NRI Taxation

TDS on NRI Investments in India: A Plain-English Guide

June 13, 2026 · Rahul Rajgopal · 5 min read

Many NRIs are surprised the first time they see tax deducted from their India income or investment proceeds, often at a rate that feels steep. This is tax deducted at source, or TDS, and for NRIs it works a little differently than it does for residents. Understanding it removes most of the surprise, and in many cases lets you reduce the deduction legitimately.

Why NRIs see higher TDS

For residents, TDS on many kinds of income is modest or can be avoided with a simple declaration. For NRIs, the default rates are generally higher, because the tax department wants to ensure tax is collected upfront from someone who is not ordinarily filing and present in India. So interest on an NRO account, capital gains on investments, and rent can all attract TDS at rates that look high at first glance.

It helps to remember that TDS is not your final tax. It is an advance collection. If too much was deducted relative to your actual liability, you claim the excess back when you file your return.

Where it commonly applies

NRIs most often encounter TDS on NRO interest, on capital gains when redeeming mutual funds or selling shares, and on the sale of property in India. The property case is the one that catches people out, because the buyer is responsible for deducting and depositing the tax, and getting that step wrong creates problems for both sides.

Two ways to reduce it

The first lever is your tax treaty. If your country of residence has a DTAA with India, you may be entitled to a lower rate on income such as interest, but only if you actively claim it with a Tax Residency Certificate and Form 10F. Without those, the higher default applies.

The second lever is a lower or nil deduction certificate. Under Section 197 of the Income Tax Act, an NRI can apply to the tax department for a certificate authorising tax to be deducted at a reduced rate, or not at all, where the actual liability is lower than the default TDS would suggest. This is especially useful for large one-off events like a property sale, where the default deduction can tie up a significant sum until you reclaim it.

The practical takeaway

The high number on the deduction is rarely the real tax. The two things that genuinely change your outcome are claiming your treaty benefit correctly and, for large transactions, arranging a lower-deduction certificate in advance. Both have to be set up before the income is paid, not after, which is why this is worth thinking about ahead of a redemption or a sale rather than at filing time.

Rahul Rajgopal Wealth Advisor · SEBI Registration No. INA000021933 · BASL Membership: 2446
Registration granted by SEBI and membership of BASL do not guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. This article is for educational purposes only and does not constitute personalised investment advice. Read all scheme related documents carefully before investing.