A Non- Resident Indian (NRI) who has income, that is earned or accumulated in India, is liable for taxation. Section 195 of the Income Tax Act covers Tax Deducted at Source (TDS) on payments made by NRIs. The rate & conditions for TDS is different for the residents of India and non- residents of India. NRIs who have income in India are liable to pay taxes and should be aware that if the income were tax free in India, then there would be no TDS.
In this article from our NRI Knowledge Series, we will look at the various incomes that NRIs could earn in India and what TDS rates would apply to that:
1. Bank deposits
The income that is earned on NRE (Non-Resident External) and FCNR (Foreign Currency Non- Resident) accounts are not liable for taxes in India. Hence, there would be no TDS.
Whereas, if we talk about the income earned on the NRO (Non-Resident Ordinary) account then, it is liable for taxation and is also subjected for TDS of 30% without any basic exemption limit.
Investments like corporate deposits and bond investments by NRIs are subjected to TDS at 20%.
There is no tax and therefore no TDS is deducted on dividend earned on equity shares and mutual funds.
4.Capital Gains on Securities
If an NRI earns short term capital gains by selling equity shares or equity mutual funds, the gains are subject to 15% TDS. Equity mutual funds are mutual funds schemes that have 50% or more investments in equities.
Debt mutual funds, corporate debentures Long term capital gains from debt mutual funds and corporate debentures are subjected to TDS at 10%.
Short-term capital gains will be subjected to TDS of 30%.
Long-term capital gains on assets like house property or gold is subjected to a TDS of 20%.
Short-term capital gains on assets like house property or gold is subjected to a TDS of 30%.
There is no separate rate that has been prescribed for TDS on rent paid to NRIs. The rent of the property that is owned by the NRI falls under the category of other income and is subjected to the TDS of 30%. The payer of the rent is responsible for deducting the tax at source. The process of TAN and issuing a TDS certificate applies here.
6.Professional services and royalty
If NRIs are receiving any payment from a company in India for providing any kind of professional service, that income is also liable for taxation in India and would be subjected for TDS as well. If NRIs’ agreement with the company is dated between 1st June 1997 and 30th May 2005, the subjected TDS rate is 20% but if the agreement is dated on or after 1st June 2005, the subjected TDS rate is 10%.
7.Any other income
Any other income that NRIs have earned which is liable for taxation in India is subjected to a TDS of 30%. If the income exceeds Rs.10 lakh, a surcharge of 10% would be applicable on the TDS. On education cess of 3% would be applicable to all TDS.
Tax for NRIs will be deducted at source on a certain income earned in India. But at the same time, NRIs will have to refer the Double Taxation Avoidance Agreements (DTAA) that India has signed with various countries in order to avoid paying taxes twice. The DTAA provides further concessional rates of TDS for NRIs. NRIs can even get a TDS waiver if the total income is less than a basic exemption limit.
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