TDS is basically a part of direct tax. It has to be deducted by a person for certain payments made by them. TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. Like the long hand of law, the taxman has an extended reach too. You would know this, especially if you are a non-resident Indian (NRI).
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Definition of TDS
TDS stands for tax deducted at source. As per the Income Tax Act, any company or person making a payment is required to deduct tax at source if the payment exceeds certain threshold limits. TDS has to be deducted at the rates prescribed by the tax department.
TDS Provision For NRI
TDS on Interest on Non-Resident Ordinary Account (NRO) is of 30% . No TDS on Interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts.
TDS on Rent House Property or other Rent & Commission / Brokerage or any other Income is 30%
NRI Investments in Shares / Mutual Funds attract TDS and below are the TDS rate applicable on MF redemptions by NRIs for FY 2019-20.
TDS on Dividend is exempted if DDT is paid.
Tax Deducted at Source (TDS) Rates for NRI Mutual Fund Investors for 2019-20
| STCG | LTCG | |
| Equity Oriented (MF) | 15% | 10% |
| Other than Equity Oriented (MF) | 30% (Assuming Investor in highest tax bracket) | Listed-20% (with Indexation) and Unlisted-10% (without Indexation) |
Under Sec.195, when an NRI sells a property, the buyer is liable to deduct TDS @ 20% on Long Term Capital Gains. In case the property has been sold before 2 years (reduced from the date of purchase), a TDS of 30% shall be applicable (on Short Term Capital Gains)
Note 1: Note:-STCG and LTCG along with applicable surcharge, and Health and Education Cess will be deducted at the time of redemption of units in case of NRIs
TDS PROVISONS APPLICABLE TO NON RESIDENT INDIANS (NRI)
The below areas deals with TDS applicable to NRI. The following sections of the Act deal with deduction of tax at source from the payments made to Non-Residents and Payment to Foreign Companies for specific payments as detailed below.
| Sec No | Coverage |
| 192 | TDS on Salary Income |
| 194 E | TDS on payments to non-resident sports persons or sports associations |
| 194 LB | TDS on income by way of interest from infrastructure bonds |
| 194 LC | TDS on income by way of interest from Indian Company |
| 194 LD | TDS on income by way of interest on certain Govt. Securities |
| 196 C | TDS on income from Foreign Currency bonds or shares in Indian Companies |
| 196B | TDS on payments in respect of Units to an Offshore fund |
| 196 D | TDS on income of foreign institutional investors (FIIs) from securities |
| 195 | Tax deduction at source for payments to Non-Residents |
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