A Non-Resident Indian (NRI) seeking to prevent tax deductions on income earned in India is obligated to apply for a TDS certificate, reported the Economic Times. Please be aware that NRIs cannot utilise Form 15G/H to exempt their incomes from TDS. Therefore, they must submit an application to the assessing officer to obtain a certificate for reduced or zero TDS. Depending on this certificate, the income payer will either refrain from deducting taxes or apply lower tax rates to the income disbursed.
The Central Board of Direct Taxes (CBDT) has recently revised the process, regulations, and application format for obtaining TDS certificates. This circular was released on September 27, 2023. Tax professionals have noted that while the new rules largely resemble the previous ones, there have been certain modifications in the operational procedures related to TDS certificate applications for NRIs.
Modifications in store to lower/nil TDS application process for NRIs
The circular has eliminated several verification methods previously used to authenticate applications submitted to the assessing officer for NRIs. Notably, the E-verification options like Aadhar OTP and mobile OTP for Form 13 are no longer accessible on the TRACES NRI website. The sole method of verification for the TRACES NRI website is now the utilisation of a Digital Signature Certificate (DSC).
To request a NIL or reduced TDS certificate, an NRI must complete an online application using Form 13. After submitting the form, the NRI must undergo a verification process. Starting now, the NRI must employ a DSC for this verification. Once the verified form is submitted, the assessing officer will proceed with further processing. Besides the elimination of supplementary verification methods for the application form (Form 13), there are no other significant alterations that pertain to NRIs.
What transpires following submission of Form 13 for reduced or zero TDS application?
Upon successfully verifying the online application (Form 13), the TDS Assessing Officer (AO) will evaluate the reasoning and justification provided by the NRI applicant. Subsequently, the TDS AO will cross-reference the TDS rate suggested by the income tax department’s software. It may either recommend a lower rate, no TDS or suggest no change. In cases where both the computer system and the AO concur that the existing TDS rate is appropriately applied to the applicant, the Form 13 application will be declined.
In the event that the TDS Assessing Officer (AO) approves a reduced or zero TDS rate, they will issue a certificate specifying the precise TDS rate, the effective time frame, and additional details such as the Tax Deduction and Collection Account Number (TAN) and other particulars of the payer (the entity making the payment). However, if the AO intends to apply a TDS rate that differs from what was recommended by the income tax department’s software, they must provide a justification for its decision.
The reduced or zero TDS certificate issued by the AO is valid for either one fiscal year or for use in a particular transaction. To illustrate this, let’s consider an example: If an NRI is selling their property, they can specify that they require a reduced or zero TDS deduction solely for this specific transaction.
Another scenario could involve an NRI who has leased out their Indian apartment. In such a case, they can seek a reduced or zero TDS rate. However, it’s important to note that the lower or zero TDS certificate granted will remain valid until March 31, which is the end of the financial year.
For which types of income are NRIs obligated to provide a TDS certificate?
Every income earned by an NRI in India is liable to TDS. This includes rent received from tenants, interest earned from bank accounts, fixed deposits, dividends obtained from shares, and mutual funds. Therefore, every entity paying income to an NRI must withhold the applicable tax before the payment is either credited or accrued, whichever occurs first.
What modifications have been made to the application process for nil TDS for Indian residents?
The circular has also introduced supplementary verification methods for resident individuals. Previously, the verification of the application form (Form 13) for obtaining a lower/nil TDS certificate was limited to DSC or Electronic Verification Code (EVC) methods. However, the Income Tax Department has now introduced the option of using Aadhaar and mobile OTP for this purpose. Mobile OTP is especially beneficial for taxpayers who have a mobile number registered on the income tax portal that differs from the one linked to their Aadhaar.
If an individual’s income exceeds the basic exemption limit, they are not eligible to utilise Form 15G/H to bypass the TDS deduction. Consequently, the sole avenue for these individuals to secure a reduced or zero TDS rate is by submitting an application (Form 13) along with a rationale, and then submitting this application through the TRACES portal.
For instance, consider an individual who has invested ₹90 lakh in fixed deposits, but due to TDS deductions, there is a potential loss of interest income. Another scenario involves a consultant or professional who receives fees for services provided. However, the operational expenses of running their practice or providing services are so substantial that their net taxable income is lower. In such cases, these consultants, professionals, or others may apply for a reduced or zero TDS rate.