TDS for NRIs: Why the Bank Takes a Third, and the Four Levers That Get It Back

The buyer of your Pune flat agreed to Rs 1.5 crore and wired you Rs 1.27 crore. The missing Rs 22.5 lakh was not a fee. It went to the Income Tax Department as TDS deducted on the entire sale value, even though your real gain was a fraction of that and your real tax a fraction again. Smaller but just as galling: your bank took Rs 31,200 on Rs 1,00,000 of NRO interest in a year where your total India income barely clears the Rs 4 lakh basic exemption and your true tax is near zero.

Both are the same problem. TDS on a non-resident is built to over-collect, because the person paying you cannot see your full tax picture and is personally on the hook if they deduct too little. So they deduct at the top of the scale and leave you to sort it out. Almost every rupee is recoverable. The only question worth your time is whether you fix it before the deduction or after, and on a property sale that single decision is worth roughly eighteen lakh of your own cash.

The 30-second answer: TDS on NRI income runs through Section 195 at flat, conservative rates: NRO interest at 31.2% (30% plus 4% cess, surcharge above Rs 50 lakh), rent at 31.2% on the gross, dividends at 20% plus cess, and property at 12.5% plus surcharge and cess but routinely on the full sale value, not the gain. It over-withholds because the payer cannot see your total income or treaty position. Four levers fix it: a Section 197 lower-deduction certificate (Form 13) before the payment, a DTAA rate backed by a TRC and Form 10F, Rule 37BC to dodge the 20% no-PAN penalty, and ITR-2 by July 31, 2026 to claim the rest back with Section 244A interest. On a property sale, the certificate is the lever that matters; on interest and dividends, the treaty is.

This guide is part of our NRI tax-filing series. For assembling the whole return, start with the NRI ITR filing guide for AY 2026-27, then come back here for the TDS detail.

This guide assumes you know what NRE, NRO and FCNR accounts are and what the USD 1 million repatriation cap is; if not, the accounts guide covers them. What follows is the part that costs money: the exact rate on each kind of India income, why each one over-withholds, the two structural traps that hit only non-residents, and the four levers, ranked by when each is actually worth using. Two worked examples carry rupee figures, and the honest read at the end tells you where to spend effort and where to let the refund do the work.

Why Section 195 deducts harder than the resident version

The thing residents never have to think about: there is no de minimis floor on a payment to a non-resident. A resident's bank leaves the first Rs 40,000 (Rs 50,000 for seniors) of interest alone before any TDS bites, and only deducts at 10% above that. Your NRO interest is deducted from the first rupee, at 30% plus cess, under Section 195, the catch-all that governs TDS on any sum other than salary paid to a non-resident that is chargeable in India. Section 195 carries none of the cushions built into the resident-facing provisions like 194A or 194-I. No threshold, no graduated rate, no benefit of the doubt.

The second structural reason is liability. Whoever pays you, your bank, your tenant, the buyer of your flat, is personally answerable to the department if they under-deduct, and can be treated as an assessee-in-default for the shortfall plus interest. Given that exposure, no rational payer guesses low. They deduct at the highest defensible rate and hand you the job of reclaiming the excess. This is not malice; it is risk transfer, and the entire cost of that transfer lands on your cash flow.

Hold one frame through everything below: TDS is withholding, not your final tax. Your final tax is computed on the return, on actual income after deductions and treaty relief. TDS is a prepayment against that bill. Overpay and you get the difference back with interest; underpay and you settle the balance. Every lever in this guide is just a way of making the prepayment match the bill sooner rather than later.

The rates that actually apply to NRI income, and why each one is wrong for you

Start with NRO interest, because it is where the gap between withheld and owed is widest. Interest on an NRO account or NRO fixed deposit is fully taxable and deducted at 30% plus 4% health and education cess, a flat 31.2%. Cross Rs 50 lakh of total India income and surcharge stacks on top. The bank applies 31.2% with no view of your slab. If your total India income for the year is Rs 6 lakh, the new-regime slabs (nil to Rs 4 lakh, then 5% on the next Rs 4 lakh) put your real tax in the low five figures, yet the bank has already taken nearly a third. That entire gap is your refund, and you have lent it to the government interest-light for the better part of a year. The contrast worth internalising: NRE and FCNR interest is exempt and attracts no TDS at all, which is the cleanest argument for routing what you can through NRE. The mechanics sit in tax on NRO interest.

