This article we look at what an NRI can do to claim this reduced rate of TDS or to get an exemption from TDS. There are two circumstances in which you might be eligible for TDS exemption:
1) If the DTAA between the country of your residence and India allows a lower rate of TDS
2) If your total income is lower than the basic exemption limit of Rs 1.8 lakh
So the next question is: What does an NRI need to do in order to take the benefit of this exemption or reduced rate of tax?
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If the DTAA between the country of your residence and India allows a lower rate of TDS
We saw that in case of certain incomes like interest income or royalty income, the DTAA for US and UK allows a reduced rate of TDS for NRIs. For instance, in case of interest income, while TDS is deducted at 30 per cent for NRIs, where there is a DTAA, the TDS rate is reduced to 15 per cent.
Similarly, there is a complete waiver of TDS in case of fees for professional services. So if you are an NRI providing services to someone in India and are receiving payment thereof, you can get a waiver of TDS.
However, in order to claim the reduced rate of TDS or waiver of TDS under the DTAA, you would need to submit a tax residency certification from the country of your residence. This will 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, ensuring 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 details of the procedure are available here. In the UK you would need to get the tax residency certificate from the HM Revenue and Customs.
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If your total income is lower than the basic exemption limit of Rs 1.8 lakh
It may happen that your total income in India is less than the basic exemption limit of Rs 1.8 lakh per financial year. In such cases, you may apply to the Income Tax Officer in your jurisdiction in India, requesting 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.
“Granting waiver depends on the discretion of the Tax Officer and may or may not come through easily. So if you are faced with such a circumstance, it is best to file your tax returns and claim a refund of the TDS,” advises Sandeep Shanbhag, Director, Wonderland Investments and an expert in all NRI financial and taxation matters.
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