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TDS for NRIs: Complete Guide to Tax Deduction at Source on Rent, Capital Gains, and Investments

As an NRI, you face mandatory Tax Deduction at Source (TDS) on every rupee of rental income, capital gains, dividends, and interest earned in India—with no threshold exemptions. This guide walks you through TDS rates, your tenant's and buyer's obligations, how to claim refunds, and how to use Lower Deduction Certificates to keep more cash in your hands from day one. Updated March 2026 with the latest compliance rules and DTAA provisions.

Source: Perplexity AI Research (always-research sweep)

Why This Matters to You as an NRI Property Owner and Investor

Let us say you bought a flat in Bangalore ten years ago, and now you rent it out while living in Dubai or Toronto. Or maybe you want to sell that ancestral plot in Pune. Or perhaps you hold mutual fund units or bonds earning dividends and interest. Either way, the person paying you (your tenant, buyer, or fund house) must cut a chunk of money before it even reaches your NRO account. That chunk is TDS, and for NRIs, the rules are stricter and the rates are higher than for residents.

Under Section 195 of the Income Tax Act, 1961, any person responsible for paying any sum (other than salary) to a non resident must deduct tax at source at the time of payment or credit to your account, whichever is earlier if that income is chargeable to tax in India. This covers rent, capital gains, interest, royalties, fees for technical services, dividends, and more. Critically, no threshold limit applies under Section 195. TDS is mandatory on every single taxable payment to an NRI, unlike domestic payments where thresholds often apply.

Understanding these rules saves you from two painful outcomes: losing more money than you should, and facing penalties from the Income Tax Department.

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TDS on Rental Income from Your Indian Property

The Basic Rate

When a tenant pays rent to an NRI landlord, TDS kicks in at 30% base rate plus 4% Health and Education Cess, giving you an effective rate of 31.2% on the gross rent.

Notice something important: there is no threshold exemption for NRIs. A resident landlord only faces TDS if monthly rent crosses ₹50,000. For you as an NRI, your tenant must deduct TDS on every single rupee of rent, even if it is ₹10,000 a month. If a Double Taxation Avoidance Agreement (DTAA) between India and your country of residence provides a lower rate, your tenant can apply that lower rate instead, provided you furnish the necessary documentation.

A Quick Example

You earn ₹3,00,000 in annual rent from your Mumbai apartment. Your tenant deducts ₹93,600 (31.2%) and deposits it with the government. You receive ₹2,06,400 in your NRO account.

What Your Tenant Must Do

Your tenant acts as the "deductor" and carries specific legal obligations:

  • Obtain a TAN (Tax Deduction Account Number) under Section 203A. Both the deductor's TAN and your PAN must be on record
  • Deduct TDS at the time of payment or credit to your account, whichever is earlier
  • Deposit the TDS with the government using Challan 281 by the 7th of the month following the deduction
  • File quarterly TDS returns electronically in Form 27Q (the specific form for payments to non residents). The due dates are: 31st July for Q1, 31st October for Q2, 31st January for Q3, and 31st May for Q4
  • Issue you Form 16A (TDS certificate) within 15 days of the TDS return due date
If your tenant fails to deduct or deposit TDS, they face interest penalties of 1.5% per month on the late deposit under Section 201(1A). They also risk disallowance of the rent as a business expense under Section 40(a)(i) if they are claiming it as one. The Income Tax Department can hold the deductor liable for the full TDS amount plus interest.

What You Should Do

  • File your Indian Income Tax Return (ITR 2 or ITR 3, depending on your income sources) every year, reporting this rental income
  • Claim TDS credit in your return. If your actual tax liability turns out to be lower than the TDS deducted (which often happens when you claim deductions for municipal taxes, standard deduction of 30%, home loan interest, and so on), claim the excess as a refund
  • Track your TDS deposits through the TRACES portal to verify that your tenant has actually deposited the amounts they deducted
  • Consider applying for a Lower Deduction Certificate (more on this below) so your tenant deducts less upfront
  • If your country of residence has a DTAA with India, check whether the treaty offers credits or reduced rates that prevent double taxation on the same rental income
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TDS on Capital Gains When You Sell Indian Property

This is where Budget 2024 changed the game significantly.

