Deduction is a collection mechanism, not a measure of what you owe
Almost every complaint an NRI has about Indian withholding comes from treating the deducted amount as the tax. It is not. It is an advance collection, taken by whoever pays you, credited against a liability that is worked out separately when you file.
That distinction matters because the two numbers routinely diverge, and for non-residents they diverge much more than for residents. Deduction is calculated on a gross payment. Liability is calculated on net income, after the deductions and exemptions the Act allows and after any treaty limit. Where those two calculations pull apart — and on rent, and on a property sale, they pull apart dramatically — the gap sits with the Indian exchequer until you take a step to retrieve it.
So the practical question is never "what is the rate". It is "what is the rate, on what base, and what can be done before the payment is made rather than after".
Why the non-resident rate sits above the resident one
The gap is structural rather than punitive, and it comes from three features working together.
First, the tables are built differently. Payments to residents run through a long schedule of specific entries — bank interest, rent, professional fees, contract payments — each with its own rate and its own threshold. For tax year 2026-27, interest paid by a bank to a resident is deducted only once it exceeds INR 50,000 in the year, or INR 1,00,000 for a senior citizen. Payments to a non-resident run instead through a single residuary entry covering "any interest… or any other sum chargeable under the provisions of this Act" other than salary. That entry has no threshold column at all. Deduction applies from the first rupee.
Second, surcharge and cess are added to non-resident deduction and not to resident deduction. The Finance Act's schedule of surcharge on tax deducted at source lists only non-resident payees, and the Health and Education Cess of 4% is expressly disapplied where the income subjected to deduction is paid to a resident or a domestic company. For a non-resident individual, surcharge runs at 10% of the tax where the income subject to deduction exceeds INR 50 lakh, and 15% above INR 1 crore, with higher bands above INR 2 crore for income other than dividends and the listed capital-gains categories — those are capped at 15%.
Third, the base is gross. The payer deducts on what it pays, not on what you will eventually be assessed on, because it has no visibility of your expenses, your other income or your other Indian deductions.
The rate card, income type by income type
For the financial year 2026-27, deduction from payments to a non-resident individual is made at the following rates before surcharge and cess. These are the rates in force set out in the Finance Act's schedule for deduction at source.
| Income type | Rate |
|---|---|
| Interest on an NRO balance, rent, professional fees, and other income | 30% |
| Investment income from a foreign exchange asset | 20% |
| Dividend from an Indian company | 20% |
| Royalty or fees for technical services | 20% |
| Short-term gains on STT-paid listed equity and equity funds | 20% |
| Long-term capital gains, including STT-paid listed equity above INR 1,25,000 | 12.5% |
The 30% line is the one that catches people, because it is the default. Anything that is not specifically categorised falls into it. Rent is not a listed category for non-residents, so rent is deducted at 30%. Professional fees paid to you by an Indian client are not a listed category, so they are deducted at 30%.
The 20% line for investment income is narrower than it first appears. It applies to income derived from a foreign exchange asset — broadly, shares in an Indian company, non-private-company debentures and deposits, and Central Government securities, acquired or subscribed with convertible foreign exchange. A rupee deposit funded from Indian earnings is not a foreign exchange asset, which is why NRO interest sits on the 30% line rather than the 20% one.
Interest: the account designation decides almost everything
Before any rate question arises, ask whether the interest is taxable at all. Interest on a Non-Resident (External) account held by a person resident outside India under FEMA is not included in total income. If it is not chargeable, there is nothing for the residuary entry to bite on, and no deduction. FCNR deposits sit in the same family.
NRO interest is a different matter entirely. It is ordinary Indian-source income, it is chargeable, and it is deducted at 30% plus surcharge and cess from the first rupee — against a resident's 10% above a threshold. For many NRIs this single line accounts for most of the over-deduction they experience, and it is also the line where a treaty helps most. Our guide to NRE, NRO and FCNR accounts works through which balances belong where.
Rent and property sales: the obligation lands on someone who is not you
When your payer is an individual rather than an institution, the obligation becomes a practical problem as well as a tax one.
A tenant paying rent to a resident landlord deducts at a modest rate above a monthly threshold and is exempted from having to obtain a tax deduction account number. A tenant paying rent to a non-resident landlord gets neither concession: deduction is at the residuary 30% plus surcharge and cess, from the first rupee, and the exemption from holding a deduction account number does not extend to payments to a non-resident. Most private tenants do not know this. See rental income and TDS on Indian property.
