TDS for NRIs: How Can NRIs Reduce High TDS Deductions?

If you’re a Non-Resident Indian earning rent, interest, dividends, or capital gains from India, you already know how frustrating it is to deal with heavy tax deductions before your earnings even reach your account. That’s TDS for NRIs in action, and for most NRIs it’s deducted at rates far higher than what residents pay.

The good news? Much of this financial heavy tax burden is legally avoidable. With strategic planning, whether by optimizing your account status, utilizing DTAA treaty benefits, or applying for a Lower TDS Certificate you can easily reduce high TDS deductions at source rather than waiting months for an income tax refund.

This comprehensive guide breaks down exactly how TDS works for NRIs under the current regulations, active withholding rates across all income types, and How Can NRIs Reduce High TDS Deductions. 

Why Is TDS So High for NRIs?

Under Section 195 of the Income Tax Act, anyone making a payment to a non-resident, a tenant, a property buyer, a bank, or a mutual fund house must deduct tax at source before the money reaches you. Unlike resident Indians, NRIs get no minimum threshold exemption. Even ₹1 of dividend or interest income can attract TDS.

The deductor doesn’t know your actual tax slab, your deductions, or your treaty benefits so by default, they deduct at the maximum applicable rate. That’s why a tenant withholds 31.2% of your rent even if your real tax liability works out to just 5–10%.

This mismatch between “TDS deducted” and “tax actually owed” is exactly what creates the refund headache and exactly what you can fix with proactive planning.

Current TDS Rates for NRIs (2026)

Here’s a quick reference table of how TDS for NRIs applies across the most common income sources, based on the Finance Act provisions and the Income Tax Act, 2025 currently in force.

5 Practical Ways to Reduce TDS for NRIs

1. Move Repatriable Funds from NRO to NRE/FCNR Accounts

This is the best way to reduce TDS for NRIs. Interest on NRO accounts is taxed at 31.2%, while interest on NRE and FCNR deposits is completely tax-free in India and attracts zero TDS.

2. Apply for a Lower or NIL Deduction Certificate (Form 13)

If your actual tax liability is lower than the flat TDS rate which is true for most NRIs once deductions and exemptions are factored in you can apply to your Assessing Officer under Section 197 for a certificate authorising lower or nil TDS. We’ve covered this process in detail in the next section.

3. Use Your DTAA Benefits

India has Double Taxation Avoidance Agreements with over 90 countries. Many of these treaties cap TDS on interest, dividends, or royalties at rates lower than the domestic 20–31.2%. To claim this, you need a Tax Residency Certificate (TRC) from your country of residence plus Form 10F, submitted to your Indian deductor before the payment is made.

4. Time Your Capital Gains Across Financial Years

Long-term capital gains on listed equity and equity mutual funds enjoy a ₹1.25 lakh exemption per financial year under Section 112A. Instead of redeeming a large lump sum in one year, splitting redemptions across two financial years lets you use this exemption twice, which directly reduces the TDS-attracting taxable gain.

5. Keep Your PAN Updated and Linked

If a deductor doesn’t have a valid PAN on file, TDS is deducted at a much higher rate under Section 206AA, sometimes 20% or more, regardless of the income type. Always ensure your PAN is correctly furnished to every bank, AMC, or tenant making payments to you.

Step-by-Step: Filing Form 128 for Lower TDS

Filing Form 128 electronically on the TRACES portal is the most direct way to reduce TDS at the source rather than blocking your cash flow and waiting for refunds.

Step 1. Access TRACES Portal:- Visit the official TRACES website and log in as a Taxpayer using your PAN and credentials.

Step 2. Navigate to Form 128:- Go to the dashboard and follow the path: e-File and View → File Forms → Form No. 128 (Application under Section 395).

Step 3. Select the Applicable Category:- Choose your applicant status (such as Individual / NRI) and fill out the personal, financial, and tax liability details.

Step 4. Choose the Right Annexure:– Fill Annexure I if you already have the specific payer’s details (like your tenant’s or property buyer’s TAN/PAN).

Fill Annexure II if you have a massive pool of payers or their exact details are not available at the time of filing. This issues a primary certificate, letting you generate individual “Child Certificates” later.

Step 5. Upload Supporting Documents:- Attach your income tax returns (ITR) for the past 3 to 4 years, a computation statement of estimated total income for the current year, Form 26AS, and underlying transaction proofs (e.g., Draft Sale Agreement or Rent Deed).

Step 6. E-Verify and Submit:- Authenticate and sign the form electronically using a valid Digital Signature Certificate (DSC) before clicking submit.

Step 7. Serve the Certificate:- Once the Assessing Officer reviews and approves the request (typically within 30 to 45 days), download the certificate from TRACES and provide it to your deductor to apply the reduced withholding rate instantly.

How to Claim a TDS Refund If You’re Already Overpaying?

If TDS has already been deducted at the higher rate, you can still get the excess back by filing your Income Tax Return.

• Check Form 26AS on the income tax e-filing portal to confirm all TDS credited against your PAN matches your TDS certificates (Form 16A).
• Pick the right ITR form, typically ITR-2 for NRIs with rental, capital gains, or investment income (ITR-3 if there’s business/professional income).
• File before the due date usually July 31 following the end of the financial year.
• Pre-validate your Indian bank account under Profile Settings, so the refund isn’t held up.
• E-verify within 30 days of filing using Aadhaar OTP, net banking, or a signed physical ITR-V.

Refunds for NRIs generally take longer than for resident filers, often 2 to 6 months due to additional verification on cross-border income.

Common Mistakes NRIs Make With TDS

• Leaving funds in NRO accounts when they’re actually repatriable and could sit tax-free in NRE/FCNR accounts.
• Not applying for Form 13 before the transaction, especially before selling property or starting a long-term lease.
• Forgetting to submit Form 10F and a TRC when DTAA benefits could apply.
• Mismatched PAN details with the deductor, leading to TDS credit not reflecting in Form 26AS.
• Not filing ITR at all because income is “below the taxable limit”  without filing, you simply cannot claim back the TDS already deducted.
• Missing the e-verification window, which can delay or invalidate an otherwise correct return.

Conclusion

TDS for NRIs doesn’t have to mean losing a third of your Indian income every year. Once you understand where TDS hits hardest rent, NRO interest, dividends, and property sales  you can take concrete steps to reduce high TDS deductions: shift to NRE/FCNR accounts, file Form 13 ahead of time, claim your DTAA rate, and file your ITR on schedule to recover anything still owed to you.

Start by reviewing where your Indian income currently stands, identify which of these levers applies to you, and act before the next deduction hits your account, not after.