Rent is the same disease in a different organ. A tenant of your Indian property must deduct on the rent under Section 195 at 31.2%, from the first rupee, on the gross. But your taxable rental income is the gross minus the 30% standard deduction under Section 24(a) minus home-loan interest under Section 24(b). On a Rs 50,000-a-month let, the tenant should be holding back roughly Rs 15,600 monthly against a real liability that, after the standard deduction and any loan interest, can be half that or less. The over-withholding is structural: TDS is on gross, tax is on net. A Section 197 certificate that tells the tenant to deduct on the net figure is the fix, detailed in tax on Indian rental income for NRIs.

Dividends from Indian companies are deducted at 20% plus 4% cess under Section 195. Here the Act rate is the problem and the treaty is the answer: most of India's treaties cap dividend withholding at 10% or 15%, so a DTAA claim genuinely moves money. The India-UAE treaty caps dividends at 10%; the India-US, India-UK and India-Canada treaties land at 15%. On a large dividend that is a real saving, and unlike the Act route, the treaty rate carries no surcharge or cess on top. The investing context is in capital gains tax for NRIs on shares and mutual funds.

For listed equity and equity mutual funds, the rate is fine and the base is fine. Long-term gains are deducted at 12.5% above the Rs 1.25 lakh annual exemption, short-term at 20%, and the registrar or exchange deducts on the gain, not the proceeds. The over-withholding crisis is reserved entirely for property, which earns its own section.

Property: where over-withholding stops being annoying and starts being painful

When an NRI sells immovable property, the buyer deducts under Section 195, and for a long-term holding (over 24 months) the gain is taxed at 12.5% plus surcharge and cess, an all-in figure of roughly 14.95% at the standard 15% surcharge band. That rate is defensible. The base is where it goes wrong. A buyer with no way to compute your gain, advised by a cautious CA, very often deducts 14.95% on the entire sale value rather than on the capital gain, because under-deducting makes the buyer the one chasing the department. On a Rs 1.5 crore flat with a Rs 30 lakh gain, that is the difference between roughly Rs 4.5 lakh of correct TDS and roughly Rs 22 lakh on the full price. The Rs 18 lakh gap is recoverable on your return, but you are out of pocket for the better part of a year while it grinds through.

One change worth knowing, and worth not over-reading. Until now, a buyer purchasing from an NRI had to obtain a TAN (Tax Deduction Account Number) and could not use the simple PAN-based Form 26QB route that residents use when buying from a resident seller. Budget 2026 removed that friction: from October 1, 2026, buyers can deposit NRI-property TDS through a PAN-based challan-cum-statement, with the exact form to be notified under the Income Tax Rules 2026. As of June 2026 this is not yet live, so a sale completing now still runs on the TAN route. The change is procedural only; the rate and the over-withholding problem are untouched, because the buyer's caution about the base has nothing to do with which number they file under. The sale process end to end is in selling property in India as an NRI. The narrow point for this guide: on a property sale, the only thing that protects your cash is getting the deduction base corrected before completion, not after.

Lever one: a Section 197 certificate, the only lever that matters on property

Section 197 lets you fix the over-withholding at source, before the money is taken. You apply for a certificate that instructs your named deductors to withhold at a lower rate, or nil, on specified income. The application is Form 13, filed online through the TRACES portal. The process has been faceless since 2021: you log in against your PAN, enter your estimated income, your tax computation and your justification, and upload supporting documents, recent ITRs, the income estimate, Form 26AS, and the PAN and TAN of each deductor you want covered. The Assessing Officer reviews it and, if satisfied, issues a certificate naming the reduced rate, the deductor and the income head. Your bank, tenant or buyer then deducts at that rate. The certificate is typically valid for the financial year or for the specific transaction.

Put real numbers on why this is non-negotiable for property. Arjun, an NRI in London, sells a Bengaluru flat in FY 2025-26 for Rs 1,50,00,000. He bought it years ago and his indexed cost is Rs 1,20,00,000, so his true gain is Rs 30,00,000 and his real tax, at 14.95% on the gain, is about Rs 4,48,500 before any reinvestment relief.

