TDS & Tax Refund for NRIs (Simplified)

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The Indian Tax Laws are very harsh when it comes to NRI’s. Any payment made to NRI is required to be made after deduction of TDS even if his income is less than Rs. 2.5 Lakhs (i.e. in the 0% income tax slab)

However, the NRI can later claim a refund of the excess TDS Deducted at the time of filing of his Income Tax Return.

This article explains in detail and in simple words the procedure for claiming TDS Refund.

Incomes on which TDS of NRI is deducted

TDS under Section 195 is deducted on all types of incomes earned by the NRI in India. The most popular of these incomes which most of the NRI’s earn from India and on which TDS is also deducted are as follows:-

  1. TDS on Rent earned by NRI from property in India
  2. TDS on Sale of property by NRI located in India
  3. TDS on Interest earned by NRI on NRO Accounts (not applicable for FCNR and NRE Accounts)
  4. TDS on sale of Shares, Mutual Funds and Bonds
  5. TDS on amount received for any services provided in India

How NRI’s can claim Refund of TDS Deducted

To claim a refund of the TDS Deducted, the NRI would be required to file an income tax return in India after the end of the financial year.

While filing the Income Tax Return, the NRI would be required to self compute his income and the income tax liability as per the slab rates.

The current slab rates applicable have been updated on this link – Current Income Tax Slab Rates in India.

The NRI would be required to file this Income Tax Return before 31st July of the next financial year. Any delay beyond the 31st July but before 31st Dec would attract a penalty of Rs. 5,000 and any delay beyond 31st Dec but before 31st March would attract a penalty of Rs. 10,000.

For eg: For the financial year 2017-18, the due date of filing of income tax return is 31st July 2018. If return is filed after 31st July 2018 but before 31st Dec 2018 – a penalty of Rs. 5,000 would be levied. And if the return is filed after 31st Dec 2018 but before 31st March 2019 – a penalty of Rs. 10,000 would be levied.

ITR Form to be filed by NRI

For ITR of Financial Year 2017-18 onwards – ITR 1 cannot be filed in case of NRI’s. And therefore, NRI’s should either file ITR 2 or ITR 3.

If the NRI has income from any business in India, then ITR 3 would be applicable and in case the NRI does not have any income from any business in India – then ITR 2 would be applicable.

It is important to note here that Rental Income or Capital Gains on sale of property/ mutual funds/ shares/bonds is not considered as a business and therefore ITR 2 would be applicable in this case.

Is ITR filing mandatory?

ITR filing is mandatory in the following cases:-

  1. If the income earned from India is more than Rs. 2.5 Lakhs
  2. If the income earned from India is less than Rs. 2.5 Lakhs and the NRI intends to claim a refund of the excess TDS Deducted.

How to file ITR by NRI

For incomes of financial year 2016-17 and earlier, the NRI’s were eligible to file ITR Form 1. ITR Form 1 is very simple to file and an NRI could do it himself very easily.

For income of financial year 2017-18 onwards, ITR 2 is applicable for NRI’s. Although ITR 2 can also be filed by the NRI’s themselves – but it is a bit complicated as compared to ITR 1.

If the NRI is filing the ITR 2 himself, he can download the Excel or the Java utility from the income tax website. It is advisable that the NRI only selects the relevant sheets applicable to him in the ITR Form from the Home Tab or else it will get very complicated for NRI’s who are doing it themselves.

Other Relevant Points regarding TDS Refund for NRI’s

  1. It normally takes 6 months time for the refund to be issued to NRI’s. In some cases, it may take longer as well but the normal time is 6 months.
  2. The Refund is issued with interest of 6% p.a. applicable from the end of the financial year.
  3. The NRI’s can also take benefit of various deductions under Section 80C which will help them reduce their tax liability.

In case an NRI is looking for professional help for filing his ITR, he may contact the author of this article by booking an appointment for Tax Advisory Service through this link – Telephonic Appointment with Author.

NRI’s can also avail the services of the author for filing ITR and TDS Refund through this link – ITR filing for NRI’s.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and is an expert in helping people save Taxes legally. He can be reached by booking an appointment for Tax Advisory Service.