Tax Deduction at Source (TDS)

Any non-resident who continues to earn income in India, while living abroad is subject to tax in India. Normally in many instances, such as interest received on NRO bank accounts or perhaps even rental income, 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, is tax free in India. 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 NRI's, 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 30.9%.

TDS reduction for PIO under DTAA

NRIs can pay a lower rate of TDS if they are from a country that has a DTAA with India. Citizens of countries such as USA, Canada, UK, and Australia can get away by paying a TDS on interest income of only 15% by virtue of tax treaties between countries. However, to claim this benefit, the Indian authorities require the individual to submit a 'Tax Residency Certificate'. 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 equity shares and equity mutual funds sold 1 year after the date of purchase, are exempt from tax, so no TDS applies. For short-term capital gains however, i.e. profits on sales within one year of purchase date, a TDS of 15% applies. Long-term capital gains which occur from the sale of debt mutual funds, or corporate debentures, attract TDS at 10 per cent. Short-term capital gains are currently subject to a TDS of 30 per cent. When it comes to capital gains on assets such as real estate or gold, the long-term capital gains TDS rate is 20% and the short-term capital gain TDS rate is 30%. While banks and other institutions deduct TDS automatically and submit tax amount deducted to the tax authorities, there are cases where this is not possible, for example, when a house is sold. In such cases, the buyer is responsible for ensuring that TDS is taken and sent to the authorities. The procedure here is that the buyer should apply for a Tax Deduction Account Number (TAN), and then issue a TDS certificate to the seller after deducting the TDS. TDS on rental income also comes under the other income category which calls for TDS @ 30%. The tenants in such cases are supposed to apply for a TAN, deduct TDS from the rental amount and send the tax collected to the tax authorities. The tenant should issue a TDS certificate to the landlord. In cases where income exceeds Rupees 10 lakh, a surcharge of 10 per cent is generally applicable on the TDS. Furthermore, an educational cess of 3 per cent also applies to all TDS. Note: All rates shown here are for informational purposes and should be confirmed by the reader with the appropriate authorities) Next Page How to get a tax residency certificate . . . read now >>