In this informative article we look at what an NRI are able to do to claim this lower rate of TDS as well as to have an exemption from TDS. There are two circumstances in which you could be eligible for TDS exemption:
1. If the DTAA between the country of your residence and India permits a lower rate of TDS
2. In case your total earnings are less than the basic exemption limit of Rs 1.6 lakh
Hence the next question for you is: What exactly does an NRI have to do so that you take the advantage of this kind of exemption or reduced rate of tax?
If the DTAA between the country of your residence and India permits a lower rate of TDS
We observed that regarding specified incomes such as interest income or royalty income, the DTAA for US and UK allows a reduced rate of TDS for NRIs. For example, just in case of interest income, while TDS is deducted at 30 percent for NRIs, in which there is a DTAA, the TDS rate is reduced to 15 per cent.
At the same time, you will find there’s complete waiver of TDS in case of fees for professional services. So in case you are an NRI providing services to someone in India and so are receiving payment thereof, you can acquire a waiver of TDS.
On the other hand, if you want to claim the reduced rate of TDS or waiver of TDS under the DTAA, you’ll have to submit a tax residency certification from the country of your respective residence. This is going to certify that you are a tax paying resident in that other country and that tax on that income is being duly paid in that country, confirming absolutely no leakage of tax revenue for either countries.
In the US, the tax residency certificate is called Form 6166 and the application needs to be made to the Internal Revenue Service (IRS) in Form 8802. Complete information of this process are available here.
In the UK you’ll have to get the tax residency certificate from the HM Revenue and Customs.
If your total income is lower than the basic exemption limit of Rs 1.6 lakh
It could happen that your particular total income in India is less than the fundamental exemption limit of Rs 1.6 lakh per financial year. In these cases, you may apply to the Income Tax Officer in your jurisdiction in India, asking for a waiver of TDS. If the Tax Officer grants you the waiver, you may submit this to the payers such as your bank and claim TDS exemption.
“Approving waiver depends on the discretion of the Tax Officer and may or may not come through easily. So In case you are suffered with such a scenario, it is advisable to file your tax returns and claim a refund of the TDS,” recommends Sandeep Shanbhag, Director – Wonderland Investments and an expert in all NRI financial and taxation matters.
Keep in mind that any claim for reduced rate of TDS or exemption from TDS is going to be accessible so long as you’ve got a Permanent Account Number (PAN), so make sure you have one.