People staying outside India for a longer duration qualifying as an NRI may own assets like fixed deposits, house property, and even have active bank accounts in India. As these assets would be generating Income in India, it is mandatory for anyone making payments to NRIs to deduct TDS at 30% as per section 195 of the income tax act.
Any person be it an individual or HUF, etc. if making any payment by way of interest or any other amount other than salary to an NRI is required to deduct tax at source.
The tax must be deducted not only from payments that are entirely taxable but also from payments where only a portion of the payment may be taxed.
For instance, interest income on a savings account is exempted up to ₹10,000 for NRIs also. However, if the gross interest payment made on the savings account is ₹25,000 in a financial year, then TDS will be deducted from ₹25,000 rather than excess income of ₹15,000.
Is TDS applicable on NRE fixed deposits?
NRIs generally use a non-resident external (NRE) account to manage their finances in India and is also the preferred investment option for NRIs because they provide higher returns than savings account deposits. The principal and interest earned are fully reimbursed.
Here, the face of the matter is that income from NRE accounts is exempt from TDS.
This means that both savings and fixed deposits in NRE accounts, as well as the interest earned on them, do not attract any kind of income tax, wealth tax, or gift tax in India.
Since an NRE account is completely tax-free in India, you don’t have to worry about TDS either.
NRO Fixed Deposits
NRIs can manage income earned in India, including dividends, rent, and pensions, through an NRO account. The interest income from the savings and fixed deposits in NRO accounts is taxable since the income is earned in India.
TDS on interest earned on NRO accounts are levied at a rate of 30%. In addition, surcharges and cess are also applicable.
Interest on all other investments
All other investments, like, corporate deposits or bonds, etc. will be subject to TDS at a rate of 20%. In such scenarios, the company or party making the payment (payer) will deduct TDS and the remaining account will be transferred to the NRIs bank account.
TDS Return
To deduct the tax, the payer/deductor must obtain a TAN and must file quarterly TDS returns in Form 27Q by the due date. Moreover, the payer should also provide a TDS certificate in Form 16A to the payee (NRI) whose tax has been deducted.
If any questions, ask them out!