Lower TDS Certificate for NRI

Tax Deducted at Source (TDS) is a critical aspect of financial transactions, especially for Non-Resident Indians (NRIs) earning income in India. Excessive TDS deductions can lead to cash flow challenges and delayed refunds, making it essential for NRIs to understand how to manage their tax liabilities effectively. One such tool is the Lower TDS Certificate, which helps align TDS deductions with actual tax liabilities. 

This article delves into the concept of lower TDS certificates, recent regulatory changes, and the application process while highlighting how reliable investment options like the Bajaj Finance Fixed Deposit can complement financial planning.

TDS refers to the tax deducted at the source of income, ensuring that tax liabilities are met at the time of earning. For NRIs, TDS is applicable under Section 195 of the Income Tax Act, 1961, covering income like interest, rent, dividends, and capital gains. Unlike resident taxpayers, NRIs face fixed TDS rates, often higher than the slab-based rates applicable to residents.

NRIs are subject to TDS on various types of income earned in India, including:

• Interest income from savings, fixed deposits, or bonds.
• Rental income from property in India.
• Dividends from Indian companies.
• Capital gains from property sales or investments.

For instance, short-term capital gains are taxed at 30%, while long-term capital gains attract 20% plus surcharge and cess, which may total 23.92% in certain cases.

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In some cases, the payer of income can apply for a zero or lower TDS deduction on behalf of the NRI. However, this requires filing the necessary documentation and obtaining approval from the Income Tax Department.

Recent changes under the 2025 Income Tax Bill have redefined the rules for lower TDS certificates:

• Nil TDS certificates discontinued: NRIs can no longer apply for a nil TDS certificate. Instead, they must file an income tax return to claim refunds for any excess TDS deducted.
• Expanded scope: Lower TDS certificates now apply to additional income categories, including Section 194R (benefits) and Section 194LC (foreign interest).

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Form 13 is the official application form used by NRIs to request a lower TDS certificate. It allows taxpayers to align TDS deductions with their actual tax liabilities, ensuring that excessive amounts are not deducted at the source.

Filing Form 13 is a straightforward process that can be completed online via the TRACES portal. Here is a step-by-step guide:

1. Log in to the TRACES portal using your credentials.
2. Navigate to the "Statements/Forms" section.
3. Select "Request for Form 13" and choose the financial year.
4. Fill in details like residential status, TAN of the deductor, and nature of income.
5. Upload supporting documents, including previous tax returns and income details.
6. E-verify the application using a Digital Signature Certificate (DSC).

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After submitting Form 13, the application undergoes verification by the Income Tax Department. The following steps occur:

• The department reviews the supporting documents and assesses the applicant’s tax history.
• If approved, the lower TDS certificate is issued, specifying the applicable TDS rate.
• The certificate is shared with the deductor, ensuring proper TDS deductions going forward.

Reduced tax liability

A lower TDS certificate ensures that NRIs are taxed based on their actual income, avoiding excessive deductions. For example, in property sales, this can result in significant savings.

Compliance support

The certificate acts as proof of compliance with Indian tax laws, safeguarding NRIs from penalties or legal issues.

Streamlined refunds

By aligning TDS deductions with actual liabilities, NRIs can avoid large refund claims and enjoy faster processing of refunds.

To apply for a lower TDS certificate, NRIs must submit the following documents:

• Duly signed Form 13.
• Copy of Passport and PAN card.
• Proof of NRI status.
• Income statements or capital gain calculations.
• Bank statements for the last three financial years.
• Property-related documents, if applicable.
• ITR-V or acknowledgment of income tax returns for previous financial years.
• Details of tax already deducted and any outstanding demands.

For NRIs earning income in India, managing tax liabilities efficiently is crucial. A lower TDS certificate not only reduces tax burdens but also ensures compliance with Indian tax laws. By understanding the application process and recent regulatory changes, NRIs can optimise their financial planning.

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