Without a certificate, the nervous buyer deducts 14.95% on the full Rs 1.5 crore: Rs 22,42,500. Arjun receives about Rs 1,27,57,500 and his Rs 17,94,000 of excess sits with the department until his refund clears, eight to twelve months on. With a Section 197 certificate, the Assessing Officer accepts the Rs 30,00,000 gain and the buyer deducts on it: Rs 4,48,500. Arjun receives about Rs 1,45,51,500 instead, keeping nearly Rs 18 lakh in his own hands. The final tax is identical either way; only the cash flow differs, and by a flat in a smaller city. That is why, on a property sale, the certificate is worth the CA fee and the few weeks of lead time without a second thought.

The honest framing on Section 197: it is unambiguously right for a property sale and for sizeable rent, where the gap between gross-basis or full-value TDS and real tax runs into lakhs. For a few thousand rupees of NRO interest it is not worth the paperwork; reclaim it on the return. And timing is everything. Start Form 13 weeks before completion, because if the buyer pays before the certificate is in hand, they are obliged to deduct at the full rate and you are back to the refund queue.

Lever two: a DTAA rate, the lever that matters on interest and dividends

India has Double Taxation Avoidance Agreements with the UK, UAE, USA, Canada and most countries where NRIs live, and where a treaty sets a lower withholding rate than the Act, you can claim it against the TDS itself, not merely against the final tax. The clearest wins are interest and dividends. The Act withholds NRO interest at 30%, but the India-US treaty caps interest at 15%, the India-UAE treaty at 12.5%, and the India-Canada treaty at 15%. On dividends, the Act takes 20% while the UAE treaty caps at 10% and the US, UK and Canada treaties at 15%. The single detail that makes this better than it looks: surcharge and cess are not added on top of a treaty rate. A 12.5% UAE interest rate is 12.5%, full stop, where the Act route would be 31.2% and climbing with surcharge. That alone can halve the withholding on a large NRO deposit.

To claim the treaty rate you give the payer a Tax Residency Certificate (TRC) from your country of residence, Form 10F filed electronically on the income tax portal, and usually a self-declaration of beneficial ownership and no permanent establishment in India. Two forward-looking notes. Form 10F is being renumbered Form 41 under the Income Tax Act 2025 from April 1, 2026, with the substance unchanged. And the country differences matter: a Gulf resident gets the largest treaty edge because the UAE levies no personal tax at home, so the Indian withholding is close to the whole bill; a US or UK resident still pays the treaty rate in India and then claims a foreign tax credit at home, so the treaty caps the Indian slice but does not erase the global tax. The TRC and Form 10F mechanics are in DTAA mechanics, TRC and Form 10F, the broader picture in DTAA relief for NRIs, and the specific tactic of handing your bank a TRC in reduce NRO TDS using DTAA.

Be honest about where the treaty does nothing. For Indian property capital gains, every treaty leaves the taxing right with India, so a DTAA will not reduce property-sale TDS; there, Section 197 is your only tool. The treaty is the lever for interest and dividends; the certificate is the lever for property and rent. Match the lever to the income, and do not waste a TRC trying to fix a property sale.

Lever three: Rule 37BC, the escape from the 20% no-PAN penalty

Most NRIs have a PAN, but if yours has lapsed or you have not yet obtained one, Section 206AA otherwise forces TDS at the higher of the normal rate or 20%, which can mean 20% on interest that a treaty would have capped at 12.5%. Two overrides rescue you. Rule 37BC disapplies the 20% floor for non-residents earning interest, royalty, fees for technical services or capital-asset transfers, provided you furnish the payer with your name, email, phone number, your foreign address, and a TRC, in place of a PAN. Separately, the Supreme Court has held that where a treaty prescribes a lower rate, that treaty rate prevails over Section 206AA even without a PAN, because a treaty overrides the domestic provision. So a UAE resident with no PAN can still hold an interest deduction to the 12.5% treaty rate, not 20%, by supplying the TRC and the Rule 37BC details.

The catch worth flagging: an inoperative PAN, typically from an unresolved Aadhaar-linking issue, is treated for many purposes as no PAN, so the 20% default can creep back in even where a treaty would allow less, and Rule 37BC then becomes your fallback. Keep your PAN active where you have one, and where you genuinely cannot, lean on Rule 37BC and the treaty rather than accepting the 20% hit. This is a small lever in frequency and a large one when it bites.