Property sales are sharper still. A buyer purchasing from a resident deducts 1% of the consideration, and only where the price exceeds INR 50 lakh. A buyer purchasing from a non-resident deducts under the residuary entry — 12.5% plus surcharge and cess where the gain is long-term — with no threshold, and critically, on a base the buyer will usually take as the whole consideration rather than the gain. On a long-held property that is a very large sum sitting with the department pending your return. The mechanics are covered in capital gains and TDS on selling Indian property.
What a treaty changes, and what it does not
Treaty relief operates through the statutory definition of "rates in force", which for these payments means the Finance Act rate or the rate specified in the applicable agreement, whichever applies — and the Act separately provides that treaty provisions apply to the extent they are more beneficial. A non-resident may claim that relief only on obtaining a certificate of residence from the government of the country concerned, together with such other documents and information as are prescribed.
The effect varies sharply by income type and by country, and it is not always downward:
- Under the India–United States convention, interest arising in India is capped at 15% in the general case, and 10% where it is paid on a loan granted by a bank or similar financial institution. Against a domestic 30%, that is a material reduction on NRO interest.
- Under the same convention, dividends are capped at 25% for a portfolio holder. That is above the domestic 20% rate, so the domestic rate governs and the treaty adds nothing.
- Under the India–United Kingdom convention, interest is capped at 15%, again 10% for a bona fide bank, and dividends at 10% in the general case.
Capital gains articles vary far more than interest and dividend articles, and several treaties leave India's taxing right untouched. Never assume a treaty helps until you have read the specific article. Our guide to DTAA relief and the Tax Residency Certificate covers the documentation side.
The certificate route under section 197
Where deduction on a gross amount will plainly overshoot, the intended remedy is a certificate obtained in advance. The provision was section 197 of the 1961 Act and is now section 395(1) of the Income-tax Act 2025, with the substance carried across: the payee applies to the Assessing Officer, and where the officer is satisfied that the payee's total income justifies it, a certificate is issued directing deduction at a lower rate or no deduction, binding on the payer for its validity period.
Three mechanical points determine whether this works.
- It has to exist before the payment. A certificate issued after completion does nothing for tax already deducted and remitted. On a property sale that means starting well before exchange.
- A PAN is a condition. Where a valid permanent account number is not furnished, no certificate can be granted, and deduction is made at the higher of the applicable rate or 20%, subject to a limited carve-out for prescribed non-resident payments.
- A parallel route exists for the payer. Where the payer considers that the whole of a sum would not be chargeable in the payee's hands, it can apply to the Assessing Officer for a determination of the appropriate proportion that is chargeable, and deduct only on that. Separately, a person paying any sum to a non-resident must furnish prescribed information about the payment — the framework the remittance certification forms sit inside.
Certificates can also be cancelled by the officer after giving the applicant an opportunity to be heard, so a certificate obtained on an optimistic estimate is not a settled position.
Getting the excess back
If deduction has already overshot, there is exactly one mechanism, and it is the return.
Tax deducted is treated as income received for the purpose of computing your income, and you are not called on to pay again to the extent it has been deducted. You file, compute the actual liability on net income at the correct rate, claim credit for the whole amount deducted, and the difference comes back as a refund. Simple interest runs on refunds at 0.5% for each month or part of a month, subject to a floor below which no interest is paid. For an individual with no business income and no audit requirement, the filing deadline for tax year 2026-27 falls on 31 July of the following financial year.
Two things routinely go wrong. The first is a reporting mismatch: the deductor quoted the wrong PAN, or filed its statement late, so the credit you claim does not match what the department sees. Check that the deduction appears against your PAN before filing rather than after. The second is the narrow exemption from filing available to a non-resident Indian whose income consists only of investment income or long-term gains on specified assets from which tax has been deducted. It is real, but using it means abandoning any refund — a poor trade wherever deduction exceeded liability.
Recovering the money is a separate question from moving it out of India, which runs on the FEMA side: balances in an NRO account are remittable up to USD 1 million per financial year along with other eligible assets. Repatriating funds from India covers that route.
