Lower TDS Certificate for NRI – New TDS Certificate Rules for NRIs

NRIs are liable for TDS on income earned in India. As per the recent CBDT update dated September 27, 2023, Non-Resident Indians seeking to avoid or reduce TDS on their Indian income now need to follow a revised procedure for obtaining a TDS certificate.

Unlike resident Indians, NRIs cannot prevent TDS deductions by submitting Form 15G/H. Instead, they need to apply directly to the Assessing Officer for a zero-TDS certificate. Let’s understand the process NRIs need to follow to obtain a TDS certificate.

What is TDS for NRIs?

Section 195 of the Income Tax Act deals with TDS deductions on payments made to Non-Resident Indians (NRIs). Some of the key provisions of Section 195 are:

• Section 195 applies to any person responsible for making a payment to an NRI. This includes individuals, Hindu Undivided Families, partnership firms, Indian or foreign companies, non-residents, entities having exempt income in India, and other legal entities, regardless of whether they have taxable income in India.
• TDS must be deducted from payments made to NRIs, except for salary, which is covered under Section 192, and certain interest payments covered under Sections 194LB, 194LC, and 194LD.
• TDS should be deducted when the payment is credited to the NRI’s account or when the amount is paid in cash or through a bank, whichever occurs earlier.
• There is no minimum threshold for deducting TDS on payments made to NRIs under Section 195.

Which Incomes are Commonly Subject to TDS for NRIs?

Non-Resident Indians (NRIs) commonly earn income in India through sources such as interest, rental income, and dividends, which may be subject to Tax Deducted at Source (TDS). The applicability of TDS depends on the specific type of income earned by the NRI. Payments made to NRIs must follow the applicable income tax provisions governing TDS.

The payer is responsible for deducting TDS and depositing the amount with the Indian tax authorities. TDS rates differ based on the nature of income, such as interest earned on bank deposits or rental income from property. Dividends distributed by domestic companies are also subject to TDS as prescribed under the tax laws.

Payers are responsible for deducting the appropriate TDS and complying with the relevant provisions. NRIs should ensure that the correct amount of TDS is deducted and provide the required documentation to support the applicable tax treatment of their income.

NRIs must disclose their Indian income and TDS in their income tax returns and can claim credit for the TDS deducted when filing their tax return. Understanding the TDS requirements and maintaining proper compliance can help both NRIs and payers avoid potential legal issues and penalties.

Application for Zero or Lower TDS Made by the Payer

If the payer believes that a non-resident in India is not liable to pay tax on the full amount or a portion of it, except for salary, they can submit Form 15E to the Assessing Officer (AO) to apply for a lower or nil TDS certificate.

NRIs can avoid or reduce TDS on income earned in India by obtaining a TDS certificate. Unlike resident taxpayers, NRIs cannot submit Form 15G/H to prevent TDS deductions. Instead, they must apply to the Assessing Officer for a lower or zero TDS certificate. The certificate can then be provided to the payer to request TDS at a reduced rate or no TDS deduction.

In other words, individuals whose income exceeds the basic exemption limit cannot use Form 15G/H to reduce their TDS rate and must apply for a zero or lower deduction certificate. For instance, an individual with a substantial investment of ₹90 lakh in Fixed Deposits may face a reduction in interest income due to TDS deductions. Such individuals can apply to the AO for a lower or nil TDS certificate.

What is Form 13?

To apply for a lower TDS deduction certificate, you need to submit Form 13 to the Assessing Officer. The AO reviews the information provided in the form and, if satisfied with the details, may issue a lower deduction certificate.

How to File Form 13?

