Non-resident Indians battle many challenges in India and high tax deduction at source is just one among them. TDS can be annoying considering the innumerable taxes that we all deal with already. When tax is deducted at source, it becomes a mandatory method of collecting taxes and makes the taxpayer feel choked and pushed against a wall. Moreover, income tax is deducted in the way of TDS for an entire year in advance and later tax returns are claimed which is a tedious process for both Indian nationals and NRIs.
What is TDS?
TDS stands for Tax Deducted at Source. It is an indirect tax collecting method followed in India according to the Income Tax Act, 1961. Managed by the Central Board of Direct taxes, TDS, falls under the Indian Revenue Services.
TDS norms for Indian Nationals
Indian nationals enjoy low TDS rates compared to NRIs. Salary, interest on securities, land rent and any other income earned by Indian Nationals who possess Permanent Account Number (PAN) is taxable at about 10% of the amount earned. Whereas, income earned through lotteries or any other games of that sort is taxed at 30%.
TDS norms for NRIs
More often than not, in many articles nowadays you might read about the whooping TDS rates for Non-resident Indians. TDS rates for NRIs ranges from 10% to 30%. Apart from general taxable income like salary, rent or interest on securities, NRIs are taxed for various other income categories like earnings under National Savings Scheme, repurchase of Mutual Fund and royalty income.
Changes made to NRI tax norms in Budget Meeting 2016
Addressing high TDS rates for NRIs, The Central Board of Direct Taxes (CBDT) reformed the taxation norms which now allows NRIs to avail lower tax rates under Section 206AA of the Income-Tax Act. CBDT has included a new rule, section 37BC, according to which non-residents can claim TDS benefits even without submitting their PAN. Previously, residents had to submit PAN under section 206AA to avail any tax benefits. In Budget Meeting, 2016, Arun Jaitley, Finance Minister confirmed that PAN is not mandatory for non-residents to enjoy tax benefits. In his speech, Jaitley addressed the 7 pillars which will support India’s economic growth and tax reforms to reduce compliance burden was one among them.
Saudi Indian Business Network (SIBN) recently conducted a lively debate with experts in the taxation industry to explain the budget meeting in layman’s terms. During the debate Vijay Soni, treasurer, SIBN, spoke about taxation policies in India and rationalization of TDS for NRIs without PAN. Echoing him, CA, S. C. Lekhwani, a senior practitioner from India joined the debate via video conferencing and explained the taxation provision for NRIs and foreign investors in India. After years of debating and procrastinating, The Government of India has ruled in favor of the NRIs which is definitely a good news for all the non-resident Indians out there.