NRIs can claim TDS exemption
Be wary though, as it may take six-eight weeks to obtain waiver certificates.
Double Taxation Avoidance Agreements (DTAA) between India and other countries ensure that non-resident Indians (NRIs) are not taxed twice for the same income in either country. However, sometimes, despite the income not being taxable, tax is deducted at source on the interest income. Suppose an NRI wishes to avoid these unnecessary deductions, he/she can claim exemptions in specific situations.
Under DTAA provisions: Certain incomes of an NRI may not be taxable in India according to the provisions of the DTAA between his/her home country and India. For instance, he/she sells an asset and incurs capital gains through it. This may not be taxable in India because the NRI's home country levies a tax on world-wide income. These rules will vary across countries.
Similarly, if an NRI is offering professional services in India, he may be exempt from TDS under the DTAA arrangement. This will typically depend on the scope of the services, geography within which these are offered and, most important, where the payment has been received, says Sundeep Agarwal, associate director - tax and regulatory services, PwC. For instance, an NRI worked on a research study for an Indian company. If the payment for this project is remitted to his account in India, by definition tax must be deducted at source. However, depending on the DTAA, your income may be exempt from taxation in India.
If the basic exemption limit is not breached: In a particular financial year, an NRI's total income in India may not be crossing the basic exemption limit of Rs 1.8 lakh. Hence he/she is not liable to pay tax. Or, if he earns between Rs 1.8 lakh and 5 lakh, he will have to pay just 10 per cent income tax. However, some deductors like banks (in case of non-resident ordinary deposits) will still deduct tax at source at a higher, flat 30 per cent. NRIs can either claim an exemption to escape this additional TDS burden or file returns and seek a refund.
The basic income exemption limit for NRIs is constant at Rs 1.8 lakh — men, women and senior citizens. For resident Indians, there are three exemption limits: Rs 1.80 lakh for men, Rs 1.90 lakh for women and Rs 2.50 lakh for senior citizens.
Claiming an exemption: To get an exemption for TDS, an NRI has to obtain a 'nil withholding certificate' from income tax officials, if there is zero-tax liability. Or, a 'lower withholding certificate' if the TDS rate is higher than the slab rate applicable (as mentioned in the earlier example). Both certificates are valid for a specific financial year and must be renewed.
To claim a lower rate of TDS or a complete waiver under the DTAA, you must file a tax residency certification from the country of your residence (foreign country).
This will establish that you are a tax-paying resident of another country and, hence, entitled to exemptions or prove your income is being duly taxed in the country of residence. This will ensure no leakage of tax revenue for either country.
After giving the requisite documents, if the tax officials grant you the waiver, you may send this to deductors such as the bank and claim an exemption.
Tax consultants say a pre-exemption is preferable, as tax refunds often get delayed.
Despite this, not many seek TDS exemptions, as this, too, can be time consuming, taking a minimum of six-eight weeks.
More, as Sandeep Shanbhag, director, Wonderland Consultants explains, "Granting a waiver is at the discretion of the tax officer and may or may not come easily." Therefore, if faced with such a circumstance, and if the amount involved is not very substantial, it is advisable to file your tax returns and claim a refund of the TDS.