The process for submitting Form 13 to the AO for obtaining a lower TDS deduction certificate is as follows:

• Step 1. Log in to the TRACES portal.
• Step 2. Go to the “Statements/Forms” section.
• Step 3. Select “Request for Form 13.”
• Step 4. Choose your residential status.
• Step 5. Select “Original” as the request type.
• Step 6. Choose the relevant financial year.
• Step 7. Select “Online” as the application type.
• Step 8. The basic details of the authorized person registered on the TRACES portal will be automatically populated.
• Step 9. Enter the state and district.
• Step 10. Provide the responsible TAN, nature of receipt, and the required TDS/TCS deduction rate.
• Step 11. Upload details of income and tax liability for the current year and the previous four years.
• Step 12. Complete e-verification using Aadhaar OTP, the mobile number registered with TRACES, net banking, or a digital signature.

What is the Change in Lower/Nil TDS Application for NRIs?

The CBDT has introduced certain amendments to the procedure for applying for a zero or lower TDS rate for NRIs.

One of the key changes in the TDS application process is the removal of several verification methods for applications submitted to the Assessing Officer. The TRACES website has discontinued e-verification options such as mobile OTP and Aadhaar OTP. Following this amendment, the only verification method available on the TRACES website is a Digital Signature Certificate (DSC).

What Happens After You Apply for Lower or Nil TDS Using Form 13?

Once an application for a lower or nil TDS rate is submitted through Form 13, the following process takes place:

1. Verification of the Application: The TDS Assessing Officer (AO) reviews the application, including the reasons and justification provided by the NRI applicant.
2. System Check: The AO checks the income tax department’s software for the recommended TDS rate. The system may recommend a lower, nil, or unchanged rate.
3. Decision by AO:
   • Approval: If the AO approves a lower or nil TDS rate, a certificate is issued to the applicant. It specifies the reduced TDS rate, applicable period, TAN, and other details of the deductor.
   • Rejection: If the AO and the software determine that the existing TDS rate is appropriate, the application is rejected.
4. Certificate Details: The TDS certificate contains details regarding the approved lower or nil rate, including:
   • Validity period: The certificate may remain valid for one financial year or for a specific transaction.
   • TAN: The Tax Deduction and Collection Account Number and other details of the deductor.
5. Explanation for Independent Decision: If the AO approves a TDS rate that differs from the rate recommended by the software, the AO must provide a reason for the decision.
6. Usage of the Certificate: The lower or nil TDS certificate is applicable only to the specified deductor and cannot be used universally with all deductors for the NRI.

This process ensures that applications for lower or nil TDS are properly examined and that decisions made by the AO are supported with appropriate justification.

What is the Due Date for Filing Form 13?

March 15 is the deadline for filing Form 13 each year. For instance, if you want to claim a lower TDS deduction for the year 2023, the last date to submit Form 13 would be March 15, 2024.

What Documents Are Required to Be Submitted with Form 13?

The following documents need to be submitted along with Form 13:

• Duly signed Form 13
• Copy of the income tax return along with the acknowledgment and enclosures for the previous 3 financial years
• Copies of assessment orders for the previous 3 financial years
• For assessees having business or professional income, copies of financial statements and audit reports for the previous years
• Projected P&L account for the current financial year
• Income statement for the previous 3 financial years and projected computation for the current financial year
• Copy of PAN card
• Tax Deduction Account Number of all parties responsible for making the payment
• E-TDS return acknowledgment for the previous 2 financial years
• Estimated income for the financial year
• Other documents based on the nature of income
• Details of any previous TDS defaults

After completing and submitting the application to the jurisdictional Assessing Officer, it must be disposed of within 30 days from the date of receipt. The Assessing Officer reviews the submitted information and documents and may request additional explanations or documents before approving or rejecting the application.

Understanding NRI taxation provisions and completing forms such as Form 13, along with gathering all the required documents, can be complex and time-consuming. Tax-related questions are also common in such situations. Seeking professional assistance can therefore help ensure a smoother tax filing process.

Disclaimer

This content is for informational purposes only and reflects provisions of the Income Tax Act as amended up to FY 2025–26. Please consult a Chartered Accountant for professional advice.

Written by

Asha Ahuja Sethi (Head Admin at Jatin Sethi & Co., Chartered Accountants)