Tag: NRI

TDS on Payments to Non-Residents and NRIs under Section 393(2): Rates in Force, Property Sale and Surcharge (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 11 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Payments to non-residents are covered by section 393(2) of the Income-tax Act, 2025 (old section 195): special rates for sportsmen, certain bonds and funds, and for everything else “rates in force”, which Part II of the First Schedule to the Finance Act 2026 sets: for a non-resident Indian 20% on investment income, 12.5% on long-term capital gains, 20% on short-term gains under section 196, 20% on royalty, fees for technical services and foreign currency interest, 30% on winnings and 30% on other income.
  • For other non-residents (not NRI) the rates are the same except the residual rate is 30% for non-company and 35% for a foreign company, with 10% on dividend referred to in section 207(1) and 20% on other dividend.
  • Where a tax treaty applies and the payee furnishes the residence certificate under section 159(8), the treaty rate applies for units of specified mutual funds and Foreign Institutional Investor income if lower than 20% (Note 2).
  • The tax is increased by surcharge calculated on the income, and a payer who doubts that the whole payment is chargeable can apply to the Assessing Officer in Form 129 to fix the taxable proportion (section 395(2)); a payee can seek a lower deduction certificate in Form 128.

When an Indian payer pays a non-resident a sum that is chargeable to tax in India, tax must be deducted at source. In the Income-tax Act, 2025 (from 01/04/2026) this is section 393(2), which replaces section 195 of the 1961 Act. The table in the section gives special rates for a few payments and says “rates in force” for most; the rate in force is fixed each year by the Finance Act.

How section 393(2) works

  • The payer deducts tax on the amount of the income or sum, at the rate in column E, at the earlier of credit and payment (section 393(2)(a) and (b)).
  • The table covers payments to a non-resident (and, for some items, a foreign company). Item 17, the main one, covers any interest (other than interest in items 2 to 5) or any other sum chargeable under the Act, not being salary, paid to a non-resident other than a company, or to a foreign company, at the rates in force.
  • The obligation applies to all payers, resident or non-resident, whether or not the non-resident payee has a residence, place of business, business connection or other presence in India (Note 3(b) to item 17).
  • Where interest is paid by the Government or a public sector bank or public financial institution (item 17), tax is deducted only at the time of payment (Note 3(a)).

Special rates in the table

Item Payment Rate
1 Income of a non-resident sportsman or entertainer who is not an Indian citizen, or a non-resident sports association or institution (section 211) 20%
2 Interest on foreign currency loans or long-term infrastructure bonds, 01/07/2012 to 30/06/2023, by an Indian company or business trust 5%
3 Interest on rupee denominated bonds issued before 01/07/2023 5%
4 Interest on long-term or rupee denominated bonds listed only on an IFSC exchange 4% (issued 01/04/2020 to 30/06/2023); 9% (issued on or after 01/07/2023)
5 Interest paid by an infrastructure debt fund 5%
6 Distributed income of a business trust to a non-resident unit holder 5% or 10% by type of income
10 and 15 Income from units of specified mutual funds, and income of a Foreign Institutional Investor from securities 20%, or the lower treaty rate where the payee furnishes the residence certificate under section 159(8) (Note 2)
11, 12 Offshore fund: income from units, and long-term capital gains 10%; 12.5%
13, 14 Interest, dividend and long-term capital gains on bonds or Global Depository Receipts 10%; 12.5%
16 Income of a specified fund 10%
17 Any other sum chargeable Rates in force

For interest in items 2 to 4, the deduction applies only on interest up to the amount at the rate approved by the Central Government (Note 1).

“Rates in force” for tax year 2026-27 (Finance Act 2026, First Schedule Part II)

Non-resident Indian (investment income, capital gains and others):

Income Rate
Investment income 20%
Long-term capital gains under section 214 or 197(4), and other long-term capital gains (not those in Schedule II items 14 and 17 relating to old section 10(36)) 12.5%
Long-term capital gains under section 198 above ₹1,25,000 12.5%
Short-term capital gains under section 196 20%
Interest payable by the Government or an Indian concern on money borrowed in foreign currency (other than items 2 to 5) 20%
Royalty or fees for technical services payable by the Government or an Indian concern under approved agreements (and royalty on copyright or software to a resident, as listed) 20%
Winnings from lotteries, games, horse races and net winnings from online games 30%
Dividend referred to in section 207(1) Table Sl. No. 2 10%
Other dividend 20%
Whole of the other income 30%

Other non-residents who are not companies: the same list for royalty, fees, winnings, capital gains and dividends, and 30% on the whole of the other income.

