NRI reduce Indian income TDS: How?

Non-resident Indians can reduce TDS on India-sourced income through three routes: claim treaty rates under India's DTAAs with over 90 countries by furnishing a Tax Residency Certificate and Form 10F to the payer, apply for a lower-deduction certificate under Section 197 by filing Form 13 on the TRACES portal where the actual tax liability is below statutory TDS, and structure bank accounts between NRE (foreign-earned, exempt) and NRO (India-sourced, taxable) accounts to minimise the taxable Indian portion of their portfolio.

Priyanka Wadhera

Published: 7 Sept 2023

Updated: 16 May 2026

4 min read

Indian payers — banks, tenants, fund houses, registrars — deduct TDS on payments to non-residents at headline rates that often exceed the actual tax payable on those incomes. For most NRIs, the result is a sizeable refund-trapped sum that takes 6-12 months to recover. Sections 195, 197 and 90 of the Income-tax Act, combined with India's wide DTAA network, give NRIs three clean ways to reduce that upfront TDS rather than recover it later.

Why NRI TDS Rates Are So Steep

Under Section 195, any payment to a non-resident that is chargeable to tax in India attracts TDS at the rate specified in Part II of the First Schedule to the Finance Act, plus surcharge and cess. For example, long-term capital gains on sale of unlisted shares to an NRI attract 12.5% (under current law) plus surcharge and cess, while short-term capital gains on listed shares attract 15% or 20% depending on the asset class. Rent, interest and royalties have their own scheduled rates, often higher than the effective tax for many NRIs.

Route 1: Use a DTAA to Cap the Rate

India has DTAAs with over 90 countries — the US, UK, UAE, Singapore, Mauritius, Canada, Australia and almost every major NRI hub. Most treaties cap the rates for interest, dividend and royalty at 10-15%, well below domestic statutory rates. To claim the lower rate at source, the NRI must furnish:

Tax Residency Certificate (TRC) from the country of residence.
Form 10F filed on the income-tax portal with the NRI's PAN.
Self-declaration that the income is beneficially owned and that the NRI is not a permanent establishment in India for that income.
Copy of passport and visa as identity proof.

Route 2: Lower-Deduction Certificate under Section 197

Where the NRI's actual tax liability on a transaction is lower than the statutory TDS rate, Section 197 allows an application to the Assessing Officer for a certificate authorising lower or nil TDS. Common cases:

Sale of long-held immovable property where capital gains are mostly indexed away.
Sale of shares with sizeable acquisition cost where the actual gain is small.
Payments where the NRI plans to invest in Section 54/54EC/54F bonds.
Royalty or technical-service fees where the actual rate under DTAA is below the deducted rate.

File Form 13 online on the TRACES portal. The AO typically issues the certificate in 30-60 days. The certificate then governs the TDS rate for the specific transaction and party combination.

Route 3: NRO/NRE Account Structuring

Account structuring is the simplest preventive lever. Income credited to an NRE account (which holds repatriable foreign-earned funds) is exempt from Indian tax for non-resident account holders. Income credited to NRO accounts (which hold India-sourced income) is fully taxable, with TDS deducted by the bank at 30% plus surcharge and cess. Structuring your accounts correctly — and using NRE for genuinely repatriable foreign-earned funds — keeps significant chunks of your portfolio outside the Indian tax net.

Common Mistakes That Cost NRIs Money

Three errors recur. First, not filing Form 10F at the start of every financial year and losing DTAA benefit by default. Second, treating Section 197 as optional — many NRIs end up paying full TDS and chasing refunds for years. Third, mixing NRE and NRO funds in a way that triggers ambiguity in tax position. Each of these is preventable with a 20-minute conversation with your tax adviser at the start of every Indian financial year.

Final Filing Step

Even with reduced TDS, NRIs with India-sourced income generally still need to file an income-tax return — typically ITR-2 — to settle the final liability, claim refund where TDS exceeded actual tax, and to honour the disclosure obligations under Schedule FA and Schedule FSI on the foreign-asset side. File by 31 July (or 31 October if audit applies) of the assessment year.

Property Sales: Where the Stakes Are Highest

NRI property sales are the single most expensive area to get TDS wrong. Section 195 currently mandates TDS at 12.5% on long-term gains (plus surcharge and cess) on sale of immovable property by an NRI, computed on the gross sale consideration if no lower-deduction certificate is obtained. The actual capital gains tax — after indexation and Section 54/54EC/54F exemptions — is often a small fraction of this. A Section 197 certificate filed via Form 13 on TRACES routinely saves NRI sellers 10-20% of sale consideration in upfront cash.

Sale consideration above ₹50 lakh attracts TDS under Section 194-IA from the buyer in addition.
Apply for Section 197 lower-deduction certificate before signing the sale agreement.
Consider Section 54 reinvestment in another residential property within prescribed timeline.
Section 54EC bonds (REC, PFC, IRFC) allow ₹50 lakh investment to defer LTCG tax.
Maintain a clean paper trail of acquisition cost, improvement cost and indexation calculations.

Conclusion

NRIs do not have to accept headline TDS rates as fate. Use DTAAs with proper TRC and Form 10F, apply for Section 197 lower-deduction certificates where the actual tax is genuinely lower, and structure your bank accounts cleanly between NRE and NRO. Done right, your upfront cash flow improves significantly and your annual ITR becomes a clean reconciliation rather than a refund chase.

Frequently Asked Questions

What is Form 10F and why do NRIs need it?

Form 10F is a self-declaration filed by an NRI on the income-tax portal that supplies treaty-related details supporting a DTAA-based lower TDS claim. It is required in addition to the Tax Residency Certificate and must be furnished to the Indian payer before they deduct TDS to apply the treaty rate instead of the statutory rate.

How long does a Section 197 certificate take?

After filing Form 13 on the TRACES portal, the Assessing Officer typically issues the lower-deduction or nil-deduction certificate within 30-60 days. The certificate is transaction- and party-specific, so NRIs should plan applications well in advance of major events like property sale or large share disposal.

Is NRE account interest taxable in India?

No. Interest earned on NRE deposits is exempt from Indian income tax for the account holder so long as they remain a non-resident under FEMA. The exemption ends if the holder becomes a resident under FEMA, after which the deposits must be redesignated to resident or RFC accounts.

Do NRIs still need to file ITR if TDS is reduced?

In most cases yes, particularly where the NRI has India-sourced income above the basic exemption limit, claims refund of excess TDS, or wishes to carry forward losses. NRIs typically file ITR-2 by 31 July of the assessment year and must report foreign assets if they are also covered by Indian residency rules in any prior year.