Non-Resident Indians (NRIs) earning income in India are generally liable for Tax Deducted at Source (TDS). Following the CBDT notification issued on 27 September 2023, the procedure for obtaining a lower or nil TDS certificate has been revised.

Unlike resident taxpayers, NRIs cannot submit Form 15G or Form 15H to avoid TDS deductions. Instead, they must apply to the Assessing Officer for a certificate permitting deduction of tax at a lower rate or at a nil rate. Understanding this process helps NRIs reduce unnecessary tax deductions on eligible income.

What is TDS for NRIs?

Section 195 of the Income Tax Act governs TDS on payments made to Non-Resident Indians. The important provisions include:

• Section 195 applies to any person responsible for making payments to an NRI. This includes individuals, HUFs, partnership firms, Indian and foreign companies, non-residents, exempt entities, and other legal persons, irrespective of whether they have taxable income in India.
• TDS is required on all payments made to an NRI except salary payments covered under Section 192 and specified interest payments covered under Sections 194LB, 194LC, and 194LD.
• Tax must be deducted at the time of credit to the NRI’s account or at the time of payment, whichever occurs earlier.
• There is no minimum threshold limit for deduction of TDS under Section 195.

Which Income is Generally Subject to TDS for NRIs?

NRIs commonly earn income in India through sources such as interest, rental income, and dividends. The applicability of TDS depends on the nature of the income received.

The payer is responsible for deducting the applicable TDS and depositing it with the Income Tax Department. Different categories of income attract different TDS rates. For instance, bank interest, rental receipts, and dividend income are subject to TDS as prescribed under the Income Tax Act.

NRIs should verify whether the correct amount of TDS has been deducted and provide any required documents to ensure accurate tax treatment.

While filing their income tax return, NRIs must disclose their Indian income and can claim credit for the TDS deducted. Proper compliance by both the payer and the recipient helps avoid disputes, notices, and penalties.

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 (excluding salary payments), they may apply to the Assessing Officer by filing Form 15E to obtain a certificate permitting deduction of tax at a lower or nil rate.

NRIs who wish to avoid excessive TDS on their Indian income must obtain a Lower or Nil TDS Certificate. Unlike resident taxpayers, they are not eligible to submit Forms 15G or 15H. Instead, they are required to approach the Assessing Officer for approval.

Once the certificate is issued, the payer can deduct TDS at the reduced rate specified or may not deduct tax if a nil deduction certificate has been granted.

Individuals whose income exceeds the basic exemption limit cannot use Forms 15G or 15H to reduce TDS. For example, a person earning substantial interest from fixed deposits may suffer high TDS deductions despite having a lower final tax liability. Such taxpayers may apply for a lower or nil deduction certificate from the Assessing Officer.

What is Form 13?

To obtain a certificate for deduction of tax at a lower rate or at nil rate, the applicant must submit Form 13 to the Assessing Officer.

After examining the information and supporting documents provided, the Assessing Officer may issue a certificate authorizing deduction of tax at a reduced rate or without deduction, depending on the applicant’s tax liability.

How to File Form 13?

To apply for a lower or nil TDS deduction certificate, taxpayers must submit Form 13 through the TRACES portal by following these steps:

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 details of the authorized person registered on the TRACES portal will be auto-filled.

Step 9: Enter the applicable state and district.

Step 10: Provide the deductor’s TAN, nature of income, and the required TDS/TCS deduction rate.

Step 11: Upload details of your estimated income and tax liability for the current financial year along with the previous four financial years.

Step 12: Complete the verification using Aadhaar OTP, the registered mobile number on TRACES, net banking, or a Digital Signature Certificate (DSC).

What Changed in the Lower/Nil TDS Application Process for NRIs?

The CBDT introduced revisions to the procedure for obtaining lower or nil TDS certificates for NRIs.

A significant change is the withdrawal of several electronic verification methods on the TRACES portal. Options such as Aadhaar OTP and mobile OTP are no longer available. Following this amendment, applications can now be verified only through a Digital Signature Certificate (DSC).

What Happens After Filing Form 13 for Lower or Nil TDS?

Once Form 13 is submitted, the following process takes place:

Application Verification: The TDS Assessing Officer (AO) reviews the application along with the reasons and supporting details submitted by the NRI.

System Evaluation: The AO checks the Income Tax Department’s system, which recommends an appropriate TDS rate. The recommendation may be nil, lower, or the existing applicable rate.

AO’s Decision:

Approval: If the AO approves the request, a lower or nil TDS certificate is issued. The certificate specifies the approved TDS rate, its validity period, the deductor’s TAN, and other relevant information.

Rejection: If both the AO and the system determine that the existing TDS rate is appropriate, the application is rejected.

Certificate Details: The issued certificate contains:

• The approved lower or nil TDS rate.
• The validity period, which may cover a specific financial year or a particular transaction.
• The deductor’s Tax Deduction and Collection Account Number (TAN) and related details.

Independent Justification: If the AO approves a TDS rate different from the system’s recommendation, a valid justification for the decision must be recorded.

Use of Certificate: A lower or nil TDS certificate is valid only for the deductor mentioned in the certificate and cannot be used for other deductors.

This process ensures that every application is carefully examined and that the final decision remains transparent and well-supported.

What is the Due Date for Filing Form 13?

