Non-Resident Indians (NRIs) earning income in India are generally subject to Tax Deducted at Source (TDS). As per the revised guidelines issued by the CBDT on 27 September 2023, NRIs seeking to reduce or avoid TDS deductions must follow an updated procedure to obtain a lower or nil TDS certificate.
Unlike resident taxpayers, NRIs cannot submit Form 15G or Form 15H to prevent TDS deductions. Instead, they must apply to the Income Tax Department for a Lower or Nil TDS Certificate. Let’s understand the process and key provisions.
What is TDS for NRIs?
Section 195 of the Income Tax Act governs TDS on payments made to Non-Resident Indians. Key provisions include:
- Section 195 applies to any person making payments to an NRI, including individuals, HUFs, firms, domestic companies, foreign companies, and other entities.
- TDS must be deducted on payments made to NRIs, except salary income and certain interest payments covered under specific sections.
- Tax must be deducted either at the time of credit to the NRI’s account or at the time of payment, whichever occurs first.
- There is no minimum threshold limit for deducting TDS under Section 195.
Income Types Commonly Subject to TDS for NRIs
NRIs often earn income from sources in India such as:
- Interest income from deposits and investments
- Rental income from property
- Dividend income
- Other taxable payments received in India
The applicable TDS rate depends on the nature of the income. The payer is responsible for deducting and depositing the tax with the Income Tax Department. NRIs should verify that the correct amount of TDS has been deducted and can claim credit for such deductions while filing their Income Tax Return.
Application for Lower or Nil TDS by the Payer
If the payer believes that only a portion of the payment, or none of it, is taxable in India, they may apply to the Assessing Officer (AO) through Form 15E for a lower or nil deduction certificate.
NRIs can also apply for a lower or zero TDS certificate to avoid excess tax deduction. This certificate enables the payer to deduct tax at a reduced rate or not deduct tax at all, depending on the approval granted by the Income Tax Department.
For example, an NRI earning substantial interest income from fixed deposits may experience significant cash flow blockage due to TDS deductions. In such situations, applying for a lower deduction certificate can be beneficial.
What is Form 13?
Form 13 is the prescribed application form used to request a lower or nil TDS certificate from the Assessing Officer. After reviewing the details and supporting documents, the AO may approve the request and issue the certificate.
Procedure to File Form 13
Follow these steps to apply online:
- Log in to the TRACES portal.
- Go to the “Statements/Forms” section.
- Select “Request for Form 13”.
- Choose your residential status.
- Select “Original” as the request type.
- Choose the relevant financial year.
- Select “Online” as the application type.
- Verify the auto-populated details of the authorized person.
- Enter the applicable state and district.
- Provide the deductor’s TAN, nature of income, and desired TDS rate.
- Upload details of income and tax liability for the current year and previous four years.
- Complete verification using the approved method.
Recent Changes in the Lower/Nil TDS Application Process
CBDT has introduced significant modifications to the verification process for Form 13 applications.
Previously, applicants could verify the application through Aadhaar OTP, mobile OTP, and other electronic methods. However, these options have now been removed from the TRACES portal.
Currently, verification can only be completed using a valid Digital Signature Certificate (DSC).
What Happens After Filing Form 13?
Once the application is submitted, the following process takes place:
Application Review
The Assessing Officer reviews the application and supporting documents to determine whether the requested lower or nil TDS rate is justified.
System Evaluation
The Income Tax Department’s system recommends an appropriate TDS rate based on available records and tax data.
AO Decision
Approval:
If the request is accepted, a certificate specifying the approved TDS rate and validity period is issued.
Rejection:
If the AO concludes that the existing TDS rate is appropriate, the application may be rejected.
Certificate Details
The certificate generally includes:
- Approved lower or nil TDS rate
- Validity period
- Deductor’s TAN details
- Other relevant information
Use of the Certificate
The certificate can only be used with the deductor mentioned in the approval and cannot be applied universally across all payers.
If the AO grants a rate different from the system recommendation, the reasons for such approval must be documented.
Due Date for Filing Form 13
Form 13 should generally be submitted before 15 March of the relevant financial year to avail the benefit of lower or nil TDS deduction.
Documents Required for Form 13
The following documents are generally required:
- Signed Form 13
- Income Tax Returns with acknowledgements for the previous three financial years
- Assessment orders of the previous three years, if available
- Financial statements and audit reports (for business/professional income)
- Projected Profit & Loss Account for the current year
- Income computation statements for previous years and estimated income for the current year
- PAN card copy
- TAN details of all deductors
- TDS return acknowledgements for the previous two years
- Estimated income details for the current year
- Information regarding previous TDS defaults, if any
- Any additional documents depending on the nature of income
After submission, the Assessing Officer generally disposes of the application within 30 days. Additional information or supporting documents may be requested before the final decision is made.
Understanding NRI taxation and the lower TDS certificate process can be challenging. Seeking professional assistance can help ensure proper compliance, accurate documentation, and a smooth tax filing experience.
