Before we begin, it is important to clarify that tax will be deducted only on incomes that are liable to tax in India. If the income is tax free in India like long term capital gains from equity shares, there would be no TDS. Another important thing to remember is that you should be an NRI at the time of receiving the income. For instance, you may have purchased a long term debenture of a company while you were a resident Indian. But any interest that you receive during the period after becoming an NRI will be subject to TDS.
Interest on bank deposits
Interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts are tax free in India. Hence, there would be no TDS. However, interest earned on the Non Resident Ordinary Account (NRO) is taxable and will be subject to a TDS of 30 per cent. There is no basic exemption limit.
Interest on all other investments
Interest earned on all other investments like corporate deposits and bonds will be subject to TDS at 20 per cent. In all these cases, the company or party making the payment will deduct this tax.
Dividends from equity shares, equity mutual funds and debt mutual funds are exempt in the hands of the share or unit holder.
Capital gains on securities
- Equity shares and equity mutual funds (mutual funds with more than 65 per cent in equities)
Long term capital gains, that is profits made on sale after 1 year from date of purchase, on equity shares and equity mutual funds are exempt from tax. There will be no TDS applicable. Short term capital gains, that is, profits on sale within one year of date of purchase, will be subject to a TDS of 15 per cent.
- Debt mutual funds, corporate debentures
- Capital gains on other assets like house property, gold,
Long term capital gains will be subject to a TDS of 20 per cent. Short term capital gains will be subject to a TDS of 30 per cent.
There is no separate rate prescribed for TDS on rent paid to NRIs. Therefore, this would fall under the category of other income and be subject to a TDS of 30 per cent.
Professional services and royalty
If you are an NRI and are receiving a payment from a company in India for providing professional services, your income would be subject to TDS. The rates are slightly complicated. If your agreement is dated between 1st June 1997 and 30th May 2005, you would be subject to a TDS rate of 20 per cent. If your agreement is dated on or after 1st June 2005, you would be subject to a TDS rate of 10 per cent.
All other income
All other income that you earn as an NRI and which are liable for tax as per Indian laws, will be subject to a TDS of 30 per cent. All the above incomes would also be subject to surcharge and education cess. If the income exceeds Rs 10 lakh, a surcharge of 10 per cent would be applicable on the TDS. Further, an education cess of 3 per cent would apply to all TDS.
Tax rules on sale of property
The sale of your house attracts tax liabilities. For NRIs the tax implications are as per the Foreign Exchange Management Act (FEMA) 1999. To consider are transfer (sale) date for determining capital gains; agreement value for calculating profits and hence capital gains; transfer charges to the society, legal charges and loan outstanding, if any. If you sell your house within 3 years from the date of purchase and make a profit, then you are liable to pay short-term capital gains tax at the normal rate applicable to you. If the sale happens after 3 years from the date of purchase, then it attracts long-term capital gains tax at a flat rate of 20%. You can avoid the long-term capital gains tax by investing the profit after factoring the indexation benefits, in capital gains bonds such as NHAI, NABARD, REC and SIDBI or investing in another property in accordance with section 54 of the Income Tax Act within 6 months of the sale date.