Form 13 must generally be filed on or before 15th March of the relevant financial year. For example, to claim a lower TDS deduction for the year 2023, the application had to be submitted by 15 March 2024.

Documents Required for Filing Form 13

The following documents are generally required while submitting Form 13:

• Duly signed Form 13
• Copy of the income tax returns along with acknowledgements and supporting documents for the previous three financial years
• Copies of assessment orders for the previous three financial years
• Financial statements and audit reports of earlier years (for taxpayers having business or professional income)
• Projected Profit & Loss Account for the current financial year
• Income statements for the previous three financial years and projected income computation for the current year
• Copy of PAN card
• TAN details of all deductors responsible for making payments
• Acknowledgements of e-TDS returns for the previous two financial years
• Estimated income for the relevant financial year
• Additional documents based on the nature of income
• Details of any previous TDS defaults

After submission, the jurisdictional Assessing Officer is required to dispose of the application within 30 days from the date of receipt. During the review process, the AO may request additional documents or clarifications before approving or rejecting the application.

Understanding NRI taxation provisions and completing Form 13 with the required documentation can be a complicated and time-intensive process. Since tax-related matters often involve multiple compliance requirements, seeking professional assistance can help ensure a smoother and hassle-free filing experience.

Frequently Asked Questions (FAQs)

Q- Can an NRI apply for a Lower TDS Certificate?
Yes. NRIs can apply for a Lower or Nil TDS Certificate under Section 197 of the Income Tax Act if they believe that the tax deductible on their income is higher than their actual tax liability. The application is generally made online in Form 13 through the Income Tax e-Filing portal.

Q- How can an NRI reduce TDS on the sale of property in India?
An NRI selling property in India can apply for a Lower TDS Certificate before the transaction is completed. If the certificate is issued, the buyer is required to deduct TDS at the lower rate specified by the Income Tax Department instead of the standard rate applicable under the law.

Q- What is a Lower TDS Certificate for an NRI?
A Lower TDS Certificate is an approval issued by the Income Tax Department that allows tax to be deducted at a reduced rate or not deducted at all, depending on the taxpayer’s estimated tax liability. This helps NRIs avoid excessive TDS and reduces the need to wait for a tax refund after filing their Income Tax Return.

Q- How can an NRI apply for a Lower TDS Certificate?
An NRI can apply by filing Form 13 online through the Income Tax e-Filing portal. The application should include supporting documents such as PAN, estimated income, tax computation, property details (if applicable), and other documents requested by the tax authorities.

Q- How long does it take to obtain a Lower TDS Certificate?
The processing time varies depending on the complexity of the application and the verification carried out by the Income Tax Department. In many cases, the certificate is issued within a few weeks, provided all required documents are submitted correctly.

Q- Is TDS mandatory on payments made to NRIs?
Yes. Under Section 195 of the Income Tax Act, any person making certain taxable payments to an NRI is generally required to deduct TDS at the applicable rate before making the payment, unless a Lower or Nil TDS Certificate has been obtained.

Q- What are the TDS rules for the sale of property by an NRI?
When an NRI sells immovable property in India, the buyer is generally required to deduct TDS under Section 195. The applicable TDS depends on factors such as the nature of the capital gain, the period of holding, and the provisions of the Income Tax Act. A Lower TDS Certificate can help ensure that TDS is deducted based on the actual tax liability.

Q- Can an NRI apply for a Nil TDS Certificate?
Yes. If the estimated tax liability is nil or lower than the prescribed TDS rate, an NRI may apply for a Nil TDS Certificate under Section 197. Approval is subject to verification by the Income Tax Department.

Q- Is PAN mandatory for obtaining a Lower TDS Certificate?
Yes. A valid Permanent Account Number (PAN) is generally required to apply for a Lower or Nil TDS Certificate through the Income Tax e-Filing portal.

Q- What documents are required to apply for a Lower TDS Certificate?
The required documents may include:

• PAN card
• Passport and address proof
• Estimated income computation
• Copy of the sale agreement or property documents (if applicable)
• Previous Income Tax Returns
• Capital gains calculation
• Supporting financial documents requested by the Assessing Officer

Q- What are the benefits of obtaining a Lower TDS Certificate?
A Lower TDS Certificate helps:

• Reduce excess tax deduction
• Improve cash flow
• Minimize the need to claim large tax refunds
• Ensure TDS is deducted based on the estimated tax liability
• Simplify tax compliance for NRIs

Q- Is a Lower TDS Certificate valid for all financial years?
No. A Lower TDS Certificate is generally issued for a specific financial year or for a specified transaction. A fresh application may be required for future years or separate transactions.

Q- Can a buyer deduct TDS at a lower rate without a Lower TDS Certificate?
No. Unless the Income Tax Department issues a valid Lower or Nil TDS Certificate under Section 197, the buyer must deduct TDS at the applicable rate prescribed under the Income Tax Act.

Q- What happens if excess TDS is deducted from an NRI?
If excess TDS has been deducted, the NRI can claim a refund by filing an Income Tax Return after the end of the financial year. Any eligible refund will be processed by the Income Tax Department in accordance with the applicable provisions.

Q- Why should NRIs seek professional assistance when applying for a Lower TDS Certificate?
Professional assistance helps ensure accurate tax computation, proper documentation, timely filing of Form 13, and smooth communication with the Income Tax Department. This can improve the chances of obtaining the certificate quickly while ensuring full compliance with Indian tax laws.