Common Sources of Excess TDS for NRIs
| Income Type | TDS Deducted | Actual Tax (if liability lower) |
|---|---|---|
| NRO account interest | 30% + surcharge + cess | Slab rate (could be 0% if income <₹3L) |
| Rental income from Indian property | 30% + surcharge + cess | Slab rate after deductions |
| Property sale (LTCG) | 20–23% on gross sale value | 12.5% on gain only (often much less) |
| Equity/MF redemption (STCG) | 20% flat | 20% — usually correct, but claim if losses exist |
| Dividends from Indian companies | 20% (or DTAA rate) | Could be lower under DTAA + cess adjustment |
The Property Sale TDS Trap
This is where NRIs lose the most money. When you sell a property in India, the buyer must deduct TDS on the entire sale consideration — not just the capital gain. TDS is typically 20–23% of the total sale price. But your actual tax is only 12.5% of the gain (profit), which is usually a much smaller number.
The Proactive Option: Lower TDS Certificate
You don't have to wait for a refund — you can apply for a Lower TDS Certificate (Form 13) from the Income Tax Department before the transaction completes. This legally limits the buyer or bank to deducting TDS at your actual tax rate.
- Apply at: income tax portal → My Account → Application for Lower/Nil TDS (Form 13)
- Processing time: 2–4 weeks typically (plan ahead)
- You must demonstrate that your total tax liability is lower than the applicable TDS rate
- Certificate is valid for the financial year it's issued; re-apply each year if needed
Step-by-Step: Claiming Your TDS Refund
- Collect Form 26AS / AIS — Download from income tax portal (incometax.gov.in). This shows all TDS deducted against your PAN. Match entries against your actual income.
- Gather income documents — NRO bank statements, rent receipts, sale deed for property, broker statements for MFs/shares. You need these to calculate actual income and tax.
- Calculate your actual tax liability — Apply the correct tax rate to your actual income. Claim deductions under Section 80C, 80D if applicable (NRIs can claim these). Apply DTAA relief if your country has a treaty with India.
- Choose the right ITR form — ITR-2 for NRIs with salary, capital gains or foreign income. ITR-1 is not available to NRIs. File online at incometax.gov.in using your PAN login.
- Pre-validate your bank account — Refunds only go to Indian bank accounts linked to your PAN. Pre-validate your NRO account on the income tax portal under Profile → My Bank Accounts.
- File before the deadline — 31 July (basic deadline) or 31 October (if accounts are auditable). Late filing means interest on any tax due, but refunds with interest (Section 244A) — so you still earn 6% p.a. on refund if it's delayed by the department.
- Track your refund — Check status at incometax.gov.in or NSDL portal using PAN and assessment year. Refunds now typically arrive in 2–8 weeks for e-filed returns with e-verified status.
NRO Interest: Claim DTAA Rate Instead of 30%
If you are resident in a country that has a DTAA with India, the treaty often caps the TDS rate on interest at 10–15% instead of 30%. To claim this lower rate, you must submit a Tax Residency Certificate (TRC) from your country of residence plus Form 10F to your Indian bank each financial year.
| Country | NRO Interest TDS under DTAA | Normal TDS |
|---|---|---|
| UAE | 12.5% | 30.9% |
| UK | 15% | 30.9% |
| USA | 15% | 30.9% |
| Singapore | 15% | 30.9% |
| Canada | 15% | 30.9% |
| Australia | 15% | 30.9% |
Even with DTAA rates applied by your bank, the IT department may initially process your return using 30.9%. Always file ITR to get the difference refunded and to formally claim the treaty benefit on record.
Common Mistakes That Delay Refunds
- Wrong bank account: Refund credits go only to NRO accounts pre-validated on the portal. NRE accounts are not eligible for Indian tax refunds.
- Mismatch in Form 26AS: If the TDS deductor used your old PAN or a wrong TAN, it won't reflect in your 26AS. Follow up with the deductor to file a correction statement.
- E-verification not done: After filing, you must e-verify within 30 days using Aadhaar OTP, EVC, or DSC. Unverified returns are treated as not filed.
- Wrong ITR form: NRIs using ITR-1 (Sahaj) will find it invalid. Use ITR-2 for all NRI cases with capital gains or foreign income.
Interest on Your Refund (Section 244A)
If the Income Tax Department delays your refund beyond 3 months from the date of filing (or the end of the financial year for returns filed before due date), they must pay you interest at 6% per annum on the refund amount. This interest is taxable in the year received — but it's a useful incentive that ensures the department does process refunds.