TDS on NRI income in India — rates, mechanics, and how to pay less

Why NRIs get hit harder by TDS than residents

Residents have a TDS regime that more or less tracks their likely final tax — 10% on interest, 1% on property purchase above threshold, and so on. For NRIs, the default TDS rates under Section 195 of the Income-tax Act are much heavier — 30%+ on most income streams, with no basic-exemption slab applied at source.

This is deliberate: the government wants to collect tax before money leaves the country, because chasing an NRI after the fact is difficult. The flip side is that NRIs often end up having more tax deducted than they actually owe, and have to claim the excess back as a refund by filing an Indian return.

Two levers reduce this friction:

A lower- or nil-deduction certificate under Section 197 — applied for before the transaction.
DTAA relief — claimed at source with a TRC and Form 10F for most interest income, or at return-filing stage for other income.

The rest of this article walks through the rates, the mechanics, and these two levers in detail.

Current TDS rates on major income streams

All rates below are plus applicable surcharge (10%–25% depending on the payment amount) and 4% health and education cess. Figures shown are the base rates.

Income	Section	Base TDS rate
NRO account interest	195	30%
NRE account interest	—	Nil (exempt under Section 10(4)(ii))
FCNR(B) interest	—	Nil (exempt under Section 10(15)(iv)(fa))
Rental income paid to NRI landlord	195	30% of gross rent
Long-term capital gains on immovable property	195	12.5% (sales on or after 23 July 2024)
Short-term capital gains on immovable property	195	30%
LTCG on listed equity / equity MFs (Section 112A)	195	12.5% above ₹1.25 lakh annual exemption
STCG on listed equity / equity MFs (Section 111A)	195	20% (post 23 July 2024; was 15%)
LTCG on unlisted shares	195	12.5% without indexation
Dividends from Indian companies	196A / 195	20%
Salary (NRI employed in India)	192	Slab rates, as for residents
Royalty / FTS	195	20% (or DTAA rate if lower)

What changed in Budget 2024

The Finance (No. 2) Act, 2024 made material changes that apply to NRIs:

LTCG on all assets reduced to a flat 12.5% without indexation (was 20% with indexation for property / 10% for listed equity above ₹1 lakh).
Holding period for LTCG on property stays at 24 months.
For immovable property acquired before 23 July 2024, a resident individual/HUF can choose between 12.5% without indexation and 20% with indexation, whichever produces the lower tax. NRIs were excluded from this grandfathering option — for an NRI, any sale of Indian property on or after 23 July 2024 is taxed at 12.5% without indexation, period.
STCG on listed equity raised from 15% to 20%.
LTCG exemption on listed equity raised from ₹1 lakh to ₹1.25 lakh annually.

Interest income — the NRO problem

NRE and FCNR interest are tax-free by statute and no TDS applies. The live issue is NRO interest, which is subject to 30%+surcharge+cess — effective rates typically 31.2% to 39% depending on aggregate payment size.

DTAA relief on NRO interest is the main saving. Most of India's treaties set interest at 10%–15% as the rate the source country (India) can charge. Indian banks will apply the treaty rate at source if you submit:

Tax Residency Certificate (TRC) from your country of residence each financial year.
Form 10F — now a mandatory online filing on the Indian income tax portal; a physical form is no longer accepted. The online Form 10F requires a PAN.
Self-declaration of beneficial ownership and that you do not have a permanent establishment in India.

Without these, the bank withholds the full 30%+. Making the filing an annual discipline in April saves a meaningful refund round-trip.

Rental income — the tenant's problem, actually

Most Indian tenants renting from a local landlord use Section 194-IB (or 194-I) and deduct at modest rates (if at all). For an NRI landlord, the applicable section is Section 195, and the obligations are much heavier:

Rate: 30% + surcharge + cess on the gross rent (no standard deduction applied at source).
The tenant must obtain a TAN (Tax Deduction Account Number). This is a common point of failure — many individual tenants don't realise this applies to them.
TDS must be deposited monthly (by the 7th of the following month, March deposits by 30 April).
Quarterly TDS return in Form 27Q (not 26Q) must be filed by the tenant.
The tenant issues Form 16A to the NRI landlord showing the TDS.

For the NRI, the practical fix is again a Section 197 lower-deduction certificate. Apply via Form 13 online through the TRACES / income tax portal. The Assessing Officer considers your expected rental income minus the 30% standard deduction and municipal tax, and issues a certificate allowing the tenant to deduct TDS at a much lower effective rate — often 7%–10%.

Capital gains on property — the big one

The 12.5% rate post-Budget 2024 is helpful, but the mechanics are still unforgiving if the NRI doesn't plan ahead.

Buyer's obligation

When an NRI sells Indian property, the buyer must deduct TDS under Section 195 — not Section 194-IA (the 1% buyer-TDS section that applies only to resident-to-resident transactions).

If the seller is an NRI:

Buyer needs a TAN.
TDS is on the full sale consideration at 12.5%+surcharge+cess for LTCG (or 30%+ for STCG), not on the capital gain. On a ₹3 crore flat sale this produces ~₹42 lakh of TDS up front — a serious cash-flow hit for the seller.
TDS must be deposited monthly and a Form 27Q quarterly return filed.

Many unaware buyers deduct just 1% under Section 194-IA — which is wrong and leaves both parties exposed to recovery proceedings.

The Section 197 certificate is the essential fix

An NRI selling property should apply for a lower-deduction certificate well before the sale closes. The certificate sets the TDS on the actual capital gain as computed in the application, rather than on the full sale price.

