As an NRI, you pay tax in your country of residence for the income earned there. You may have investments or properties in India that also generate income. Such earnings are also taxed, and for NRIs, tax is deducted at source. With TDS, NRIs receive their Indian earnings only after paying the tax. To avoid double taxation, you may need to submit additional documents, especially with new rules starting in FY 2025–26. This blog gives you detailed information on the TDS deduction rules for NRI.

TDS Deduction Rules For NRI

TDS is the tax levied by the government at the source of income. When you file your return at the end of the year, if your actual tax bill is lower, you get the extra back as a refund.

The person or company in India paying you, whether that’s your tenant, a homebuyer, or a bank, has to deduct the tax and pay it to the government. It’s their responsibility, not yours.

To avoid higher TDS rates, make sure you have a valid PAN (Permanent Account Number) in India. Always tell your payer you’re an NRI, and keep records like payment proofs, Form 16A, and any Form 27Q filings you get. 

If your country of residence has a DTAA with India, you might pay less TDS. For example, with the India–UAE DTAA, TDS on interest can drop to just 12.5%. To get this lower rate, you’ll need to provide a Tax Residency Certificate from your country, fill out Form 10F, and confirm that you’re the actual owner of the income.

At the end of the financial year, if your tax liability is less than what’s been deducted, you can file an Indian tax return and claim a refund. Or, before the deduction happens, you can apply for a Lower or Nil Deduction Certificate (Form 13) from the Income Tax Department.

Learn more about investing in Indian properties as an NRI. 

TDS Deduction Rules For NRI: NRI TDS on Interest 

NRIs earn interest income from their investments in India. It’s usually a big part of their Indian income. 

• NRO Account Interest: Interest is taxable in India. TDS at 30%. 

• NRE and FCNR Accounts: Interest from NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is tax-free.

• Special Low TDS Rates: If you lend money in foreign currency to Indian companies, TDS is as follows.

  • 5% on interest from infrastructure debt funds (Sec. 194LB)

  • 5% on interest from long-term foreign currency borrowings (Sec. 194LC)

  • 4% on interest from some government or corporate bonds (Sec. 194LD)

Applicable cess and surcharges must also be paid.

TDS Deduction Rules For NRI: TDS for NRIs on Rent

If you own property in India and get rent as an NRI, your tenant must deduct 31.2% TDS on rent right from the first rupee. There is no exemption limit or minimum threshold.

• Get a TAN (Tax Deduction Account Number).

• Deduct 31.2% TDS every month.

• Deposit the TDS with the government using Form 27Q every quarter.

• Give you Form 16A as proof that they actually deducted the tax.

If your tenant is sending the rent outside India:

• They fill out Form 15CA to declare the remittance.

• If the total rent remitted in a year goes over ₹5 lakh, they also need a Form 15CB, a certificate from a chartered accountant.

TDS Deduction Rules For NRI: Capital Gains

If you’re an NRI selling property, shares, or any other asset in India, the person buying from you has to cut TDS from the total sale amount.

• Short-Term Capital Gains (STCG): For equity and assets where you’ve paid STT, the TDS rate is 15% (under Sec. 111A). For other assets, like property you’ve owned for less than two years, the rate jumps to 30%. After adding cess, you’re looking at anything between 15.6% and 31.2%.

• Long-Term Capital Gains (LTCG): Selling listed equity or equity mutual funds (with STT paid)? From July 23, 2024, the rate is 12.5%. It used to be 10%.

• For immovable property: For properties you’ve held for more than two years, you get two options: pay 20% with indexation or 12.5% without it. If you’re selling unlisted shares or other assets, that tax is 20% or 12.5%, depending on the date of sale.

Overview of NRI TDS Rate (FY 2025–26)

(Source: Income Tax Department, Government of India)

New NRI TDS Rules for FY 2025–26  

The Finance Act 2025 brought in some big changes for NRIs:

• LTCG Rate Change: From July 23, 2024, listed equity and mutual funds fall under a flat 12.5% rate (Sec. 112A).

• DTAA Tweaks: UAE and UK residents now have updated steps to claim lower tax rates.

• PAN-Aadhaar Linking: NRIs with taxable income or assets in India must link PAN with Aadhaar. Skip this, and you’ll face higher TDS.

Conclusion 

When you're an NRI, the Indian government deducts TDS from the income you earn in India. It varies based on the source of funds. Deducting TDS is the responsibility of the payee. If your total tax liability falls below the TDS amount, you can submit the appropriate form to get a TDS refund. Ensuring proper taxation for the income earned in India by learning TDS rules for NRIs is crucial to staying compliant and ensuring the legality of every rupee earned. 

Want an easy way to manage your income in both foreign and local currencies? Download Rupeeflo today for simplified NRI banking. 

Frequently Asked Questions

1. Do I pay TDS on interest from my NRE and FCNR bank accounts?

No, you don't. The interest you earn in these specific accounts is tax-free in India, as long as you follow the standard banking rules set by the RBI.

2. What if both the tenant and landlord are NRIs? Who​‍​‌‍​‍‌​‍​‌‍​‍‌ is responsible for TDS deduction?

The tenant must still deduct TDS and file the necessary forms before remitting rent abroad. Let's see an example. Suppose both you and the tenant are NRIs; then the tenant has to deduct TDS, file TDS forms, and then only the rent can be sent outside India.

3. What if I have been paying too much TDS? How do I get it back?

The only thing you need to do is to file an income tax return in India and request any TDS in excess to be refunded.

4. What are the documents needed to avail DTAA benefits?

Firstly, a person needs to have a Tax Residency Certificate (TRC), Form 10F, and a self-declaration stating that he/she is the beneficial owner.