Managing TDS for NRIs: Section 195 Compliance and Key Forms (Form 13 and Form 15E)

1. TDS Under Section 195:

NRIs are required to pay tax on income sourced from India, with Tax Deducted at Source (TDS) ranging from 10% to 30%, depending on the type of income. TDS for NRI on sale of property and other payments made to NRIs, such as interest or income from property sales, are typically subject to this tax deduction.

2. Form 13 - Application for Lower/NIL TDS Deduction:

NRIs can apply for a Lower Tax Deduction Certificate for NRIs if the actual tax liability is less than the amount being deducted. This is particularly useful for property sales, where buyers often deduct TDS on the entire sale amount, leading to excessive withholding. Form 13 income tax for NRI should be submitted under Section 197, providing details like PAN and income history to avoid overpayment of tax.

3. Form 15E - Application by Payer for TDS Determination:

Under Section 195(2), the tax deductor can apply for a certificate from the Assessing Officer to deduct TDS on the correct proportion of the income, rather than the entire payment. This is done through Form 15E.

4. Treaty Benefits and Documents:

NRIs can benefit from Double Taxation Avoidance Agreements (DTAA) under Section 90(2), opting for the lower tax rate stipulated in treaties. For example, NRIs in the UAE can reduce the withholding tax on interest income from 30% to 12.5% by utilizing the India-UAE DTAA. To avail of treaty benefits, NRIs must submit documents like a Tax Residency Certificate (TRC), Form 10F, and a No Permanent Establishment (No-PE) Declaration.

Also Read: TDS for NRIs on property sale in India with rules and exemptions