How NRIs can get lower, nil TDS certificate from income tax department

An individual who is paying any amount to a Non-Resident Indian (NRI) should be aware that the payment shall be subject to TDS. As per section 195 of the Income-tax Act, 1961, any ‘person’, responsible for paying to a non-resident shall, at the time of making payment (accrued or payable), either via cash or by the issue of a cheque or draft or by any other mode, shall deduct tax from the amount paid at the rates in force as mentioned in Section 2(37A) for the respective financial year. This means that every rupee earned by an NRI in India is subject to TDS at the income tax slab rates applicable to their income.

Even though section 195 mandates deduction of tax at source (TDS) compulsorily, there is an option provided to the payer of the income as well as payee, i.e., the NRI to make an application to the Assessing Officer (AO) for lower or nil TDS on the income.

Lower or NIL TDS certificate application by NRI

An NRI can make an application in Form 13 for deduction of income tax at lower rates or nil deduction on income received in India. If the AO is satisfied that the total income of the payee justifies the deduction of income tax at lower rates or no deduction of income tax, the AO shall give the NRI lower/nil TDS certificate as appropriate for this purpose.

Also Read: NRIs cannot submit Form 15G/H to lower TDS

Here is a step-by-step guide on how NRI (payee) can apply for lower or NIL TDS certificate
NRIs must keep the following documents and information handy before filing application for lower or nil TDS certificate.

Form 13-Checklist of documents/information

  • A Digital Signature Certificate (DSC) or E-Verification (through Internet Banking) or Mobile OTP is required for submission of the duly filled in form. If DSC is not registered at TRACES payee has to register his DSC (in case of NRI services)
  • Jurisdictional AO will be decided on the basis of State & District provided by the applicant in original application of Form-13 and same will be applicable for future as well.
  • Estimated income computation for the FY certified by Self/Authorized person for which certificate is sought.
  • Details of income claimed to be exempt and not included in the total income.
  • Estimated income for any of the 4 previous financial years preceding to the current financial year certified by Self /Authorized person in case return has not been filed.
  • Assessment Orders if assessed, for the last 4 assessment years.
  • If ITR for any of the 4 previous financial year has been filed in Paper Form, if any

Once the required information and documents are collected, the NRI can follow the steps below to apply for lower or nil TDS certificate.

Step 1: Login to TRACES website with your User ID i.e., NRI’s PAN, Password.
Step 2: Go to “Statement/Forms” tab and click on Request for Form 13 to initiate the request
Step 3: Form 13 will open on your screen. NRI will be required to fill the following details in the online form:

  • Particulars of NRI’s income and other relevant details such as status (individual/company/ Hindu undivided family etc), residential status, PAN or Aadhaar, Email ID, Mobile number
  • Details of existing tax liability under the Income tax Act and the Wealth-tax Act, 1957
  • Financial year to which the payments/receipts relate
  • Estimated total income of the financial year (there is a requirement to upload computation of estimated total income of the previous year)
  • Total tax including penal interest payable for the total income referred above
  • Details of income claimed to be exempt and not included in the total income (there is a requirement to upload a note giving reason for claiming such exemption)
  • Details of payment of advance-tax and tax deducted/collected, if any, for the current year till date
  • Whether any exemption under section 10, section 11 or section 12 is claimed. If Yes, then there is a requirement to upload registration/exemption certificate/approval, if any, issued by the Income-tax Authority
  • Upload a computation of estimated total income of the previous financial year for which ITR has not been filed (for any of the 4 years preceding the current financial year for which the application is made)
  • Where ITR for any of the 4 previous financial years has been filed in paper form, then it is required that a copy of the ITR be uploaded
  • Annexures providing particulars in respect of the income/sum for which TDS certificate is sought such as details of TAN or PAN or Aadhaar Number of the payer, section under which tax at source is to be deducted, estimated amount of income/sum to be received, requested rate of deduction (fill ‘0’ where ‘nil’ deduction is requested)

After the request is raised, if the assessing officer needs any further information or clarification, he would reach out to the payer or payee and once satisfied, accordingly issue the certificate. The said certificate can be downloaded from the TDS TRACES portal under the “Download tab”. The lower/nil TDS Certificate shall be issued by AO within one month from the end of the month in which application is received.

