIs?
TDS (Tax Deducted at Source) is a tax collection method where the payer deducts tax from the income and deposits it with the government. According to Section 195 of the Income Tax Act, TDS applies to payments made to NRIs for income earned in India, such as interest from bank deposits, rental income, dividends, and more.
However, NRIs are not allowed to use Form 15G/15H (which allows residents to avoid TDS deductions) to reduce their TDS deductions. Instead, NRIs must apply directly to the Assessing Officer (AO) to obtain a Lower TDS Certificate.
Who Can Apply for a Lower TDS Certificate?
NRIs who have substantial income or income exceeding the basic exemption limit in India may be eligible to apply for a Lower TDS Certificate. This certificate helps NRIs avoid over-deduction of taxes at source, especially when their total income falls below the taxable threshold or when specific exemptions apply. TDS for NRIs on property sales income in India can be a key consideration when applying for this certificate. For more insights, visit our detailed blog.
How to Apply for a Lower TDS Certificate?
The process to apply for a Lower TDS Certificate involves submitting Form 13 to the Assessing Officer (AO). Below are the steps to follow:
Step-by-Step Process:
- Log in to TRACES Portal: Visit the official TRACES portal to begin the application process.
- Navigate to the “Request for Form 13” section: Locate the option to apply for a Lower TDS Certificate on the portal.
- Provide Necessary Details: Select the residential status (NRI) and specify the request type (original).
- Fill in Income Details: Provide a detailed breakdown of your income, tax liabilities, and the amount for which you want to claim a reduced TDS deduction.
- Upload Supporting Documents:
- Income statements, tax liabilities, and a projection of income for the current year.
- Any relevant documents such as previous tax returns, assessment orders, and financial statements for business or professional income.
- E-Verify the Application: Use Aadhaar OTP, Net Banking, or Digital Signature Certificate (DSC) to verify your application.
What Documents are Required for Form 13?
To support your application for a Lower TDS Certificate, the following documents need to be submitted along with Form 13:
- Form 13 (duly signed).
- Income Tax Return (ITR) acknowledgment for the last 3 financial years.
- Copies of assessment orders for the past 3 years.
- Projected income and financial details for the current financial year.
- PAN card copy.
- Tax Deduction Account Number (TAN) of the payer.
- Financial statements (if you have a business or professional income).
- Other documents based on the nature of income.
What Happens After Submitting Form 13?
Once you’ve submitted Form 13, the Assessing Officer (AO) will review your application. Here’s what follows:
- Verification by the AO: The AO reviews your application and supporting documents. The Income Tax Department’s software may suggest a lower TDS rate based on the details you provide.
- Decision by the AO: The AO can either approve or reject your application. If approved, a Lower TDS Certificate is issued with details on the reduced rate and the period of validity.
- Certificate Details: The certificate includes:
- The approved TDS rate.
- The period it applies to.
- The TAN of the deductor.
What Happens if the Application is Rejected?
If the AO does not approve your application, you will continue to be taxed at the regular TDS rates. However, you can appeal the decision if you believe the application was wrongly rejected.
Importance of Lower TDS Certificate for NRIs
The Lower TDS Certificate is crucial for NRIs who face higher tax deductions than necessary. It ensures that only the correct amount of tax is deducted at source, which can significantly reduce the financial burden. Additionally, the certificate can help you avoid issues with the Income Tax Department and prevent unnecessary delays in receiving your income.
What Are the Benefits of Lower TDS for NRIs?
- Reduce Over-Taxation: The main benefit is that you will only pay the required tax on your income and avoid excess tax deduction.
- Faster Refunds: By reducing the TDS amount, you can save on waiting time for refunds when filing your tax return.
- Optimized Tax Filing: Lower TDS deduction simplifies your tax filing process and ensures compliance with tax regulations.
Conclusion
Understanding how to apply for and utilize the Lower TDS Certificate for NRIs can help optimize your tax situation and ensure compliance with Indian tax laws. It prevents over-deduction of taxes and provides NRIs with more control over their finances.
If you need help with your tax filings, getting a Lower TDS Certificate, or other NRI-related tax queries, feel free to contact Brivan Consultants. Our team of experts specializes in NRI taxation and can guide you through the entire process efficiently.
Frequently Asked Questions (FAQs)
Q1. Can an NRI apply for a lower deduction certificate?
Yes, NRIs must apply for a reduced or zero TDS certificate instead of using Form 15G/H. The application must be submitted online using Form 13 and verified with a Digital Signature Certificate (DSC).
Q2. How can NRIs lower TDS on property sales?
NRIs can apply for a lower TDS rate or claim exemptions by obtaining a Certificate of Lower Deduction (LDC) from the assessing officer. This certificate helps minimize TDS liability on property sales and other incomes.
Q3. What is a lower TDS certificate for NRIs?
Unlike Indian residents, NRIs cannot use Form 15G/H to reduce TDS on their income. Instead, NRIs need to apply to the assessing officer for a reduced or zero TDS certificate, which helps the payer deduct taxes at a lower rate or not at all.
Q4. How long does it take to get a lower TDS certificate for NRIs?
The process of obtaining an LDC typically takes around 3-6 weeks, as the application goes through various checks by the assessing officer and TDS authorities. The certificate will be valid for a specific fiscal year and may specify a reduced TDS rate based on the actual capital gains.
Q5. Is TDS compulsory for NRIs?
Yes, under Section 195 of the Income Tax Act, TDS is mandatory on payments made to NRIs. The payer is required to deduct TDS before making any payments to non-resident entities, including property sales and other incomes.
Q6. What are the TDS rules for NRI property sales?
For properties sold within 2 years, TDS is deducted at 30% for short-term capital gains. For properties held for more than 2 years, the TDS rate ranges from 13% to 17.81% based on property value. If an NRI sells property to a resident, the buyer must deduct TDS as per these rates based on the holding period of the property.
