Non-Resident Indians (NRIs) often face higher tax deduction rates in India when receiving income such as rent, interest, capital gains, or professional fees. In many cases, tax is deducted at source (TDS) at a standard rate, even if the individual’s actual tax liability is lower. This can lead to excess TDS and the need to claim a refund later, which can be time-consuming. To avoid such situations, NRIs can apply for a Lower Tax Deduction Certificate (LTDC) from the Income Tax Department.

A lower deduction certificate allows tax to be deducted at a reduced rate or sometimes not deducted at all, depending on the applicant’s total income and tax liability. This article by R Pareva & Company explains in detail the benefits of obtaining a lower tax deduction certificate for NRIs, the application process, and why it is an important tax planning tool.

What Is a Lower Tax Deduction Certificate?

A Lower Tax Deduction Certificate is an authorization issued by the Income Tax Department under Section 197 of the Income Tax Act, 1961. It permits the payer (such as a tenant, company, or bank) to deduct tax at a rate lower than the prescribed one.

For instance, if an NRI earns rental income from property in India, the tenant is normally required to deduct TDS at 30%. However, if the NRI’s actual tax liability is lower due to deductions or exemptions, they can apply for a lower TDS deduction certificate and get tax deducted at a reduced rate.

This helps prevent excess TDS, minimizes refund-related delays, and ensures better cash flow management.

Why NRIs Need a Lower TDS Deduction Certificate

NRIs often have income sources in India like:

• Rent from property

• Capital gains from sale of assets

• Interest on bank deposits

• Professional or consultancy fees

• Dividends or other business income

Since the payer must deduct TDS at a fixed rate for NRIs, the deducted amount may exceed the actual tax payable after considering double taxation avoidance agreements (DTAA), exemptions, and deductions.

In such cases, applying for a lower deduction certificate for NRI ensures that only the appropriate tax amount is deducted upfront. This avoids the hassle of filing for a refund and improves financial convenience.

Key Benefits of Obtaining a Lower Tax Deduction Certificate for NRIs

1. Avoids Excess TDS Deduction

The biggest advantage of obtaining a lower TDS deduction certificate for NRI is that it prevents unnecessary over-deduction of tax. Instead of waiting months to receive a refund, the NRI pays only the amount they actually owe based on their total income.

2. Improves Cash Flow Management

When less TDS is deducted, the NRI can retain more funds during the financial year. This helps in better management of liquidity and timely reinvestment opportunities without waiting for refund settlements.

3. Reduces Dependence on Refunds

Many NRIs file their Indian tax returns mainly to claim refunds for excess TDS. With a lower deduction certificate, tax deduction is already adjusted, reducing or even eliminating the need to claim refunds later.

4. Ensures Correct Tax Deduction at Source

The lower TDS certificate for NRI ensures that the payer deducts tax strictly as per the certificate issued by the Income Tax Department. This prevents errors or disputes related to excessive TDS deduction.

5. Supports Double Taxation Relief

NRIs often face taxation in both India and their country of residence. With the help of a lower tax deduction certificate for NRI, they can ensure that the TDS deducted in India aligns with the benefits available under the applicable Double Taxation Avoidance Agreement (DTAA).

6. Applies to Multiple Income Types

The lower deduction certificate for NRI can be applied to different income sources such as rent, capital gains, interest, or professional income. This flexibility helps NRIs manage all Indian income under one compliant structure.

7. Reduces Administrative Burden

Without a lower TDS certificate, NRIs need to file refund claims and wait months for processing. Obtaining a lower deduction certificate simplifies tax administration and reduces paperwork.

8. Increases Credibility with Indian Tax Authorities

Filing for a lower TDS deduction certificate reflects proper tax planning and compliance. It builds a transparent record with the Income Tax Department and may lead to faster processing of future applications.

9. Applicable for Individuals and Companies

Both individual NRIs and foreign entities operating through branches or subsidiaries in India can apply for a lower TDS deduction certificate for NRI, making it widely beneficial across income categories.

How to Apply for a Lower TDS Deduction Certificate

To obtain a lower deduction certificate, NRIs must apply online through the Income Tax Department’s TRACES portal or via the Assessing Officer (International Taxation) having jurisdiction.

Key steps include:

1. Filing Form 13 – The application must be submitted in Form 13 under Section 197.

2. Providing Required Documents, such as:

   • PAN and passport

   • Income computation statement

   • Tax residency certificate (if applicable)

   • Details of previous TDS and tax payments

   • Details of income expected to be earned in the current financial year

3. Verification by the Assessing Officer, who reviews the documents and may request additional details.

4. Issuance of Certificate, specifying the rate of TDS to be applied by the payer.

Once approved, the payer can start deducting tax at the reduced rate mentioned in the certificate.

Validity and Renewal of the Certificate

The lower TDS deduction certificate is generally valid for one financial year. NRIs must apply for renewal every year if they continue to receive income from India.

Applying early in the financial year ensures timely processing and continuous benefit of lower tax deduction.

Example to Understand the Benefit

Suppose an NRI earns ₹10,00,000 as rental income in India. Normally, TDS at 30% (i.e., ₹3,00,000) would be deducted by the tenant. However, after considering deductions and DTAA benefits, the actual tax liability may only be ₹1,50,000.

With a lower tax deduction certificate for NRI, the tenant can deduct tax at a reduced rate (say 15%), meaning only ₹1,50,000 is deducted—saving the NRI from waiting months for a refund of ₹1,50,000.

Important Points to Remember

• The certificate must be obtained before the income is credited or paid.

• The payer must verify the validity and certificate number before applying the lower rate.

• The certificate is income-specific and payer-specific; a new certificate is needed if income sources or payers change.

• NRIs should maintain all supporting documents for audit and verification.

Conclusion

A lower tax deduction certificate for NRI is one of the most effective tools to manage tax compliance efficiently in India. It ensures that only the correct amount of TDS is deducted, prevents excess tax payment, and supports smoother financial management.

For NRIs earning income from multiple Indian sources, applying for a lower deduction certificate or lower TDS deduction certificate for NRI can lead to significant benefits in terms of liquidity, compliance, and peace of mind.

R Pareva & Company assists NRIs and resident taxpayers in understanding and obtaining lower TDS certificates efficiently, ensuring full compliance with Indian tax laws while optimizing cash flow and tax outcomes.