Avoid Excess TDS on Indian Income
For many NRIs, receiving income from India can be frustrating when a significant portion gets deducted as Tax Deducted at Source (TDS). Whether it’s rent from property, interest on deposits, or dividends, excess TDS is a common but avoidable issue.
Understanding why excess TDS happens and how to reduce its impact is key to maintaining liquidity and planning your taxes efficiently.
Table of Contents
What’s the Issue?
Indian institutions, tenants, or companies often deduct TDS at flat or higher rates on payments made to NRIs. This is done even when your actual tax liability is much lower. For example:
- Rent paid to an NRI is subject to 30% flat TDS
- Banks deduct 30% TDS on NRO interest, regardless of income slab
- Mutual fund dividends may also attract TDS
This leads to cash flow stress and delayed refunds, as NRIs end up overpaying and wait months post-ITR filing to get their money back.
Why Does This Matter?
Excess TDS reduces your working capital and liquidity, especially if you’re planning to reinvest or remit funds abroad. Not staying on top of deductions can also lead to:
- Mismatches in Form 26AS
- Loss of refunds due to delay in filing
- Penalties or compliance issues
How to Avoid Excess TDS on Indian Income
1. Declare Your NRI Status Clearly
Inform all Indian payers—tenants, banks, mutual fund houses, and employers—about your NRI status and update the same in their records. This helps apply the correct tax rate and reduces documentation mismatch.
For instance, if you’re earning rental income, your tenant must deduct 30% TDS—but declaring your status early helps you plan better with lower deduction certificates.
2. Apply for a Lower/Nil TDS Certificate (Form 13)
If your actual tax liability is lower than the standard rate, you can apply to the Income Tax Department for a Lower Deduction Certificate under Form 13. This certificate authorizes a bank or tenant to deduct tax at a reduced rate.
- Useful for NRIs earning pension, rent, interest, or consultancy income
- Must be applied annually, so plan ahead
3. Monitor Your Form 26AS Regularly
Form 26AS is your tax credit statement and shows all TDS deducted under your PAN. Regularly reviewing it helps catch errors or missed credits.
If you find mismatches, contact the deductor (e.g., bank or employer) and request them to revise their TDS return (Form 24Q or 26Q).
4. File Your ITR Timely to Claim Refunds
Even if all your income is TDS-deducted, you should still file your Income Tax Return (ITR) to claim any excess tax deducted.
- File early to receive faster refunds
- Avoid interest or penalties for late filing
- Use Form ITR-2 for NRIs with capital gains or multiple income sources
5. Structure Your Income to Minimize TDS
Consider a tax-optimized structure for your investments:
- NRE deposits are tax-free and fully repatriable
- Shift funds from NRO to NRE when possible
- Use mutual funds instead of fixed deposits for more efficient taxation
- Plan equity redemptions to stay under the ₹1 lakh LTCG exemption
Common Income Sources with Excess TDS for NRIs
- Rental income from property in India (30% TDS)
- Interest on NRO fixed deposits (30% TDS)
- Dividends from Indian shares or mutual funds (10%–20% TDS)
- Residual salary or consultancy fees from India
- Sale of property, which attracts 20% or more as TDS
Key Takeaways
- Always declare your NRI status and update all relevant institutions
- Apply for a lower or nil TDS certificate if eligible
- Monitor Form 26AS and match it with actual deductions
- File ITRs even if TDS is deducted—claim refunds and ensure compliance
- Structure income and assets for tax efficiency
Real-Life NRI Scenarios: How Excess TDS Affects You
Case 1: Dubai-Based NRI Receiving Rental Income in India
Amit, an NRI living in Dubai, owns a flat in Pune that he rents out for ₹40,000/month. His tenant deducts 30% TDS (₹12,000/month or ₹1.44 lakh/year), even though Amit’s total Indian income is below the taxable threshold after claiming standard deduction and municipal taxes.
👉 Had Amit applied for a Lower TDS Certificate under Form 13, the deduction could have been reduced to zero or a minimal amount, improving his liquidity and eliminating the need to wait for a refund after ITR filing.
Case 2: UK-Based NRI with NRO FDs
Priya has ₹25 lakhs in NRO fixed deposits with a major Indian bank, earning 6.5% interest. Every year, the bank deducts 30% TDS on the interest (₹48,750/year), despite Priya falling into a lower tax bracket in the UK.
👉 By choosing NRE fixed deposits, which are tax-free, or restructuring her deposits under a trust or DTAA-backed income declaration, she could have avoided the tax altogether or claimed a full refund more efficiently.
Case 3: USA-Based NRI Selling Indian Property
Raj sold his inherited property in Bangalore for ₹1.2 crore. The buyer, unsure of the tax rules, deducted 20% TDS (₹24 lakhs). However, since Raj had held the property for over 10 years, his actual capital gains (after indexation) were only ₹35 lakhs, making the tax liability closer to ₹7 lakhs.
👉 Raj should have applied for a Lower Deduction Certificate before the sale. Instead, he had to wait almost a year to receive the ₹17 lakh refund.
FAQs on Avoiding Excess TDS for NRIs
Q1. Can I apply for a lower TDS certificate online?
Yes. NRIs can apply online using the TRACES portal for Form 13. The approval process may take a few weeks, so it’s best to apply early.
Q2. What happens if the bank deducts 30% TDS on my NRO FD even if my slab is lower?
Unless you submit a lower deduction certificate, banks are obligated to deduct TDS at 30% on NRO accounts. You can claim a refund by filing your ITR.
Q3. Is interest earned on NRE FDs taxable in India?
No. Interest from NRE FDs is tax-free in India as long as you maintain NRI status and the deposit is held in foreign currency.
Q4. What to do if TDS is deducted wrongly?
Raise the issue with the deductor (e.g., your bank or tenant) and request them to file a revised TDS return. Then ensure it reflects correctly in Form 26AS.
Conclusuion
Managing TDS is not just about saving tax—it’s about maximizing liquidity and ensuring your funds are working for you. As an NRI, your financial setup should enable global mobility, not restrict it.If you’re unsure whether you’re overpaying TDS or want to review your tax efficiency, now is the right time to act. Smart planning today leads to smoother compliance and better returns tomorrow.