Tax Deducted at Source (TDS) is an important compliance mechanism under the Indian Income Tax Act, and it applies to both resident and non-resident taxpayers. For Non-Resident Indians (NRIs), TDS is often deducted at higher rates, especially on income such as capital gains, rental income, interest income, or payments received when selling property in India. In many situations, the actual tax liability of an NRI may be lower than the prescribed TDS rate. To address this mismatch between tax deduction and actual liability, the Income Tax Act provides the option to apply for a lower deduction certificate, commonly referred to in the context of NRIs as a lower TDS deduction certificate for NRI.
This article explains the process, purpose, and documentation requirements involved in obtaining a lower tds certificate for nri, along with the regulatory background governing such certificates. The intention is to provide an educational overview to help taxpayers understand the compliance structure. The information presented is factual and general in nature. As an informational resource, R Pareva & Company aims to outline the procedural aspects in a clear and systematic manner.
1. What Is a Lower Deduction Certificate?
A lower deduction certificate is an approval issued under Section 197 of the Income Tax Act. This certificate authorizes the payer (such as a buyer of property, tenant, bank, or company) to deduct TDS at a rate lower than the standard rate specified in the Act or related provisions.
The purpose of such a certificate is to ensure that the tax deducted aligns more closely with the taxpayer’s estimated tax liability for the year. For NRIs, standard TDS on certain payments may be significantly higher than the actual tax payable after considering deductions, exemptions, cost indexation, double taxation avoidance agreements, or capital gains adjustments. In such cases, a lower tds deduction certificate prevents excess deduction and the administrative burden of claiming refunds later.
2. Relevance of Lower TDS Certificate for NRIs
A lower TDS certificate for NRI becomes particularly relevant in the following situations:
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Sale of property in India, where TDS for NRIs is typically 20% to 30% before surcharge and cess, regardless of actual gains.
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Receipt of rental income, which attracts a high TDS rate for non-residents.
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Fixed deposits or interest income earned by NRIs in India.
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Payments received under certain agreements or contractual arrangements.
Because NRIs often face TDS rates that exceed their real tax liability, the option to apply for a lower deduction certificate for NRI helps ensure that only the appropriate tax amount is deducted. This also reduces the need to wait for income tax refunds after filing the return.
3. Understanding the Legal Basis
Section 197 of the Income Tax Act empowers the Assessing Officer to issue a certificate authorizing deduction of tax at lower or NIL rates. This certificate is issued after evaluating the taxpayer’s estimated income, past assessments, projected tax liability, and relevant documentation.
The terms lower tax deduction certificate for NRI and lower TDS deduction certificate for NRI all refer to the certificate issued under Section 197 for the purpose of reducing tax deduction at the source. The certificate is digital and is made available on the TRACES portal for verification by deductors.
4. Application Process for Lower TDS for NRIs
The process to obtain a lower TDS deduction certificate involves multiple steps. The application is required to be made online through the income tax portal using Form 13, which is specifically designed for this purpose.
Step 1: Registration and Login
The NRI applicant must have an active login on the income tax e-filing portal. PAN must be valid and updated with current information. In case of changes in address or contact details, updating the profile ensures smooth communication.
Step 2: Filing Form 13
The application for a lower deduction certificate is filed in Form 13. This form requires detailed information, including:
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Estimated income for the financial year
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Details of past income tax returns filed
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Details of tax deducted in previous years
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Expected tax liability
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Nature of income for which lower TDS is sought
The form must be submitted electronically along with required documents.
Step 3: Submission of Required Documents
To support the application, certain documents must be uploaded. These often include:
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Computation of estimated income and tax liability
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Details of payments expected during the year
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Proof of ownership (for property sale cases)
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Agreement for sale or rental
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Bank statements and investment proof
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Past tax return acknowledgments
The Assessing Officer may request additional documentation during review.
Step 4: Assessment by the Income Tax Department
Once the application is submitted, the Assessing Officer evaluates the details. The review includes:
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Verification of projected income
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Cross-checking of past assessments
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Reasonability of tax liability computation
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Examination of supporting records
If required, the taxpayer may need to respond to queries or provide clarifications.
Step 5: Issuance of Certificate
Upon satisfying all conditions, the department issues the lower deduction certificate for NRI electronically. The certificate specifies:
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PAN of the taxpayer
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PAN of the deductor(s)
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The nature of payment
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Authorized lower rate of TDS
The deductor is obligated to follow the rate mentioned in the certificate.
5. Validity of the Lower TDS Certificate
A lower tds deduction certificate for nri is usually valid for the entire financial year for which it is issued. However, it is specific to the deductor and the type of income. If an NRI receives multiple streams of income or payments from different sources, separate certificates may be required for each deductor.
Once issued, the certificate is accessible on the TRACES portal, and the deductor can verify it using the unique certificate number.
6. Benefits of Obtaining a Lower Tax Deduction Certificate for NRIs
The primary advantage of obtaining a lower tax deduction certificate for NRI is the correct alignment of TDS with actual tax liability. This helps avoid:
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Excessive deduction of tax
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Cash flow constraints due to higher upfront tax deductions
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Long waiting periods for refunds after filing the return
Additionally, the certificate ensures compliance with tax laws and accurate reporting for both the payer and the recipient.
7. Key Points to Remember
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The process is entirely electronic and must be completed through the official income tax portal.
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The certificate is issued after thorough assessment by the department.
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Only valid for the financial year and specific deductor(s) mentioned.
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NRIs should apply well in advance, especially for property transactions, to avoid default higher TDS rates.
Throughout the process, it is important for applicants to maintain accuracy and provide complete documentation.
Conclusion
The process for lower TDS for NRIs is designed to ensure that tax deduction reflects actual tax liability rather than standard TDS rates, which may not be applicable in all situations. Understanding the procedural aspects, documentation requirements, and compliance framework helps NRIs navigate the system more efficiently. A clear understanding of terms such as lower deduction certificate, lower tds deduction certificate, lower tds certificate for NRI, and lower deduction certificate for NRI ensures proper compliance under Section 197.
This article explains the procedural and regulatory aspects for educational purposes. R Pareva & Company aims to present tax and compliance-related information in a structured, factual manner for better awareness among taxpayers.
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