Compliance caveat
This guide describes the general architecture of Indian withholding on payments to non-residents for the financial year 2026-27, under the Income-tax Act 2025 and the Finance Act rates for that year. Rates, thresholds and section numbering change with each Finance Act, and the 2025 Act renumbered provisions that older material still cites under the 1961 Act. It does not address deduction on salary, payments to foreign companies, transfer pricing, deduction obligations arising on business profits attributable to a permanent establishment, the treatment of Indian mutual fund distributions in detail, or the position of a returning resident whose status is changing mid-year — for which see RNOR planning. Treaty positions depend on the specific article and on your own residence, and no example here should be read across to another country. This is a simplified guide, not tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Confirm your position with a qualified Indian tax adviser before acting.
How Global Investments can help
Withholding is one of the few areas of Indian tax where almost all the value sits before the payment rather than after it, and where the person who has to act is often your tenant, your buyer or your bank rather than you. Our advisers work with clients holding Indian income across several types at once — deposits, property, listed holdings, professional receipts — to establish where deduction will overshoot the real liability, whether a treaty article genuinely helps for their country of residence, and whether a lower-deduction certificate is worth pursuing on the transaction timetable that actually exists. Where a sale or a change of residence is coming, we coordinate with Indian tax specialists so the sequencing is decided in advance rather than reconstructed in a refund claim.
Frequently asked questions
Why is TDS on my NRO interest 30% when a resident with the same deposit has 10% deducted?
Because the two sit in different tables. Deduction from payments to residents is a targeted list with a rate and a threshold for each entry, and bank interest is one of those entries. Deduction from payments to a non-resident runs through a single residuary entry covering any interest or any other sum chargeable to Indian tax, applied at the rates in force. For an ordinary NRO balance those rates land on the residuary line of 30%, with surcharge and cess added on top. Resident deduction carries neither.
Does a tax residency certificate on its own reduce the rate my bank deducts?
It is a precondition rather than a mechanism. A non-resident may claim relief under a treaty only where a certificate of residence has been obtained from the government of the country concerned and the other prescribed documents and information are provided. What actually lowers the rate is the treaty article itself, applied through the statutory definition of rates in force, which for these payments expressly includes the rate specified in the applicable agreement. Without the certificate the payer has no basis to apply the treaty, so it deducts at the domestic rate.
What is a section 197 certificate, and when is it worth applying for?
It is an order from the Assessing Officer directing the payer to deduct at a lower rate, or not at all, for the period of its validity. The provision sat in section 197 of the 1961 Act and now sits in section 395(1). It is worth the effort wherever deduction is calculated on a gross amount that bears little relation to your actual liability — a property sale where most of the consideration is return of capital, or rent against which mortgage interest and municipal taxes are deductible. It has to be in the payer's hands before payment, which is the part people miss.
Can I give my bank Form 15G or 15H to stop deduction on my NRO account?
No. Those self-declarations are available to a resident whose estimated total income falls below the taxable threshold, and a non-resident cannot make one. The route available to you is an application to the Assessing Officer for a certificate, which is a different process with a different evidential burden — you are asking the officer to accept an estimate of your total income for the year, not certifying it yourself. Attempting to file a declaration you are not entitled to make creates a compliance problem rather than solving one.
My buyer deducted tax on the whole sale price rather than on my gain. Can that be corrected?
Not retrospectively by the buyer, which is why the sequencing matters so much on property. Once tax has been deducted and paid over, your route is to file an Indian return, compute the actual gain, claim credit for the full amount deducted and recover the difference as a refund. The alternative, which has to be organised before completion, is a certificate fixing a lower deduction rate, or a determination of the chargeable proportion applied for by the buyer. Both take time that a transaction timetable rarely allows for unless it is planned in.
Do I need to file an Indian return if tax has already been deducted at source?
There is a narrow exemption for a non-resident Indian whose income for the year consisted only of investment income or long-term gains on specified assets, where tax has been deducted from it. Relying on it forecloses any refund, because a refund can only be claimed through a return. If deduction exceeded your liability — which is common wherever it was computed on a gross receipt, or where a treaty rate was available but not applied — filing is the only mechanism that returns the excess to you.
How long does a refund take, and is interest paid on the delay?
There is no fixed period, because it depends on when the return is processed and whether the deduction has been correctly reported against your PAN. Simple interest is payable on refunds at half a per cent for each month or part of a month, running broadly from the start of the year following the tax year where the return was filed on time. Interest is not payable where the refund is a small fraction of the tax determined. In practice the delay usually traces back to a mismatch between what the deductor reported and what you claimed.
This guide is general information only and does not constitute financial, legal or tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Indian tax and exchange control rules change and individual circumstances vary. Always seek advice from a qualified adviser in the relevant jurisdiction before acting.