Here’s how NRIs can lower/avoid TDS on Income earned in India

Mandatory TDS Deduction on Payments to NRIs

Despite the mandatory deduction of Tax at Source (TDS) as mandated under Section 195, the payer and the payee, i.e., the NRI has the option to make an application to the Assessing Officer (AO) for lower or nil TDS on the income.

An individual who makes payments to a Non-Resident Indian (NRI) must be aware that such payments are subject to Tax Deducted at Source (TDS).

As per Section 195 of the Income-tax Act, 1961, any “person” responsible for paying to a non-resident shall, at the time of making payment (accrued or payable), either via cash, cheque, draft, or any other mode, deduct tax from the amount paid at the applicable rates mentioned in Section 2(37A) for the respective financial year. Consequently, every earning of an NRI in India is subject to TDS at the income tax slab rates applicable to their income.

To apply for a lower deduction or no deduction of income tax on the income received in India, an NRI can file an application in Form 13. If the Assessing Officer (AO) is convinced that the payee’s total income justifies a deduction of income tax at reduced rates or no deduction of income tax, the AO will provide the NRI with a lower/nil TDS certificate as applicable. It is important to note that NRIs are not allowed to submit Form 15G/H to lower TDS.

Here are the steps to avail nil/lower TDS Certificate for NRI or the Payee:

To submit the Application Form 13, the applicant needs to provide a Digital Signature Certificate (DSC), E-Verification (through Internet Banking), or Mobile OTP. In case the DSC is not registered at TRACES for NRI services, the payee must register their DSC.

The jurisdictional AO will be determined based on the State & District information provided by the applicant in the original application of Form-13, and it will be applicable for future purposes as well.

The applicant must certify the estimated income computation for the FY and provide details of any income claimed to be exempt but not included in the total income. The estimated income for any of the 4 previous financial years preceding the current financial year should be certified by self or an authorized person in case the return has not been filed.

Assessment Orders of the last 4 assessment years must also be provided, if assessed. Moreover, if the applicant has filed ITR for any of the 4 previous financial years in Paper Form, it should be furnished as well.

Step 1: Login to TRACES website www.tdscpc.gov.in with your User ID i.e., NRI’s PAN,Password.

Step 2: Go to the “Statement/Forms” tab and click on Request for Form 13 to initiate the request.

Step 3: Form 13 will open on your screen. NRI will be required to fill the following details in the online form:

Particulars of NRI’s income and other relevant details such as status (individual/company/ Hindu undivided family etc), residential status, PAN or Aadhaar, Email ID, Mobile number

Details of existing tax liability under the Income tax Act and the Wealth Tax Act, 1957.

It is advised to provide the following information when applying:

Providing accurate and complete information is crucial for a smooth and successful application process. Ensure that you meet all the requirements to avoid any delays or issues.

• Any details of income claimed to be exempt and not included in the total income, along with a note explaining why you’re claiming such exemption (which you must upload).
• Details of any advance-tax payments and tax deductions or collections made for the current year till date.
• Your estimated total income for the financial year, along with a computation of the estimated total income for the previous year (which you must upload).
• If you haven’t filed an ITR for any of the four years preceding the current financial year for which you’re making the application, please upload a computation of your estimated total income for that year.
• Any exemption under section 10, section 11, or section 12 that you’re claiming. If yes, please upload any registration, exemption certificate, or approval issued by the Income-tax Authority.
• The financial year to which the payments or receipts relate.
• The total amount of tax (including penal interest) payable for the total income referred to above.
• If you have filed an ITR for any of the four previous financial years in paper form, please upload a copy of the ITR.
• Provide annexures that include details of the income/sum for which you’re seeking a TDS certificate. These details should include the TAN or PAN or Aadhaar Number of the payer, the section under which tax at source is to be deducted, the estimated amount of income/sum to be received, and the requested rate of deduction (use ‘0’ where ‘nil’ deduction is requested).

