NRI TDS Refund: A Comprehensive Guide

Discover how NRIs can manage TDS effectively and maximize tax refunds. Get expert advice on optimizing your financial returns.
TDS & Tax Refund for NRIs
3 min
16-April-2024

Taxes are the backbone of a functioning economy. They form a crucial revenue stream for the government, enabling it to invest in areas promoting development and welfare. Every citizen is also responsible for paying their income taxes and reporting their expenses and liabilities.

The income tax system in India is governed by the Income Tax Act of 1961. In this article, we will comprehensively lay down a guide for Non-Resident Indians (NRIs) who want to understand the processes surrounding NRI TDS refunds.

TDS refers to Tax Deducted at Source, which is deducted from all kinds of incomes in the case of NRIs. We will discuss NRI incomes on which TDS is deducted, help you understand how to claim the refund for the TDS deductions, and which Income Tax Return (ITR) form to fill out and how to file your returns.

Before getting to the incomes that attract TDS, we will briefly understand if you qualify as a non-resident Indian.

Who is an Indian resident

As per Section 6 of the Income Tax Act, you will be considered an NRI if you are not residing in the country. To be a resident, you must fulfil the following criteria:

  • Stay in India for more than 182 days in the previous financial year.
  • Stay in India for 60 or more days in the previous financial year and 365 days or more cumulatively for four years preceding the last.
  • Now, we will look into the income sources that fall under the ambit of TDS for NRIs.

Incomes subject to NRI TDS deductions

The laws pertaining to NRI incomes under the Indian taxation system can be quite stringent. This is evident from the fact that all payments to NRIs qualify for TDS deductions. This is true even for NRIs whose income technically falls in the 0% tax slab, i.e. whose incomes are less than Rs. 2.5 lakh annually. It is this TDS that NRIs can later claim in their income tax return filing. TDS deductions on NRI incomes are made as per section 195 of the Income Tax Act.

NRI incomes that are primarily subject to TDS deductions include:

  • Rental income acquired by an NRI from property situated in India
  • Disposal of property by an NRI situated in India
  • Interest accrued by an NRI on NRO accounts
  • Trading of stocks, bonds, and mutual funds
  • Payment for services rendered within India

Also read: NRI fixed deposit

Now that you understand that as an NRI, most incomes that you earn would attract TDS deductions, let us understand the process of claiming an NRI TDS refund.

Process for claiming NRI TDS refund

At the end of a financial year, if you want to claim an NRI TDS refund that was deducted earlier, you must file your income tax return. In accordance with your income tax slab rate, you can calculate your income and tax liabilities to file the tax returns before 31st July of the subsequent financial year. Missing this deadline would attract penalties for you.

Post 2017-18, NRIs have to file their income tax returns using ITR 2 or ITR 3. You cannot use ITR 1 for your filing. While ITR 2 is applicable if you do not draw any revenue from a business in India, ITR 3 has to be used for filing returns if you have revenue streams from a business in the country.

One crucial bit of information is that income derived from renting out property or capital gains from investments such as shares, mutual funds, or bonds is not classified as a business. Thus, in this case, you will be filing income tax returns using ITR 2.

Also read: National Pension Scheme for NRI

Is it obligatory to file ITR for NRI TDS refund

In short, yes. There are a couple of situations that make ITR filing mandatory. These are:

  • If the income generated from India exceeds Rs. 2.5 lakh
  • If the income generated from India is below Rs. 2.5 lakh, and you want to claim TDS refunds

It may be clear from the above conditions that despite having limited income, you may be required to file an income tax return if you have received any payments from India where TDS has been deducted. This is the only way to claim an NRI TDS refund and recover your earlier deductions.

Key points to remember

Other than the important information we have already shared above regarding the NRI TDS refund, it may also be beneficial for you to note the following:

  • Typically, it can take up to 6 months for an NRI TDS refund to be issued. Sometimes, it may take even more than 6 months.
  • In addition to the TDS refund, you can also leverage various provisions outlined in Section 80C of the Income Tax Act to reduce your tax burden.

Summing up

Learning the nuances of the NRI TDS refund process is essential for non-resident Indians to effectively manage their tax liabilities and financial obligations. As taxes form a vital part of the economic infrastructure, complying with tax regulations ensures both individual responsibility and contributes to the broader development initiatives of the government. Through this comprehensive guide, you have been equipped with the necessary knowledge to navigate the complexities of TDS deductions, income tax filing, and refund claims.

Whether it is rental income, capital gains, or other sources of income, being informed about the applicable laws and procedures empowers you to fulfil your tax obligations and optimise your financial strategies. By adhering to the outlined processes and deadlines, you can efficiently claim refunds, avoid penalties, and ultimately secure your financial interests and goals in compliance with Indian tax laws.

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