Foreign company: 20% on interest, royalty and fees under the cases above, 30% on winnings, 20% on short-term gains under section 196 and 12.5% on long-term gains, with 35% on the whole of the other income.

Surcharge

The tax deducted is increased by a surcharge on a non-resident individual, HUF, association of persons, body of individuals or artificial juridical person (other than where income is taxed under section 202): 10% where the income subject to deduction exceeds ₹50 lakh and up to ₹1 crore, 15% above ₹1 crore up to ₹2 crore, 25% above ₹2 crore up to ₹5 crore and 37% above ₹5 crore, with the surcharge on dividend income and capital gains under sections 196, 197 and 198 limited to 15%. Companies have their own table in Part II. Check the Schedule for the exact conditions for each class of payee.

Property sold by an NRI

The buyer deducts tax under item 17 at the rate for the type of gain: 12.5% on long-term capital gains and, it appears, the residual 30% rate on short-term gains on property (confirm for the case), plus surcharge. The text of the Act applies the rate to the sum chargeable, so a buyer who deducts on the whole sale price without a certificate may deduct much more than the tax on the actual gain. To avoid this, the payee can apply in Form 128 for a lower deduction certificate (section 395(1)), or the payer can apply in Form 129 for the taxable proportion (section 395(2)). A resident individual or HUF buyer does not need a TAN for this deduction (section 397(1)(c)(iii)).

Treaty relief and documents

The payee who wants a treaty rate must hold a certificate of residence from its government and furnish the information in Form 41 (section 159(8), Rule 75). The payer reports payments to non-residents in Form 145 and, where required, a certificate of an accountant in Form 146 (Rule 220). Deductions on non-residents are reported in Form 144 (quarterly statement; Rule 219).

Practical points

  1. Decide whether the sum is chargeable in India before deciding to deduct; use Form 129 if it is only partly so.
  2. Use the right rate for the payee’s category (NRI, other non-resident or foreign company) and the nature of the payment.
  3. Deposit the tax by the 7th of the next month and file Form 144 on time; the late fee under section 427 applies to late statements.
  4. Obtain the residence certificate and Form 41 before applying a treaty rate.

How CSM & Co LLP can help

We advise on deduction of tax on foreign payments, apply for lower deduction and taxable proportion certificates, and file Forms 144, 145 and 146. Please reach out to our team and we will be happy to assist.

Frequently asked questions

What is the TDS rate on an NRI’s sale of property?

Tax is deducted under section 393(2), Table Sl. No. 17, at the “rates in force”, which Part II of the First Schedule to the Finance Act 2026 sets as 12.5% for long-term capital gains on assets other than those covered by special rules, 20% for short-term capital gains under section 196 (equity shares and equity-oriented fund units on which securities transaction tax is paid), and, for short-term gains on property, it appears the residual “other income” rate of 30% applies (confirm for the case), increased by surcharge where the surcharge conditions are met. A payer or payee can apply for a certificate so that tax is deducted only on the gain.

Does the buyer of an NRI’s property need a TAN?

A resident individual or HUF who must deduct tax on consideration for the transfer of immovable property to a non-resident under section 393(2), Table Sl. No. 17 is exempt from applying for a TAN (section 397(1)(c)(iii)), but the deduction and deposit are still required.

What rate applies to royalty and fees for technical services paid to a foreign company?

For payments by the Government or an Indian concern under approved agreements, 20% where the agreement is made after 31 March 1976 (royalty and fees for technical services). For other foreign company income the residual rate is 35% on the whole of other income. Check the treaty, which can reduce the tax if the payee holds a residence certificate and furnishes the information in Form 41.

What if the whole payment is not income in India?

The payer can apply to the Assessing Officer in the prescribed form (Form 129, Rule 214) to determine the appropriate proportion of the sum chargeable to tax, and tax is deducted only on that proportion (section 395(2)).

Do foreign payers or non-residents also have to deduct tax?

Yes. The obligation to deduct tax under item 17 extends to all persons, resident or non-resident, whether or not the non-resident has a residence, place of business, business connection or other presence in India (section 393(2), Note 3(b)).

Can the payee get a lower rate?

Yes, by applying in Form 128 for a lower or nil deduction certificate (section 395(1), Rule 213). The payer must then deduct at the rate in the certificate for its validity (section 395(1)(c)).

