Sunday, June 12, 2011

Tax Deducted at Source - TDS rates for NRIs

TDS or Tax deducted at source is the tax getting deducted from Employee/ Deductee by the person paying such amount i.e. Employer/ Deductor. TDS is applicable for Non Resident Indians or NRIs as well. Tax is applicable for most incomes for NRIs and ought to be deducted at source once the person informs of his or her residency status. If the income from a particular source is tax free in India, then TDS is not applicable - this is true for both NRIs and resident Indians. Please note that this article highlights Tax deducted at source cases and not Income Tax for NRIs.

Typically, NRIs earn income in India through following:

Interest on bank deposits:
Interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts are tax free in India. Hence, TDS is not applicable on income on these two accounts.

However, interest earned on the Non Resident Ordinary Account (NRO) is taxable and is subject to a TDS of 30 per cent. Bank will be deducting this TDS. Please note that there is no basic exemption limit as in the case of resident Indians. Interest earned by resident Indians from bank deposits is subject to TDS only over and above a limit of Rs 10000. No such limit applies for NRIs.

Interest on Bonds and Corporate Deposits:
Interest earned on corporate deposits and bonds is subject to TDS at 20 per cent. In these cases, the company or party making the payment will deduct this tax.

Dividends:
Dividends from equity shares, equity mutual funds and debt mutual funds are exempt in the hands of the share or unit holder. So, TDS is not applicable in this case.

Capital gains on Equity shares and Equity Mutual Funds:
Long term capital gains, that is profits made on sale after one year from date of purchase, on
equity shares and equity mutual funds (mutual funds with more than 50 per cent in equities) are exempt from tax. So, TDS is not applicable in this case.

Short term capital gains, that is, profits on sale within one year of date of purchase, on equity shares and equity mutual funds are subject to a TDS of 15 per cent. In these cases, the company or party making the payment will deduct this tax.

Capital gains on Debt mutual funds and corporate debentures:
Long term capital gains from debt mutual funds and corporate debentures (when sold in the secondary market) is subject to TDS at 10 per cent.

Short term capital gains from debt mutual funds and corporate debentures is subject to a TDS of 30 per cent.

In these cases, the company or party making the payment will deduct this tax.

Capital gains on Gold and Real Estate:
Long term capital gains from sale of Gold and Real Estate is subject to a TDS of 20 per cent.

Short term capital gains from sale of Gold and Real Estate is subject to a TDS of 30 per cent.

In these cases, the company or party making the payment will deduct this tax. However, in most cases the sale is to an individual and they are not aware of such issues and hence don't deduct TDS.


0 comments:

Post a Comment