Many NRIs are confused about whether they are eligible to pay a Tax Deduction at Source in India (TDS). The income tax deduction at source, you should bear in mind, is applicable to NRIs as well as ordinary residents of India. You may have several questions in your mind now like what is TDS returns.You may be wondering about the service tax deduction at source. You may also have several questions pertaining to the NRO account tax deduction at source. We are here to clarify the entire procedure for you. You should bear in mind that any income earned in India is taxable in India, whether you live in India or not.
What Is Your Residential Status For The Year?
Your taxation for the year depends a great deal on your residential status for the year. Here is how you will be considered a resident of India for tax purposes
- You have stayed in India for at least 6 months ( or 182 days) during the current financial year
- You have stayed in India for 2 months (60 days, to be exact) of the previous year, and have lived in India for one whole year (365 days) in the last four financial years.
What Is Tax Deduction At Source (TDS) In India?
Any non-resident who earns an income in India that particular financial year, even while living abroad, is liable to pay taxes in India. In many cases, for example, interest received on NRO bank accounts or sometimes even rental income, this tax is deducted in the form of TDS. However, you should remember that interest earned on NRE accounts, your income from abroad is not taxed in India. Indian resident bank account holders who earn an interest of more than INR 10,000 are also liable to pay TDS on it. But, if you are an NRO account holder, you do not have this minimum slab available to you.
What Are The Sources Of TDS on An NRI?
Section 195 of the Income Tax Act covers TDS that Non-resident Indians are required to pay. The rates and conditions for NRIs, PIOs, and OCI holders are different when compared to that of ordinary Indian residents. Here are the key areas listed out by Section 195.
Interest on Bank Deposits
If you hold an NRO account, then you are liable to pay taxes on it. This is currently taxed at 30%, and there is no basic exception limit. On the other hand, if you hold only NRE account or FCNR account, then there is no taxation on this amount.
Interest On All Other Investments
Interest earned by you on all other investments like company bonds or corporate deposits are liable to be taxed at 20%
Dividends received by you from equity shares or equity mutual funds are exempted from taxes.
Capital Gains on Securities
Long-term capital gains, that is, profits made on sale at least one year after purchase, on equity shares and mutual funds are exempted from TDS. Whereas, short-term capital gains on the same are liable to be taxed at 15%
Under Section 195, TDS on rental income paid to an NRI would fall under the category of other income, as there is no separate rate prescribed for it. Hence, TDS on rental income will be charged at 30%. The payer of the rent is liable to pay this tax. He/she must get a Tax Deduction Account Number (TAN) and get a TDS certificate for the same.
Professional Income and Royalty
If you are an NRI, and you are receiving an income in India from professional services provided, you are liable to a TDS of 30%. The same applies if you are receiving any royalties from India.
All Other Income
All other income earned from India by an NRI is liable to a TDS of 30%. In addition to this amount, you may also have to pay an Education cess as well as surcharges.
Now that you have a clear idea about what exactly is meant by Tax Deduction at source in India (TDS). You should now have a thorough understanding about what is TDS return and what the TDS deduction rules are. You are, by now; already clear about the NRO account tax deduction at source. Armed with this knowledge, you are already half way to winning the battle. We hope this article has made it far easier for you to begin filing your income tax in India.