Official sources

Related reading

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

NRI Taxation in India under the Income-tax Act, 2025: Residential Status, Taxable Income, NRE and NRO Interest and TDS (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 29 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Under section 6 of the Income-tax Act, 2025 an individual is resident if in India for 182 days or more in the tax year, or for 60 days or more in it and 365 days or more in the four preceding years (120 days instead of 60 for a citizen or person of Indian origin visiting India with Indian income above ₹15 lakh); otherwise the person is a non-resident.
  • A non-resident is taxed only on income received, deemed received, accrued or arisen in India (section 5(2)); a resident other than not ordinarily resident is taxed on world income.
  • Interest on a Non-Resident (External) account is exempt (Schedule IV, Sl. No. 1); NRO and fixed deposit interest is taxable, and the bank deducts tax at the rates in force (section 393(2), Table Sl. No. 17).
  • The rebate for low income (section 156) is only for resident individuals, and the duty to report foreign assets in the return (section 263(1)(a)(ix)) falls on a resident other than not ordinarily resident, so a non-resident is outside it.

Whether an Indian citizen who lives abroad pays tax in India depends first on residential status, and then on what kind of income is involved. This post follows the Income-tax Act, 2025 (from 01/04/2026), which replaces sections 5, 6 and 9 of the 1961 Act with sections 5 and 6, among others. “NRI” is not a defined term for residence: the Act speaks of resident, not ordinarily resident, and non-resident.

Step 1: Residential status of an individual (section 6)

An individual is resident in India in a tax year if:

  • (a) in India for a total period of 182 days or more in that tax year; or
  • (b) in India for 60 days or more in that year and for 365 days or more in the four preceding tax years (section 6(2)).

Exceptions and changes:

Case Effect Section
Indian citizen who leaves India as a crew member of an Indian ship, or for employment outside India Test (b) does not apply, so 182 days is the test 6(3)
Indian citizen or person of Indian origin who is outside India and visits India Test (b) does not apply 6(4)
The same person, with total income other than income from foreign sources above ₹15 lakh Test (b) applies with 120 days instead of 60 6(5)
Indian citizen not liable to tax in any other country by reason of domicile, residence or similar criteria, with total income above ₹15 lakh (other than foreign source income) Deemed resident (but not ordinarily resident) 6(7), 6(13)(c)

A person who is not resident is a non-resident.

Not ordinarily resident (section 6(13))

A resident individual is not ordinarily resident if:

  1. non-resident in nine out of the ten preceding tax years, or in India for 729 days or less in the seven preceding tax years; or
  2. a citizen of India or person of Indian origin whose total income other than foreign source income exceeds ₹15 lakh and who was in India for 120 days or more but less than 182 days in the year; or
  3. an Indian citizen who is deemed resident under section 6(7).

“Income from foreign sources” means income that accrues or arises outside India (except income from a business controlled in or a profession set up in India) and is not deemed to accrue or arise in India (section 6(14)). For a company, residence turns on being an Indian company or having its place of effective management in India (section 6(10)); for a HUF, firm and others, on control and management being wholly outside India or not (section 6(9) and (11)).

Step 2: What income is taxed (section 5)

Status Taxable in India
Resident (ordinarily resident) Income from all sources: received or deemed received in India, accruing or arising in India, or accruing outside India (section 5(1))
Not ordinarily resident Income received in India, accruing or arising in India, and income from outside India only if derived from a business controlled in or a profession set up in India (section 5(1)(c))
Non-resident Only income received or deemed received in India, or accruing, arising or deemed to accrue or arise in India (section 5(2))

Foreign income that is merely taken into account in a balance sheet prepared in India is not deemed received in India (section 5(3)).

Step 3: Rates and relief

  • The slab rates in section 202(1) apply to an individual’s total income, and the new regime is the default unless the person opts otherwise. The rebate under section 156 (up to ₹12 lakh of income in the new regime, and the smaller rebate in the old regime) is available only to a resident individual, so a non-resident does not get it. The ₹4 lakh nil slab still applies as part of the rate table.
  • Capital gains are computed under the capital gains sections; those rules and rates are covered in our posts on capital gains.
  • Tax treaty relief and foreign tax credit for income taxed in both countries is given under sections 159 and 160.

Bank accounts: NRE, NRO and FCNR

Account Tax position
NRE (Non-Resident (External)) Interest is not included in the total income of an individual who is a person resident outside India under FEMA (or is permitted by the RBI to keep the account) (Schedule IV, Sl. No. 1)
NRO (Non-Resident Ordinary) Interest is taxable income; the bank deducts tax at the rates in force (section 393(2), Table Sl. No. 17)
FCNR The exemption for FCNR(B) deposits under the 2025 Act depends on the residential status rules and was not verified in the Schedules for this post

An individual who becomes resident should tell the bank, because the NRE exemption is for persons resident outside India.