Once you’ve submitted your request, the assessing officer may require additional information or clarification. If so, they’ll contact either the payer or payee. Once the officer is satisfied with the information provided, they’ll issue the certificate accordingly. You can download the certificate from the TDS TRACES portal’s “Download” tab.

If you’ve applied for a lower/nil TDS Certificate, the AO is required to issue it within one month from the end of the month in which the application is received.

Consequence of failing to deduct TDS:

Failing to deduct TDS or failing to deposit the tax that has been deducted to the tax authorities will result in penalties. For each month or part of a month of delay in deduction/payment of tax, penal interest of 1% or 1.5%, respectively, will be charged. Additionally, non-compliance with TDS provisions may result in penalties levied by the AO.

Here are the requirements to be satisfied to apply for lower/nil TDS as the Payer for the NRI:

Required Documents:

To submit Form 15E, you need a Digital Signature Certificate (DSC) or an IPIN. You’ll also need to provide relevant documents, such as computation of capital gains, share purchase agreement, bank payment details, and cost of acquisition, as applicable.

If available, provide details of assessed/returned/estimated income of the payee for the last 4 previous years. You should include a computation of tax liability on estimated income. Also, include a copy of the Tax Residency Certificate and Form IOF, as applicable. Finally, the PAN of the NRI must also be provided.

Step 1: Login to TRACES website www.tdscpc.gov.in with your User ID (created by the Payer), Password and TAN of the payer/deductor. Do note that an individual will have to apply for TAN to deduct tax from NRI’s income.

Step 2: Go to the ‘Forms’ tab and click on ‘Request for Form-15E covered under Section 195(2)’ to initiate a request.

Step 3: Form-15E will open on the home screen. The payer of the income will be required to provide the following details:

• Details of the payer such as PAN or Aadhaar, name, Tax Deduction and Collection Account Number (TAN)
• Status (individual/company/Hindu undivided family etc), residential status, address, email ID, mobile number
• Details of the payee (NRI) such as PAN (if available), Name, Status, Father’s name, Date of birth, Address in India (if applicable), Residential address outside India
• Tax Identification Number (TIN) of NRI in foreign country
• Jurisdictional AO (if any)
• E-mail ID, Mobile Number, Passport Number

The following details of financial transactions are also to be included in the application: –

• Country to which payment is to be made, Amount payable (in Foreign Currency, in Indian Rs. (On estimated basis))
• Proposed date of payment
• Relevant financial year for which lower/nil TDS certificate is requested
• Nature of payment/ remittance as per agreement/document (Interest, capital gains, rent etc)
• In case the tax to be deducted are to be borne by the payer of such income, whether the tax payable is added in the payment to be made to the NRI
• Details of lower/nil TDS certificates obtained in previous financial years for the same transaction
• Tax payable on estimated income of the financial year by the NRI (if available)
• Details of advance tax, TDS, Tax Collected at Source (TCS) for the financial year by the NRI, if available
• Details of existing tax liabilities of NRI under the Income tax Act or Wealth Tax Act, if available
• Whether the taxable income is to be determined by applying a Double Taxation Avoidance Agreement (DTAA) between India and the other country or without applying the DTAA.

Along with the required details, the individual is also expected to furnish additional information which includes:

i) Stating the reason for non-taxability or lower taxability of the payments in India, in accordance with the provisions of the Income Tax Act.

ii) The payer is required to fill in the relevant fields based on the nature of the transaction. In case of rent payable to an NRI, the nature of payment, the taxable amount, tax liability, justification for the tax liability, and the applicable tax rate for TDS must be specified.

iii) If the income is subject to tax under the DTAA, there are separate fields available for the same.

Once the Form-15E is appropriately filled, the payer may proceed to submit it by clicking on the relevant button. Subsequently, the TDS Jurisdictional AO shall process the online application within a month from the end of the month in which it was received.

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