Steps:

Work out the expected capital gain with your CA: sale price minus indexed/non-indexed cost, deductions, Section 54/54EC exemptions if claimed.
File Form 13 online on the income tax portal through your PAN login.
Submit supporting documents — original purchase deed, sale agreement, cost-of-improvement proofs, valuation report.
The Assessing Officer issues a certificate specifying the rupee amount to be deducted. The buyer deducts per the certificate.
Allow four to eight weeks for processing — longer if the AO is busy. Start as soon as the sale is agreed, not at closing.

Exemption routes to reduce the gain itself

Section 54: reinvest the LTCG in another residential property in India within prescribed windows (one year before or two years after sale, or three years for under-construction).
Section 54EC: invest up to ₹50 lakh of LTCG in specified capital gain bonds (NHAI, REC, PFC, IRFC) within six months; 5-year lock-in.
Section 54F: available to NRIs who don't own more than one residential house at the time of sale — reinvest the full sale consideration (not just the gain) in a residential property.

Claim these in the Section 197 application so the AO factors them in while issuing the certificate.

Shares, mutual funds, and dividends

Listed equity / equity MF via stock exchange (STT-paid):
- STCG (holding ≤ 12 months): 20% + cess
- LTCG (holding > 12 months): 12.5% above ₹1.25 lakh annual exemption, + cess
Unlisted shares: LTCG at 12.5% (24-month holding); STCG at 30%+.
Debt mutual funds (invested on/after 1 April 2023): taxed as slab-rate income (short-term), no LTCG treatment.
Dividends: 20% TDS under Section 196A/195, reduced by DTAA to typically 10-15%.

For portfolio investors, the custodian broker (for PIS accounts) or the AMC/RTA (for MFs) deducts TDS at the time of redemption or dividend payout. Reclaim via ITR filing if the DTAA rate is lower.

Salary earned in India by an NRI

If an NRI is employed in India (working from here for more than the FEMA-permitted short durations, or on secondment), Section 192 applies — TDS at slab rates as for any resident, deducted monthly by the employer. No Section 195 machinery; no separate NRI treatment. The underlying tax position still depends on days of residence and the DTAA with the home country.

DTAA relief — how and when to claim

India has DTAAs with over 90 countries. For most NRIs the key items covered are:

Income	Typical DTAA rate (common treaties)
Interest	10% – 15%
Dividend	10% – 15%
Royalty / FTS	10% – 15%
Capital gains on shares	Often taxable only in country of residence (check treaty)
Capital gains on Indian property	India taxes (source rule)

At source

For recurring income like interest and dividend, claim at source by giving the payer (bank, AMC, company) annually:

TRC from home country's tax authority.
Online Form 10F generated on the income tax portal.
Self-declaration of beneficial ownership and no PE in India.

At return-filing stage

For one-off income (capital gains, property sales), you'll typically have TDS deducted at the domestic rate and then claim the DTAA- adjusted tax plus credit in the Indian return (ITR-2). The Foreign Tax Credit mechanism on the home side lets you offset Indian tax against home-country tax on the same income — but don't forget to claim it; the process isn't automatic in most home jurisdictions.

Section 15CA and 15CB — remitting taxed money out

Once you've received net-of-TDS money into an NRO account and want to repatriate it abroad, the bank requires:

Form 15CA — a four-part self-declaration filed online on the income tax portal, confirming the nature of the remittance and tax paid.
Form 15CB — a Chartered Accountant's certificate, required for taxable remittances above monetary thresholds (broadly, above ₹5 lakh in a year where tax is payable).

Repatriation from an NRO account is capped at USD 1 million per financial year; see our NRI accounts article for the full mechanics.

Filing an Indian return to claim excess TDS refund

Even if you have no other reason to file, the only way to reclaim TDS deducted in excess of your actual liability is to file an ITR.

Form: ITR-2 for most NRIs (capital gains, multiple properties, foreign-asset reporting in some cases).
Due date: typically 31 July following the financial year (extended annually).
Refund: credited electronically to an NRO account linked to your PAN. You need a validated bank account on the income-tax portal for refund processing.
Processing time: generally 3–6 months after return processing; faster if return is defect-free and e-verified promptly.
E-verification: via Aadhaar OTP, DSC, or EVC through net-banking. For NRIs without Aadhaar, DSC is the most reliable route.

Common traps that cost NRIs money

Buyer deducting 1% under Section 194-IA on an NRI sale. Wrong provision; expose both parties to recovery notices. Correct rate is Section 195.
Not filing Form 10F online. Paper submissions are no longer accepted; banks will default to full 30%+ TDS.
Missing the Section 197 application before the transaction. Once TDS is deducted at the default rate, the only path to the money is the refund route via ITR filing — months of delay.
PAN–Aadhaar linking for non-residents. NRIs are generally exempt from Aadhaar linking, but the exemption needs to be flagged correctly on the income tax portal; otherwise PAN can be treated as "inoperative" and TDS deducted at 20% flat under Section 206AA, over and above Section 195 rates.
Assuming a TRC is a one-time document. It has to be refreshed every financial year.
Forgetting home-country reporting. Indian TDS has a foreign-tax- credit side — claim it, don't leave it on the table.

Bottom line

Default TDS for NRIs is front-loaded and unforgiving, but two tools turn it into something manageable: the Section 197 lower-deduction certificate for lumpy items like property sales and rent, and annual DTAA documentation (TRC + online Form 10F) for recurring interest and dividends. Apply early, file the ITR even in refund-only years, and keep the paperwork in one place — that's the difference between a smooth tax year and months of recovery.