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| TDS
(Tax Deducted at Source) for NRIs |
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For any individual responsible for making
any disbursement (with the exception of dividend declared post
June‘97) to a NRI or a foreign company it is mandatory to
withhold tax at source at the approved rate at the time of
payment of such earnings to the account of the payee or at the
time of payment thereof.. However, if the organization
responsible for making the payment is the Indian government, a
bank in the public sector or a public financial institution,
tax is to be deducted at the time of payment
only.
In cases
where the entity or person liable to make a payment considers
that the payable amount is only partially taxable, an
application can be made to the assessing authority to settle
the taxable share, and adjust the tax proportionately. The
Finance Act for the specific year, or the agreement to avoid
double tax with the NRI’s adopted country, in case such an
agreement has been made, can be referred to for the rate of
tax to be deducted. In case of conflict between the rates
specified by the Finance Act and the agreement, whichever is
beneficial to the payee would prevail.
For certain payments, the remitter is
required to provide an undertaking to the Assessing Officer
along with an endorsement from a qualified Chartered
Accountant in the approved form. This guarantee is to be
placed before the RBI or the authorised trader/dealer in
foreign currency who will further a copy to the assessing
officer.
In case
of over-deduction of tax, the NRI is entitled to claim a
refund. In case of interest earned from the NRE and FCNR
accounts, the NRI is not liable to pay tax. However, interest
on NRO accounts does invite tax, and it is the banks’
responsibility to deduct the taxable amount from the account
holder’s account. Similarly, returnee NRIs are liable to be
taxed on their FCNR (B) and RFC accounts on capital gains and
interest on NRE account payable.
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