How can NRIs reduce TDS on income generated from India?

Dr. Suresh Surana, Founder, RSM India

Section 195 of the Income-tax Act, 1961 (hereinafter referred to as the ‘IT Act’) requires that the person responsible for making any payment to any non-resident (NRI) shall be liable to deduct TDS from such payment, provided that such payment constitutes income. NRI in India.

However, the provisions of the Income Tax Act provide for certain exemptions or reliefs to NRIs who are subject to deduction of part or whole of TDS, as discussed below:

(i) Application for short deduction by the deductor/payee of tax (Form 13)

As mentioned above, there may be some instances where the NRI is subject to TDS under section 195, while the total tax liability of the NRI computed for the year is less than the TDS deducted. Thus, Section 197 of the IT Act provides an option to the tax deductor to make an application for Nil/Low deduction of TDS in Form 13 containing details such as name, PAN, income details for last 3 years, estimated tax liability for current Details are provided. year, etc.

For example, in case of sale of immovable property by an NRI, the buyer is liable to deduct tax at 20% under section 195 of the IT Act on the amount of long-term capital gain. While the details of the cost of acquisition and improvements made by the NRI cannot be determined by the buyer, in practice the buyer deducts tax on the entire sale amount paid by him. This unreasonably leads to higher tax amount being withheld by the buyer which ultimately results in blocked cash flow for the NRI-seller. Therefore, the NRI seller can resort to making an application for lower or nil deduction of TDS in Form 13, as the case may be.

Alternatively, an application may also be made by the deductor for assessment of tax liability as follows:

(ii) Application for assessment of tax liability by the deductor/payer of tax (Form 15E)

Section 195(2) of the IT Act provides that where the deductor/payer of tax is of the opinion that the payee/payee should not be liable to tax as a whole on such income (other than salary income), he may make an application to the Assessing Officer. to determine the appropriate proportion of the amount so chargeable and on such assessment, TDS shall be deducted only on that proportion of the amount so chargeable. Such an application can be made by the payer in Form 15E as per Rule 29BA of the Income Tax Rules, 1962, containing details relating to the payer and the payee, details of the transaction, taxability under the provisions of the IT Act, etc. The Assessing Officer will consider the application filed by the payer and issue a certificate to the payer accordingly.

(iii) Availability of documents required to avail the benefits of the treaty

Section 90(2) of the IT Act provides for every taxpayer to choose between being a beneficiary of income tax provisions or tax treaty provisions for TDS. Thus, taxpayers generally opt for treaty provisions which are mostly beneficial as compared to income tax provisions. However, in order to claim the applicable beneficial TDS rate as per the relevant tax treaty, the NRI is required to obtain the necessary documents such as Tax Residence Certificate, Form 10F, No-PE declaration, etc. from the deductor.

For example, an NRI, being a resident of UAE, who receives interest income is subject to tax at the rate of 30% as per the IT Act. However, such NRIs can opt for a beneficial tax rate of 12.5% ​​as per India-UAE DTAA, subject to provision of documents like valid TRC, Form 10F, etc.

Nishant Kohli, Founder, Director & Business Head-Wealth, Mudra Portfolio

1.) Using the benefits of DTAA: NRIs can avail relief or benefit of lower TDS deduction by using the provisions of Double Taxation Avoidance Agreement (DTAA), which was signed between India and another foreign state. This is especially true in respect of interest income from NRO account, government securities, loans, fixed deposits with companies etc.

For example, interest on NRO FD is subject to TDS in India at the rate of 30.90% if DTAA benefit is not given. But, with the DTAA provisions, different beneficial and lower rates of tax on interest are specified for different countries, which can range from 10% to 15%.

2.) Reducing TDS in property transactions: In case of LTCG in the property, the buyer deducts TDS on the surcharge exceeding 20%, and that too from the entire transaction value. As a result, a substantial portion of the transaction value is withheld as TDS. The seller can, however, submit Form 13 application to the Income Tax Department and ask them to calculate his capital gain. Based on the capital gain arising from the sale of the property, the Income Tax Department will calculate the capital gain of the seller and issue a certificate for Nil/Low TDS deduction. As a result, TDS will come down significantly.

