Avoid Excess Tax Deductions in India: NRI Guide to Lower TDS Certificates

NRIs earning income from India can avoid high default TDS rates by applying for a lower or nil deduction certificate under Section 197 of the Income Tax Act.

Non-resident Indians (NRIs) earning income in India, from rent and interest to capital gains and professional fees, often face disproportionately high Tax Deducted at Source (TDS). This occurs because TDS is usually applied at the maximum marginal rate (20–30 percent plus surcharge and cess), regardless of deductions, exemptions, or Double Taxation Avoidance Agreement (DTAA) benefits.

However, eligible NRIs can apply for a lower or nil TDS certificate under Section 197 of the Income Tax Act, 1961, ensuring that tax is deducted only at the applicable rate.

India Briefing guides you with answers to the most common questions on claiming a lower or nil TDS certificate.

ALSO READ: A Guide to India’s TDS Rates for FY 2025-26

Understanding TDS and its applicability on NRI income

TDS is a mechanism under the Income Tax Act, 1961, whereby tax is collected at the point of payment. They vary depending on the type of payment, the recipient’s residential status, and the legal classification of the entity involved. TDS provisions can be broadly categorized as follows:

For individuals:

1. Resident individuals
2. Non-resident individuals (NRIs)

For companies:

1. Domestic companies
2. Foreign companies

India’s TDS rate chart is a comprehensive table that specifies applicable deduction rates for different types of transactions, such as salaries, rent, interest, dividends, and professional fees. These rates are determined based on the recipient’s status (resident or non-resident) and the nature of the payment.

1. Why is TDS deducted at a higher rate for NRIs?

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When making payments to NRIs, Indian payers are generally required to deduct TDS at the maximum marginal rate, typically ranging from 20 percent to 30 percent, plus applicable surcharge and cess. This higher withholding rate is applied without factoring in any deductions, exemptions, or DTAA benefits, unless the NRI has obtained a lower withholding certificate from the Income Tax (IT) Department.

However, it’s important to note that this is a precautionary deduction, and the NRI’s actual tax liability may be significantly lower once their total income is assessed and applicable treaty benefits are considered.

2. What is a lower or nil TDS certificate?

A lower/nil TDS certificate is an official approval issued under Section 197 of the Income Tax Act, 1961. It allows the payer to deduct tax at a reduced rate or even a nil rate, thereby preventing excess tax deduction and the burden of claiming refunds later.

3. Who can apply for a lower TDS certificate?

Any NRI (individual or foreign company) receiving income from India that is subject to TDS may apply. Eligible income categories include the following:

• Salaries
• Interest (on securities and other sources);
• Dividends;
• Interest (other than interest on securities)
• Rental income;
• Royalties and technical service fees;
• Payment of compensation on Compulsory acquisition of immovable property; and
• Income subject to TDS during property purchase by NRIs.

If your effective tax liability is lower than the default TDS rate, you’re eligible to apply.

4. How do I know if I qualify for a reduced TDS rate?

Eligibility for a lower or nil TDS certificate is determined based on several factors, including the following:

• Projected total income for the financial year
• Availability of DTAA benefits;
• Applicable exemptions, deductions and carryforward losses;
• Tax residency and permanent establishment considerations; and
• Last three audited records (if any).

Professional tax advisors or qualified consultants can assist NRIs by performing eligibility assessments and guiding them through the approval process, including documentation and liaison with tax authorities.

5. What documents are required to apply?

The list may vary by case, but commonly required documents include the following:

• Permanent Account Number (PAN);
• Computation of estimated total income;
• Copies of income contracts or agreements (rent, sale deeds, etc.);
• Previous year’s tax return (if applicable);
• Tax Residency Certificate (TRC) and Form 10F;
• Passport or visa copies (for individuals); and
• Supporting documents for DTAA claims.

These are submitted to the jurisdictional assessing officer for evaluation.

6. What is the application timeline, and how long does it take?

Once submitted, the lower TDS certificate is usually processed and issued within 30 to 45 days. Although this may vary depending on the assessing officer’s workload and the jurisdiction.

7. What if excess TDS has already been deducted?

If a higher TDS amount has already been withheld, the taxpayer can claim a refund by filing their return of income. However, obtaining a lower TDS certificate before the transaction ensures that funds are not unnecessarily locked up in refunds and cash flow remains optimal.

8. What are the benefits of obtaining this certificate?

Obtaining a lower or nil TDS certificate provides a range of advantages for NRIs earning income in India. First, it helps avoid the common issue of excess tax being deducted at the source, especially when the actual tax liability is lower than the default rate applied by the payer. This reduces the taxpayer’s reliance on refund claims and shortens the overall cash recovery cycle.

From a compliance standpoint, the certificate supports better alignment with regulations under FEMA, DTAA provisions, and other applicable Indian tax laws. This also contributes to stronger documentation and audit preparedness, allowing NRIs to maintain a clear and traceable compliance record with Indian tax authorities.

9. Is there a deadline for applying?

While there is no statutory deadline, it is advisable to apply well in advance of the income or sale proceeds, such as rent receipts or property sales. This is to ensure the certificate is issued and effective when TDS would otherwise be deducted.

10. What is the initial step to obtain a lower or nil TDS certificate?

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A professional advisory team can help evaluate eligibility, prepare and file the application, and coordinate with the IT department for issuance. Engaging experienced tax professionals early can help streamline compliance and prevent delays in income receipt or potential refund claims.

Way ahead

For NRIs receiving income from India, applying for a lower or nil TDS certificate under Section 197 of the Income Tax Act, 1961, is an effective way to reduce unnecessary tax outflows and maintain liquidity.

By assessing eligibility early and submitting a complete application, NRIs can significantly improve their compliance profile and avoid refund-related delays. Professional support adds value by ensuring correct interpretation of tax laws and faster resolution with tax authorities.

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