Tax Deducted at Source for NRIs is India’s rule that whoever pays you Indian-source income must withhold tax before the money reaches you, at rates that run from 10% to 30% depending on the income type. Section 195 of the Income Tax Act covers virtually every taxable payment to a non-resident, and unlike the resident TDS regime it applies with no minimum threshold: every rupee of taxable payment triggers withholding.1Indian Kanoon. Section 195 in The Income Tax Act, 1961 The rates below govern income earned in Financial Year 2025–26 (Assessment Year 2026–27).
The mechanics are straightforward. Tax is deducted when the income is credited to your account or actually paid, whichever comes first. The payer deposits the withheld amount with the government, files quarterly returns, and issues you Form 16A showing what was taken. If the total deducted over the year exceeds your real tax liability, you recover the difference by filing an Indian return.
Which Payments Get TDS Deducted
Section 195 catches nearly everything paid to a non-resident that is taxable in India. Salary is the notable exception; it falls under Section 192 and is taxed at normal slab rates.2Income Tax Department. TDS Rates The categories most NRIs actually deal with are:
- Interest on NRO savings accounts and fixed deposits. Interest on NRE and FCNR accounts is exempt from Indian tax and carries no TDS.
- Rent paid by a tenant to an NRI landlord for residential or commercial property in India.
- Capital gains from selling Indian real estate, shares in Indian companies, or mutual fund units. Rate depends on holding period and asset class.
- Dividends from Indian companies, deducted at the time of distribution.2Income Tax Department. TDS Rates
- Professional fees, technical service fees, and royalties for work connected to India.
TDS Rates for AY 2026–27
NRI withholding rates are generally higher than resident rates. The figures below are the base rates before the surcharge and cess covered in the next section.2Income Tax Department. TDS Rates
- Interest on NRO accounts and NRO fixed deposits: 30%
- Rental income: 30%
- Dividends from Indian companies: 20% (10% if the dividend is from units in an International Financial Services Centre)
- Short-term capital gains on listed equity where Securities Transaction Tax is paid: 20%
- Short-term capital gains on other assets: 30%, taxed as ordinary income
- Long-term capital gains on property and other non-equity assets: 12.5%, without indexation
- Long-term capital gains on listed equity shares under Section 112A: 12.5% on gains above ₹1.25 lakh
The 2024 Union Budget changed the property math significantly. The long-term rate dropped from 20% to 12.5%, but the indexation benefit that let sellers adjust their purchase price for inflation was removed. For an NRI who bought years ago, the loss of indexation often produces a higher effective tax than the old regime, even at the lower headline rate.
Surcharge, Cess, and the PAN Problem
Every base rate is topped up by a 4% health and education cess. A surcharge on the tax amount kicks in when the relevant income crosses certain thresholds:3Income Tax Department. Non-Resident Individual for AY 2026-2027
- Up to ₹50 lakh: no surcharge
- ₹50 lakh to ₹1 crore: 10%
- ₹1 crore to ₹2 crore: 15%
- ₹2 crore to ₹5 crore: 25%
- Above ₹5 crore: 25% under the new tax regime, 37% under the old regime
There is a cap that matters for property sellers. Surcharge on income taxed under Sections 111A, 112, 112A, and on dividend income is capped at 15% regardless of the amount.3Income Tax Department. Non-Resident Individual for AY 2026-2027 An NRI with ₹10 crore of capital gains still pays only 15% surcharge on the capital gains tax, not 25% or 37%. Marginal relief rules also prevent crossing a threshold from producing a net loss.
Not having an Indian PAN triggers Section 206AA: the payer must deduct at the higher of the prescribed rate, the rate in force, or 20%.4Income Tax Department. Non-Resident – Benefits Allowable For income already at 30% it changes nothing. For long-term capital gains at 12.5% or dividends at 20%, the absence of a PAN can push withholding up. Non-residents who supply a Tax Residency Certificate along with their foreign tax identification number may be able to avoid this penalty even without a PAN.
Lowering the Rate Through a DTAA
India has Double Taxation Avoidance Agreements with dozens of countries, and treaty rates on interest, dividends, royalties, and certain gains are often lower than the domestic figures above. The treaty rate applies only when it is more favorable than the domestic rate, so you effectively get the better of the two.