The Big Change After July 23, 2024

Before July 23, 2024, if you sold a property held for more than 24 months, you paid 20% LTCG tax with indexation benefit. Indexation let you inflate your purchase cost using the Cost Inflation Index, which reduced your taxable gain substantially.

From July 23, 2024 onward, the government introduced a new regime: 12.5% LTCG tax without indexation. The base rate dropped, but you lose the ability to adjust your purchase price for inflation.

If you bought your property before July 23, 2024, you get a choice. You can pick whichever regime gives you a lower tax bill: the old 20% with indexation or the new 12.5% without indexation. If you bought on or after that date, you must use the new 12.5% flat rate.

TDS must be deducted at rates in force as specified in the Finance Act for the relevant financial year, increased by applicable surcharge and the 4% Health and Education Cess. For FY 2025-26 and FY 2026-27, rates apply from April 1 of each year as updated by the Finance Act.

Short Term vs Long Term

  • Long Term Capital Gains (LTCG): You held the property for more than 24 months before selling
  • Short Term Capital Gains (STCG): You held it for 24 months or less

LTCG TDS Rates for FY 2025-26 (Properties Sold After July 23, 2024)

The buyer deducts TDS on your capital gain, not on the full sale price. Here is how the effective rates work out with surcharge and cess:

| Sale Value | Base Rate | Surcharge | Cess (4%) | Effective TDS Rate | |---|---|---|---|---| | Up to ₹50 lakh | 12.5% | Nil | 4% | ~13% | | ₹50 lakh to ₹1 crore | 12.5% | 10% | 4% | ~14.3% | | ₹1 crore to ₹2 crore | 12.5% | 15% | 4% | ~14.95% | | Above ₹2 crore | 12.5% | 15% (capped) | 4% | ~14.95% (max) |

STCG TDS Rates (Slab Based)

Short term gains get taxed at your income tax slab rate, which for most NRIs selling property means the highest slab:

| Total Income | Base Rate | Surcharge | Cess | Effective Rate | |---|---|---|---|---| | Up to ₹50 lakh | 30% | Nil | 4% | 31.2% | | ₹50 lakh to ₹1 crore | 30% | 10% | 4% | 34.32% | | ₹1 crore to ₹2 crore | 30% | 15% | 4% | 35.88% |

A Worked Example for LTCG

You sell a property for ₹1 crore. Your indexed cost of acquisition (under the old regime) was ₹80 lakh. Your capital gain is ₹20 lakh.

Under the new 12.5% regime (no indexation), if your original purchase price was, say, ₹40 lakh, your gain would be ₹60 lakh and TDS would be higher. Under the old 20% with indexation regime, your gain is only ₹20 lakh. You would compare both and pick the lower tax outcome.

Assuming you go with the ₹20 lakh gain under the old regime at 20% plus cess, your TDS comes to roughly ₹4.16 lakh. Under the new regime with ₹60 lakh gain at 13% effective rate, TDS would be roughly ₹7.8 lakh. The old regime wins here, and since you bought before July 23, 2024, you can choose it.

What the Buyer Must Do

  • Obtain a TAN and ensure they have your PAN on record
  • Deduct TDS before making payment to you, at the time of payment or credit, whichever is earlier
  • Deposit the TDS using Challan 281 by the 7th of the following month
  • File the TDS return in Form 27Q by the quarterly due dates
  • Issue Form 16A within 15 days of the return due date
  • Failure to deduct TDS can result in penalties, interest at 1.5% per month on late deposits, and the buyer can be held liable for the full TDS amount plus interest
Important note on exempt gains: If your capital gain qualifies for exemption (for example, certain long term capital gains exempt under Section 10), TDS should not apply on the exempt portion. However, the buyer must verify the taxability before skipping TDS. In practice, obtaining a Lower Deduction Certificate or a nil deduction certificate is the safest route to handle this.

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TDS on Mutual Fund Dividends and Interest Income

If you hold mutual fund units, bonds, or interest-bearing investments in India, Section 196A mandates TDS on income paid to you as an NRI.

