Tax Deducted at Source (TDS) is an area of great confusion for many Non-Resident Indians (NRIs). If you’re wondering if TDS applies to you, which incomes are subject to TDS, or what the current rates are, read on for a clear, actionable summary.
What is TDS and When Is It Due?
TDS is a form of tax that is deducted before income is paid out to you. For example, banks deduct TDS from the interest you earn before depositing the remaining amount in your account.
TDS is typically due when you receive:
Interest income
Dividends
Rental income
Capital gains from shares, mutual funds, real estate, or other assets
Can NRIs Reclaim TDS?
Yes! If you have paid more TDS than required, you can file an income tax return to reclaim the excess amount. It’s important to ensure correct deductions to avoid unnecessary penalties.
What happens if TDS isn’t deducted? Authorities may impose penalties, so make sure your income is evaluated correctly under the law to avoid issues.
TDS Applicability for NRIs
TDS applies to most kinds of income sourced in India, such as:
Interest from bank deposits and bonds
Stock dividends
Capital gains (short-term and long-term) from mutual funds, shares, and property sales
However, interest earned on NRE fixed deposits and FCNR deposits is typically exempt.
Updated TDS Rates for 2025
A recent update has changed the TDS rate on property sales (long-term gains, held for over 24 months) from 20% to 12.5%. Be aware that some professionals may not be up-to-date and could reference the old rate.
Type of Income
TDS Rate
Shares & Bonds (LTCG)
12.5%
Company Fixed Deposits
10%
Equity Mutual Funds & Business Trusts (REITs/InvITs)
12.5%
Short-term gains on debt mutual funds
20%
Other types of LTCG (like private equity)
20%
Coupon bonds
30%
NRO interest, FD interest, stock dividends
30%
Mutual fund/stock dividends
20%
Property sale: Short-term capital gain
30%
Property sale: Long-term capital gain (>24 months)
12.5%
Note: Rental income and "other income" categories generally attract a flat 30% TDS.
Surcharge and Cess on TDS
These TDS rates are subject to:
Surcharge: 10% if income exceeds ₹50 Lakhs, increasing at higher thresholds
₹50 Lakhs–1 Crore: 10%
₹1–2 Crore: 15%
₹2–5 Crore: 25%
Above ₹5 Crore: 37%
Cess: 4% on the total tax plus surcharge
How Can You Lower Your TDS?
If the standard rates seem high, you may apply for a lower deduction certificate (Form 13) under Section 197. This allows you to request a reduction or exemption based on your actual tax liability.
Importance of the TDS Certificate
A TDS certificate is crucial for three main reasons:
Proof of tax payment: Confirms taxes have been paid to authorities.
Claiming refunds: Required when requesting a refund for excess TDS.
Income tax filing: Serves as proof when filing Indian tax returns.
Double taxation: Useful for claiming relief under double tax treaties (DTAA).
Takeaways and Next Steps
Double-check the latest TDS rates (property sales now at 12.5%).
Use official documentation or table summaries for clarity.
Apply for a lower deduction certificate if eligible.
Always collect and safeguard your TDS certificates for compliance, refunds, and filing needs.
If you need help with your unique situation, consult with a qualified tax professional. This guide is intended for educational purposes—updated as of 2025.