Lever four: reconcile Form 26AS, then claim the rest back through ITR-2

Before you can claim anything, you need to know what was actually deducted and credited to your PAN. Form 26AS, your annual tax credit statement on the income tax portal, lists the TDS deducted against your PAN by each deductor, the amount and the date, and it is the figure the department matches your refund claim against. The Annual Information Statement (AIS) is the wider net, capturing interest, dividends, securities transactions and property dealings whether or not TDS was deducted, and is where you catch income you forgot and discrepancies before the department does. The rule is non-negotiable: the TDS you claim must match Form 26AS. If a deductor quoted the wrong PAN or never deposited, the credit will not appear, and claiming it triggers a mismatch and a stalled refund. Chase the deductor to file a correction; no amount of arguing with the department conjures a credit that is not in the system.

Then file the return. NRIs file ITR-2, the form for capital gains, more than one house property, or foreign income and assets. The due date for FY 2025-26 (AY 2026-27) is July 31, 2026, with a belated window to December 31, 2026 that carries a Section 234F fee of up to Rs 5,000 and Section 234A interest, so do not drift into it. You report all India income, claim deductions and treaty relief, arrive at actual tax, set the Form 26AS-matched TDS against it, and the excess is your refund. After submitting, e-verify, through net banking on an Indian account, a digital signature, or by posting the signed ITR-V to CPC Bengaluru, because processing does not start until verification.

Watch the numbers on the NRO-interest case, because the gap is the entire point. Priya, an NRI in Dubai, has only Rs 6,00,000 of NRO fixed-deposit interest in FY 2025-26 and no other India income. The bank withheld 31.2% on the full amount: Rs 1,87,200, so she received Rs 4,12,800. Her real tax under the new-regime slabs (nil to Rs 4 lakh, then 5% on the Rs 2 lakh above it, plus 4% cess) is Rs 10,400. She files ITR-2 by July 31, 2026, sets the Rs 1,87,200 against the Rs 10,400, and claims Rs 1,76,800 back, plus Section 244A interest at 0.5% a month from April 1, 2026. The refund works, but note the counterfactual: had she handed the bank a UAE TRC and Form 10F up front, the 12.5% treaty rate would have held the deduction to Rs 75,000, and even that would have left a refund of about Rs 64,600 rather than Rs 1.77 lakh. She was out roughly Rs 1.77 lakh of her own money for most of a year for want of one form. The refund route is real; the cash-flow cost of relying on it is also real.

Two refund-mechanics points that catch people. Your bank account must be pre-validated on the portal and linked to your PAN, because refunds are paid only by direct credit and a stale or unvalidated account silently fails the credit. And remember that the Section 87A rebate is residents-only: the headline that income up to Rs 12 lakh is tax-free under the new regime does not apply to you, so your refund maths must assume the ordinary slabs apply from Rs 4 lakh upward.

When to use which lever

Your income	Default TDS	The trap	The right lever
NRO interest, small	31.2% on gross	No basic-exemption floor	Let it run, claim on ITR-2
NRO interest, large	31.2% plus surcharge	Surcharge stacks above Rs 50 lakh	DTAA rate (12.5 to 15%) via TRC + Form 10F
Rent	31.2% on gross	TDS on gross, tax on net	Section 197 to deduct on net
Dividends	20% plus cess	Act rate ignores treaty cap	DTAA rate (10 to 15%) via TRC + Form 10F
Listed equity / equity MF	12.5% / 20% on gain	Base is correct here	Usually nothing; reconcile 26AS
Property sale	14.95% on full value	Buyer over-withholds on the price	Section 197 before completion
Any income, no/inoperative PAN	20% under 206AA	Treaty rate ignored	Rule 37BC + TRC, or treaty rate

Edge cases

The buyer or tenant has no TAN, for now. To deduct and deposit, a payer currently needs a TAN, separate from a PAN, and many individual buyers and tenants do not have one. For a property purchase from an NRI completing before October 1, 2026, the buyer must still obtain a TAN; the PAN-based challan route arrives only from that date. If your buyer does not know this, the transaction can stall at the registration desk. Flag it the moment you agree terms.