The Rate

Under Section 196A(1), TDS on dividends from mutual fund units applies at 20% base rate plus surcharge and 4% Health and Education Cess. Under Section 196A(2), TDS on interest from such units applies at the same rate. The effective rate depends on your income slab:

  • Up to ₹50 lakh total income: 20% + 4% cess = 20.8%
  • ₹50 lakh to ₹1 crore: 20% + 10% surcharge + 4% cess = 23.2%
  • ₹1 crore and above: 20% + 15% surcharge + 4% cess = 24.2%
If your country of residence has a DTAA with India offering a lower rate on dividends or interest (many treaties specify 10% or 15%), the fund house can apply that lower rate if you provide a Tax Residency Certificate (TRC) and Form 10F.

What the Fund House Must Do

  • Obtain your PAN and TAN
  • Deduct TDS at the prescribed rate (or lower DTAA rate if you furnish TRC and Form 10F)
  • Deposit TDS by the 7th of the following month using Challan 281
  • File Form 27Q quarterly by the due dates (31st July, 31st October, 31st January, 31st May)
  • Issue Form 16A within 15 days of the return due date

What You Should Do

  • Provide your TRC and Form 10F to the fund house or investment platform to claim DTAA benefits
  • Track TDS on your investment statements and in TRACES
  • Claim TDS credit in your ITR 2 or ITR 3
  • If your actual tax liability is lower than TDS deducted, claim a refund
  • Register on the e-filing portal to monitor your TDS via Form 26AS
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The Lower Deduction Certificate: Your Best Friend

Here is a scenario that happens all the time. You sell a property and the buyer deducts TDS at 13% or higher on the estimated gain. But after you factor in exemptions (reinvestment under Section 54, for example), your actual tax liability is zero or very low. Now your money is stuck with the government until you file your return and get a refund, which can take months.

The Lower Deduction Certificate (LDC) under Section 197 solves this problem.

How It Works

1. You (the NRI payee) or the payer (your tenant or buyer) file Form 13 with the Assessing Officer, providing justification for a lower rate. Valid justifications include DTAA benefits, reinvestment exemptions under Section 54/54EC/54F, expected losses that will offset income, or simply that your actual tax liability will be lower than the standard TDS rate 2. The Assessing Officer reviews your application, verifies details like expected income, prior tax payments, and DTAA claims, and if approved, issues a certificate specifying the reduced TDS rate (which could even be zero) 3. This certificate remains valid for a specified period and must be quoted in all TDS returns filed by the deductor 4. You give this certificate to your tenant or buyer, and they deduct TDS at the lower rate specified in the certificate

This dramatically improves your cash flow. Instead of waiting 6 to 12 months for a refund, you keep more money in your hands from day one.

Pro tip: Work with a Chartered Accountant in India to file Form 13 well in advance. The process takes a few weeks, and you do not want to delay your property sale waiting for the certificate. You can monitor the status of your application through the TAN enabled portals and TRACES. Ensure your CA references the UIN (Unique Identification Number) when filing, as this links your certificate to TDS tracking systems from FY 2026-27 onward.

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Form 15CA, Form 15CB, and the UIN Requirement: Remitting Money Abroad

This is a compliance step many NRIs overlook. When you want to remit your sale proceeds, rental income, or investment returns out of India (say, from your NRO account to your overseas bank account), the remittance process requires additional documentation.

The Forms You Need

  • Form 15CA is a self declaration by the remitter (you or your bank) filed online with the Income Tax Department before the remittance
  • Form 15CB is a certificate issued by a Chartered Accountant certifying the taxability of the payment, the TDS deducted, and the applicable DTAA provisions
Form 15CB is required for remittances of capital gains, income from units, and other specified payments. Your CA will verify that TDS has been properly deducted and deposited, and that no further tax is due on the remittance under Indian law or the applicable DTAA.

The UIN Requirement (From FY 2026-27)

From FY 2026-27 onward, the Income Tax Department has introduced the UIN (Unique Identification Number) system to strengthen TDS tracking and compliance. When your CA files Form 15CB or when you apply for a Lower Deduction Certificate, ensure the UIN is referenced in all related TDS returns and challans. This UIN links your certificate to the government's TDS database, reducing delays and disputes during refund processing.

Step-by-Step Process

1. Obtain Form 15CA from your bank or CA 2. Get Form 15CB issued by a Chartered Accountant after verifying TDS compliance 3. File both forms with the Income Tax Department online before initiating the forex remittance 4. Provide the acknowledgment to your bank 5. Your bank processes the remittance to your overseas account

Without these forms, your bank may block the remittance or delay it significantly.