The process of submitting this form is a bit cumbersome, so the seller can use the services of a Chartered Accountant to submit the application to the Income Tax Department.

Aastha Dhawan, Partner, NA Shah Associates

NRIs are subject to withholding tax on various payments made to them in India as per the provisions of section 195 of the Income Tax Act. To reduce such withholding, the NRI has the option of obtaining a lower deduction certificate from the tax authorities and providing the same to the payer. In such a case, no withholding/less withholding shall be required.

Alternatively, NRIs can also obtain a tax residence certificate from the relevant tax jurisdiction and file Form 10F and other forms based on the Double Taxation Avoidance Agreement between India and their resident country to avail any benefits of tax treaties. Can provide announcements. While doing so, they may consider the Most Favored Nation clause in the relevant tax treaty.

Sonam Chandwani, Managing Partner KS Legal & Associates

NRIs can save TDS by claiming exemptions, using tax treaties, submitting Form 15G or Form 15H and deducting expenses related to their income.

Submission of Form 15G or Form 15H: NRIs can submit Form 15G or Form 15H to the Indian Income Tax Department to avoid TDS on their income if their total income is below the taxable limit. Form 15G is for individuals and HUFs, while Form 15H is for senior citizens. NRIs can claim exemption on certain types of income such as long-term capital gains on equity shares and equity-oriented mutual funds, interest on NRE and FCNR deposits, and income from savings schemes such as PPF and NSC.

Tax Treaties: NRIs living in tax treaty countries with India can benefit from lower rates of TDS. For example, as per the Double Taxation Avoidance Agreement (DTAA) between India and the United States, the TDS rate on interest income is 15%, which is lower than the standard rate of 20%. This can help in reducing the overall tax liability and consequently reduce TDS.

It is important to note that NRIs are required to file their income tax returns in India if their total income in India exceeds the taxable limit, irrespective of the amount of TDS deducted. Failure to file returns can result in penalties and legal consequences.

Ms. Bhuvana Sriram, Co-Founder and Head of Financial Planning, House of Alpha

When a non-resident Indian sells a property in India which he has held for more than 2 years, TDS is to be deducted at the rate of 20.8% to 23.9% on the sale value of the property depending upon the sale value. But normally income tax is payable only on the profit realized or income earned and not on the value of the asset sold. Of course, refund of tax paid in excess of tax due can be claimed. However, refunds can be filed only after the end of the financial year and they take time to arrive. This results in a loss of opportunity for the seller as he can earn interest on the TDS paid, but the government does not pay any such interest.

To avoid this the following can be done: The seller will file an application in Form 13 with the Income Tax Department and request them to calculate his capital gain. The Income Tax Department will calculate the capital gain of the seller and issue a certificate for nil/low deduction of TDS on the basis of capital gain arising on sale of property under section 197.

TDS is also deducted on interest on deposits, capital gains on MF sales, rental income from property in India, etc. If the assessee’s income from all such sources is less than the basic exemption limit, then the NRI assessee can file to get Form 15E online. Low or Nil Deduction Certificate from the Assessing Officer. This has to be shared with the bank/MF company or the tenant to avoid or reduce TDS deduction.

Anita Basrur – Partner, Direct Taxes – Sudit K Parekh & Company LLP

Withholding tax rates are marginally higher for non-residents as compared to resident taxpayers. For non-residents, the withholding is done either as per the Income Tax Act or as per the Double Taxation Avoidance Agreement, whichever is beneficial to the taxpayer. Having said that, taxpayers are not required to submit certain documents like tax residency certificate, electronic Form 10F and no permanent establishment declaration to be eligible for the reduced withholding. Alternatively, the taxpayer can approach the tax authorities for issue of Nil Withholding Certificate or Lower Withholding Certificate if the non-resident believes that the entire payment received by him is not chargeable to tax and only a part of the same specified part. chargeable to tax.