TDS deducted but credited to the wrong PAN. If the deductor quotes the wrong PAN, the credit never reaches your Form 26AS and you cannot claim it, however clearly the money left your sale. The only remedy is to make the deductor file a TDS correction statement; the department will not credit you on the strength of a bank advice alone. Verify the PAN on every deduction at the time, not at filing.

Remitting the money out: the forms are changing names. Claiming a refund is one thing; getting your money abroad is another. Most NRO remittances need Form 15CA, a self-declaration on the portal, and usually Form 15CB, a CA's certificate that the right tax has been paid or deducted, with capital-account remittances such as property proceeds effectively always needing the CB. From April 1, 2026, under the Income Tax Act 2025, Form 15CA becomes Form 145 and Form 15CB becomes Form 146 (the CB-equivalent attaches to the Part C, high-value taxable leg), with the substance unchanged. The bank will not release funds without them, and NRO repatriation remains capped at USD 1 million per financial year across all your outward remittances pooled. The full process is in the NRO repatriation guide.

Surcharge can lift your real liability above the headline rate. Cross Rs 50 lakh of total India income and surcharge applies: 10% above Rs 50 lakh, 15% above Rs 1 crore, and 25% above Rs 2 crore under the new regime. A single large property gain can push you into a surcharge band for that year, so your real tax, and the TDS that should be deducted, is above the bare 12.5%. Build the surcharge into your Section 197 estimate so the certificate is not understated and you are not left with a top-up demand.

Planned reinvestment relief does not reduce TDS by itself. If you intend to claim Section 54 or 54F by reinvesting a property gain, the buyer cannot reduce TDS on the strength of your future intention. A Section 197 certificate can reflect the planned relief if you make the case to the Assessing Officer up front; otherwise you claim it on the return and wait for the refund.

The closing read

The honest read on NRI TDS is that the system is not broken, it is biased toward over-collecting, and the entire cost of that bias falls on your cash flow rather than your final tax. Every excess rupee comes back. So the decision is never whether to recover it; it is whether to fix the deduction before it happens or claim it after, and the right answer depends on the size of the gap.

For small NRO interest, do not bother with certificates or treaties. Let the 31.2% run, reconcile Form 26AS, and claim the refund on ITR-2 by July 31, 2026; the amounts do not justify the paperwork and Section 244A interest softens the wait. For interest and dividends of any real size, set up the DTAA route once: a TRC and Form 10F (Form 41 from April 2026) handed to your bank or company cuts the withholding to the treaty rate with no surcharge or cess on top, and you stop lending the government money interest-light. For a property sale, the Section 197 certificate is not optional in any practical sense. The gap between full-value TDS and gain-based TDS is the better part of eighteen lakh on a single ordinary flat, money you would otherwise wait most of a year to see again. Start Form 13 weeks before completion, pay the CA, and keep your own cash. And if your PAN has lapsed, do not accept the 20% default; Rule 37BC and the treaty rate protect you without one.

Whatever route you take, three habits prevent almost every avoidable delay: reconcile Form 26AS and the AIS before you file, match your TDS claim to them exactly, and keep your PAN active and your refund account pre-validated. Most refund delays are self-inflicted mismatches, not departmental obstruction. The single highest-leverage move on this entire list, for the reader who only does one thing, is the Section 197 certificate before a property sale; nothing else on the page saves as much money in as little time.

Related guides

• NRI ITR filing guide for AY 2026-27
• NRI residency and RNOR rules
• Tax on NRO interest
• Tax on Indian rental income for NRIs
• Capital gains tax for NRIs on shares and mutual funds
• DTAA relief for NRIs
• DTAA mechanics, TRC and Form 10F
• Reduce NRO TDS using DTAA
• NRE, NRO and FCNR accounts explained
• NRO repatriation process
• Selling property in India as an NRI
• Schedule FA foreign asset reporting
• All taxation guides

This guide is general information, not personal tax advice. Tax rates, surcharge bands, treaty positions and forms change, and the Income Tax Act 2025 takes effect from April 1, 2026, renumbering several forms and shifting the NRI-property TDS deposit to a PAN-based route from October 1, 2026. Your own position depends on your residency status, total income, country of residence and the specific treaty. Confirm the current rates, check Form 26AS and the AIS before filing, and consult a qualified chartered accountant before acting on anything here, especially a property sale or any repatriation.