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Key Compliance Checklist for NRIs

To stay on the right side of the Income Tax Department, follow this checklist:

Before Income Accrues

  • Ensure your payer (tenant, buyer, or fund house) has your correct PAN
  • If you expect a lower tax liability, apply for a Lower Deduction Certificate under Section 197 well in advance
  • If you have a DTAA with your country of residence, gather your Tax Residency Certificate and Form 10F to claim reduced rates

When Income is Paid

  • Verify that TDS is deducted at the correct rate (standard or lower certificate rate)
  • Request Form 16A from your payer within 15 days of the TDS return due date
  • Track TDS deposits in TRACES to confirm the payer has deposited the amount

During the Financial Year

  • Monitor your TDS via Form 26AS on the e-filing portal
  • Maintain records of all TDS certificates and lower deduction certificates
  • Keep copies of rental agreements, property sale deeds, and investment statements

Before Filing Your ITR

  • Compile all Form 16A certificates and TDS statements
  • Calculate your total income, deductions, and tax liability
  • Determine if you are eligible for any exemptions (Section 54 for property reinvestment, Section 10 for certain gains, etc.)
  • If TDS exceeds your actual tax liability, prepare to claim a refund

Filing Your ITR

  • File ITR 2 (if you have capital gains or investment income) or ITR 3 (if you have business income) by the due date
  • Claim TDS credit for all amounts deducted
  • If applicable, claim exemptions and deductions
  • If you expect a refund, ensure your bank account details are correct

For Remittances

  • Obtain Form 15CA and Form 15CB from your CA before remitting funds abroad
  • File these forms with the Income Tax Department
  • Provide the acknowledgment to your bank
  • Ensure the UIN is referenced in all TDS documents from FY 2026-27 onward
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Common Mistakes NRIs Make (And How to Avoid Them)

Mistake 1: Not Applying for a Lower Deduction Certificate

Many NRIs let their buyers or tenants deduct TDS at the full rate, then wait months for a refund. A Lower Deduction Certificate cuts this time dramatically.

Fix: File Form 13 with your Assessing Officer at least 4-6 weeks before the transaction.

Mistake 2: Not Providing DTAA Documentation

If your country has a DTAA with India offering lower TDS rates, your payer will not apply that rate unless you provide proof.

Fix: Obtain your Tax Residency Certificate and Form 10F from your country's tax authority and submit them to your payer before income is paid.

Mistake 3: Forgetting to File ITR

Some NRIs think that because TDS was deducted, they do not need to file an ITR. This is wrong. You must file to claim refunds and maintain compliance.

Fix: File ITR 2 or ITR 3 every year, even if your tax liability is zero after TDS credit.

Mistake 4: Not Tracking TDS in TRACES

You assume your payer deposited the TDS, but they did not. By the time you discover this during ITR filing, penalties have accrued.

Fix: Check TRACES quarterly to confirm TDS deposits. If a deposit is missing, follow up with your payer immediately.

Mistake 5: Remitting Funds Without Form 15CB

Your bank blocks or delays your remittance because you did not file Form 15CA and Form 15CB.

Fix: Always obtain these forms from your CA before initiating a remittance.

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Summary: Your Action Plan

As an NRI earning income in India, you face TDS on rent (31.2%), capital gains (13% to 35.88% depending on holding period and income), and investment income (20.8% to 24.2%). While these rates seem high, you can reduce the cash outflow by:

1. Applying for a Lower Deduction Certificate if your actual tax liability is lower than the standard TDS rate 2. Claiming DTAA benefits if your country of residence has a treaty with India 3. Filing your ITR on time to claim TDS credit and refunds 4. Tracking TDS in TRACES to ensure payers deposit amounts correctly 5. Using Form 15CA and Form 15CB when remitting funds abroad

Work with a Chartered Accountant in India who understands NRI taxation. The small fee you pay upfront will save you thousands in unnecessary TDS and penalties. Remember: the Income Tax Department expects compliance, and the rules are designed to ensure that India collects tax on income earned within its borders. By following these steps, you stay compliant, optimize your tax position, and keep more of your hard earned money.