TDS on payments to a non-resident (section 393(2))

For payments to a non-resident, section 393(2) lists the cases. The general rule in Table Sl. No. 17 covers any interest or other sum chargeable under the Act, other than salary, paid to a non-resident (not being a company) or a foreign company, at the rates in force, which are fixed each year by the Finance Act. Special rates exist for items such as non-resident sportsmen and entertainers (20%), interest on certain foreign currency loans and bonds (4%, 5% or 9%) and income of a specified fund (10%). Where a tax treaty applies and the payee furnishes the certificate in section 159(8), the treaty rate is used if it is lower than 20% in the cases for which Note 2 to the Table applies (units of specified mutual funds and income of Foreign Institutional Investors).

Sale of property or assets by an NRI. The buyer, or the authorised dealer paying out a sum to a non-resident Indian for the transfer of a foreign exchange asset that is not short-term, is responsible for deduction (section 393(1), the persons responsible for deduction, clause (c)). The rate is “rates in force” for the type of gain (for example, the 12.5% rate on long-term gains in section 197). Whether the deduction is on the whole price or only the gain, and how a lower deduction certificate is obtained, depends on the Rules and the certificate procedure, which were not examined for this post.

Reporting foreign assets

Section 263(1)(a)(ix) requires a return of income from a person who is resident, other than not ordinarily resident, who held any asset (including a financial interest in an entity) located outside India or has signing authority in a foreign account at any time in the tax year. A non-resident or a not ordinarily resident individual is outside this clause. Other reasons for filing a return, such as taxable Indian income above the basic exemption limit or a loss to carry forward, still apply.

Practical points

  1. Count days carefully each year; the 182-day, 60-day, 120-day and ₹15 lakh tests depend on exact days in India and on income figures.
  2. Do not assume that “NRI under FEMA” means “non-resident under the Income-tax Act”. The two tests are different.
  3. Keep a Tax Residency Certificate and the other treaty documents ready if you want treaty benefit.
  4. File a return if tax was deducted and you want a refund of the excess.

How CSM & Co LLP can help

We determine residential status, file returns for non-residents, advise on treaty relief and handle lower-deduction applications and refund claims. Please reach out to our team and we will be happy to assist.

Frequently asked questions

How is an NRI’s residential status decided?

An individual is resident in India in a tax year if (a) in India for 182 days or more in that year, or (b) in India for 60 days or more in that year and for 365 days or more in the four preceding years (section 6(2)). A citizen of India who leaves India for employment outside India, or as a crew member of an Indian ship, is outside test (b) (section 6(3)). A citizen of India or a person of Indian origin who visits India is outside test (b) as well (section 6(4)), but if the person’s total income other than income from foreign sources exceeds ₹15 lakh, the 60 days becomes 120 days (section 6(5)).

What is “not ordinarily resident”?

A resident is not ordinarily resident if the individual was non-resident in nine of the ten preceding tax years, or was in India for 729 days or less in the seven preceding tax years (section 6(13)(a)); or is a citizen of India or person of Indian origin with Indian income above ₹15 lakh who was in India for 120 days or more but less than 182 days in the year (section 6(13)(b)); or is a citizen deemed resident under section 6(7) (section 6(13)(c)).

Who is deemed resident?

An Indian citizen who is not liable to tax in any other country or territory by reason of domicile, residence or similar criteria, and has total income above ₹15 lakh excluding income from foreign sources, is deemed resident in India (section 6(7)), but is treated as not ordinarily resident (section 6(13)(c)). Section 6(7) does not apply to a person who is resident under the ordinary tests (section 6(8)).

What income of an NRI is taxable in India?

Income received or deemed to be received in India, and income that accrues or arises, or is deemed to accrue or arise, in India (section 5(2)). Income that arises outside India and is not received in India is not taxed, and income is not taxed twice on the received basis once it is taxed on the accrual basis (section 5(4)).

Is NRE account interest taxable?

No. Interest on money in a Non-Resident (External) Account is not included in the total income of an individual resident outside India under FEMA, or one permitted by the RBI to maintain the account (Schedule IV, Sl. No. 1, read with section 11). NRO account interest is taxable.

Does an NRI need to report foreign assets in the Indian return?

The requirement to furnish a return because of foreign assets, or signing authority in a foreign account, applies to a resident who is not “not ordinarily resident” (section 263(1)(a)(ix)). A non-resident is outside that clause, though a return may still be needed for other reasons, such as income above the basic exemption limit.

Official sources

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.