Lower or nil TDS certificate application by payer
If the payer of the income such as bank, individual etc. is of the view that the whole/part of the payment would not be an income chargeable to tax in the hands of the payee, he may make an application in Form 15E to the AO. The AO will determine the appropriate proportion of such sum (the payment amount) chargeable to tax. Upon such determination by the AO, tax shall be deducted by the payer only on that proportion of the sum which is chargeable to tax, else no tax will be deducted on income (if no income is chargeable to tax).

How payer can file application for lower/nil TDS certificate for NRI online
Before visiting the TRACES website, it is important for payer of the income to know the following and keep these documents and information handy:

  • Payer can submit Form 15E application through TRACES
  • Digital Signature Certificate (DSC) or IPIN is required for submission of Form 15E
  • Relevant documents such as computation of capital gains, share purchase agreement, bank payment, details of cost of acquisition etc, are required as applicable
  • Details of assessed/returned/estimated income of payee of last 4 previous years, if available
  • Computation of tax liability on estimated income
  • Copy of Tax Residency Certificate and Form 10F, as applicable
  • PAN of the NRI

Once the information/documents required are ready, the payer can follow the steps below to apply for lower/nil TDS certificate for the NRI.

Step 1: Login to TRACES website with your User ID (created by the Payer), Password and TAN of the payer/deductor. Do note that an individual will have to apply for TAN to deduct tax from NRI’s income.
Step 2: Go to ‘Forms’ tab and click on ‘Request for Form-15E covered u/s 195(2)’ to initiate request.
Step 3: Form-15E will open on the home screen. The payer of the income will be required to provide the following details:

  • Details of the payer such as PAN or Aadhaar, name, Tax Deduction and Collection Account Number (TAN), Status (individual/company/Hindu undivided family etc), residential status, address, email ID, mobile number
  • Details of the payee (NRI) such as PAN (if available) , Name, Status, Father’s name, Date of birth, Address in India (if applicable), Residential address outside India, Tax Identification Number (TIN) of NRI in foreign country, Jurisdictional AO (if any), E-mail ID, Mobile Number, Passport Number.
  • Details of financial transaction such as:

i) Country to which payment is to be made, Amount payable (in Foreign Currency, in Indian Rs. (On estimated basis)),
ii) Proposed date of payment
iii) Relevant financial year for which lower/nil TDS certificate is requested
iv) Nature of payment/ remittance as per agreement/document (Interest, capital gains, rent etc)
v) In case the tax to be deducted are to be borne by the payer of such income, whether the tax payable is added in the payment to be made to the NRI
vi) Details of lower/nil TDS certificates obtained in previous financial years for the same transaction
vii) Tax payable on estimated income of the financial year by the NRI (if available)
viii) Details of advance tax, TDS, Tax Collected at Source (TCS) for the financial year by the NRI, if available
ix) Details of existing tax liabilities of NRI under the Income tax Act or Wealth Tax Act, if available
x) Whether the taxable income is to be determined by applying a Double Taxation Avoidance Agreement (DTAA) between India and the other country or without applying the DTAA.

Step 4: Once the required details are provided, the individual is required to provide other details as well. These are as follows:
i) Provide the reason as to why the payments are not chargeable to tax (or chargeable to tax at lower rate) in India as per the provisions of Income tax Act
ii) Payer has to fill the applicable fields based on the nature of the transaction. If in case the payment is on account of rent payable to NRI, then he has to specify the nature of payment, amount of income chargeable to tax, tax liability, justification for the said tax liability, tax rate required to be used for TDS .
iii) Separate fields are available where income is subject to tax under the DTAA.

Step 5: Once the Form-15E is duly filled, then the payer can click on submit. After the online application is submitted, the TDS AO shall process it within one month from the end of the month in which application is received.

The above set of information and documents are to be collated and kept ready to file an application in Form 15E and Form 13. This will ensure that the application process is smooth, and one is able to obtain a certificate for lower or nil rate of TDS easily and thereby avoid paying tax at a higher rate at withholding stage.

What will happen if TDS not deducted or deducted but not deposited?
Non deduction of TDS or failure to deposit tax which has been deducted to the tax authorities would attract penal interest of 1% or 1.5%, respectively, for every month or part of a month for the delay in deduction/payment of tax. In addition to this, the AO may levy penalty for non-compliance with the TDS provisions.

(The writer of the article is Amarpal S. Chadha, Tax Partner and Mobility Leader, EY India. Shanmuga Prasad, Director, EY India also contributed to the article. Views expressed are personal)

Source link

Spread the word!

Leave a Comment

Your email address will not be published. Required fields are marked *