Treaty math varies. Under the US–India treaty, dividends paid by an Indian company to a U.S.-resident individual are capped at 25% of the gross amount, dropping to 15% if the beneficial owner is a company holding at least 10% of the voting stock.5Internal Revenue Service. Convention Between the Government of the United States of America and the Government of the Republic of India Since India’s domestic dividend TDS for NRIs is 20%, the treaty rate for individuals is actually higher, so the domestic rate wins. Always compare both before claiming treaty benefits.
To claim a treaty rate, you must give the payer two documents. First, a Tax Residency Certificate issued by the tax authority of your country of residence, proving you are a tax resident of a treaty country. Second, Form 10F, a self-declaration filed on the Indian income tax e-filing portal covering your name, address, tax identification number, and residency status. Without both, the payer applies the full domestic rate. Claiming a treaty rate without a properly filed Form 10F can lead the tax department to treat you as an “assessee in default” and pursue the shortfall with interest and penalties.
Getting a Certificate for Lower or Nil Deduction
When your actual tax liability will be far below what standard TDS produces, Section 197 lets you apply for a certificate authorizing a lower or nil rate.6Income Tax Mumbai. Application US 197 Property sales are the classic case: without the certificate, the buyer deducts TDS on the entire sale price, not just your capital gain. On a ₹2 crore sale with a ₹40 lakh actual gain, that’s a large sum locked up until refund.
You apply through Form 13 on the TRACES portal. The application needs your PAN, a detailed estimate of total Indian income for the year, a breakdown of the specific transaction, and supporting documents like bank statements or property purchase records. The assessing officer reviews your projected liability and, if satisfied, issues an electronic certificate specifying the reduced rate. You share the certificate with the payer, who then deducts at that lower rate. The officer must dispose of the application within 30 days from the end of the month it was received.
Claiming a Refund of Excess TDS
TDS is a provisional collection, not a final tax bill. If withholding across the year exceeded your actual liability, the difference is refundable, and this happens routinely. On a property sale, the buyer deducts on gross sale value while your taxable gain is only the profit after deducting purchase cost and allowable expenses. On NRO interest, 30% is often more than your effective slab rate once you file.
You claim the excess by filing an Indian income tax return for the relevant year. Most NRIs with capital gains, rental income, or foreign assets file ITR-2. The return must be e-verified through Aadhaar OTP, net banking, or an electronic verification code. Refunds are typically credited to the Indian bank account linked to your PAN within six to twelve weeks after verification, though complex returns or TDS mismatches take longer.
Check your Form 26AS, the annual tax statement, before filing. If the TDS amount there does not match what your return claims, the refund gets delayed or adjusted. Any discrepancy usually traces back to an error in the payer’s TDS return, and it has to be corrected at that end.
If You Also File US Taxes
NRIs who are U.S. tax residents report Indian income on their U.S. federal return as well, since the U.S. taxes residents on worldwide income. The Indian TDS is claimable as a foreign tax credit on Form 1116, reducing U.S. tax dollar for dollar.7Internal Revenue Service. Foreign Tax Credit
The credit is capped at the U.S. tax attributable to the foreign income, computed as total U.S. tax liability multiplied by foreign-source taxable income over total worldwide taxable income. Unused credit in a given year can generally be carried forward. If your only foreign income is passive (interest, dividends) and total foreign taxes paid are $300 or less ($600 on a joint return), you can claim the credit directly on your return without filing Form 1116, though you give up the ability to carry unused credit back or forward.8Internal Revenue Service. Foreign Tax Credit – How to Figure the Credit
One trap: if a DTAA entitles you to a reduced Indian rate but you did not claim it, the IRS only credits the treaty rate, not the higher amount actually withheld. The excess is your problem to recover from India through a refund claim.7Internal Revenue Service. Foreign Tax Credit
What the 2025 Income Tax Act Changes
The Income Tax Act, 2025 replaces the 1961 Act on April 1, 2026.9Income Tax Department. Objective and Scope of the New Act The new law reorganizes section numbers and simplifies language, but the substantive TDS framework for NRIs carries forward largely intact. Everything in this article applies to Financial Year 2025–26 income under the 1961 Act, and Sections 195, 197, and 206AA remain the operative references for that year and for any prior-year assessments still in progress.