Tax Deduction at Source in

India (TDS) . . .

NRIs who continue to earn income in India are subject to tax in India. Normally, in many instances, such tax is deducted in the form of TDS. Interest earned on NRE accounts as well as other foreign currency accounts such as FCNR accounts are tax free. Hence no tax is deducted as TDS from these accounts. Indian residents who earn interest on their Indian bank accounts are liable to pay TDS on amounts over and above Rupees 10,000. However when it comes to NRIs they are not allowed this benefit on their NRO accounts. All interest earned in NRO accounts is subject to a TDS rate of a whopping 30% Interest earned by NRI's on other types of deposits, such as bonds are subject to a TDS @ 20%. However dividends from equity shares, equity mutual funds and debt mutual funds are exempt in the hands of the share or unit holder. As for capital gains, profits made on sale after 1 year from date of purchase, on equity shares and equity mutual funds are exempt from tax. Hence no TDS applies. However for Short term capital gains which are said to be profits on sale within one year of date of purchase, a TDS of 15% applies. Long term capital gains from debt mutual funds and corporate debentures that are sold in the secondary market attract TDS at 10 per cent. Short term capital gains will be subject to a TDS of 30 per cent. Capital gains on assets such as, real estate or gold, for long term capital gains TDS rate is 20%. For short term capital gain the TDS rate is 30%

Responsibility to deduct TDS

While banks and other institutions deduct TDS automatically and submit it to the tax authorities, there are cases where this is not possible, for instance, the sale of a house. In such cases, the buyer is responsible for ensuring that TDS is taken and sent to the authorities. The procedure here would be that the buyer would have t apply for and get a Tax Deduction Account number (TAN) and issue a TDS certificate to the seller after deducting the TDS. TDS on rental income comes under the other income category which calls for TDS @ 30%. The tenant is such cases is the person responsible to deduct the TDS and issue a TDS certificate. In cases where income exceeds Rupees 10 lakh, a surcharge of 10 per cent would be applicable on the TDS. Further, an education cess of 3 per cent would apply to all TDS.