New TDS and Dividend Tax Rules for NRIs in 2026
Introduction
When an NRI earns income from Indian investments, dividends from stocks, interest from bank accounts, or capital gains from property sales, India deducts Tax Deducted at Source (TDS) before paying out the money. Many NRIs are shocked to find 20–30% of their income withheld by Indian companies or banks before they even receive it. Understanding how TDS works, what rates apply, and how to claim refunds can save NRIs lakhs of rupees annually.
What is TDS for NRIs?
TDS (Tax Deducted at Source) is a mechanism where the payer deducts income tax at source before paying NRIs. Unlike resident Indians, NRIs face higher TDS rates because India cannot track their total income to assess proper tax. The TDS is deposited to the government; the NRI can claim a refund if excess tax was deducted by filing an ITR.
TDS Rates for NRIs in 2026
Note: Surcharge and health & education cess of 4% applies additionally, making effective rates higher.
TDS on Dividends Explained
Since April 2020, dividends from Indian companies are taxable in the hands of investors (earlier, DDT was paid by the company). For NRIs:
- Default TDS: 20% on dividend
- With DTAA: 10–15% depending on the country's treaty
- How to reduce: Submit Form 15G/15H is NOT available to NRIs; use DTAA route instead
Example: ₹1,00,000 Dividend from TCS
- Without DTAA: TCS deducts ₹20,600 (20% + 3% surcharge + 4% cess)
- With DTAA (India-UAE): TCS deducts only ₹10,300 (10%)
- Saving: ₹10,300 per ₹1 lakh dividend substantial for large holdings
TDS on NRO Fixed Deposits
NRO (Non-Resident Ordinary) account interest is fully taxable:
- Default TDS: 30% + surcharge + cess = 31.2% for most NRIs
- With DTAA: Reduced to 10–15% depending on country
- Note: NRE FD interest is completely exempt from Indian tax a major planning tool for NRIs
TDS on Capital Gains from Property Sale
Selling Indian property is a major TDS trigger for NRIs:
- STCG (property held under 2 years): TDS at 30%
- LTCG (property held over 2 years): TDS at 20% (with indexation benefit on cost)
- Key issue: TDS is on the entire sale consideration (not just gain), unless buyer applies for lower deduction certificate
- Solution: Get a Lower Deduction Certificate (LDC/Certificate u/s 197) from the Income Tax officer before the sale
Lower Deduction Certificate: Critical for Property Sales
Without LDC, the buyer must deduct 20–30% TDS on the FULL sale price. Example:
- Property sold for ₹1 crore
- Actual gain: ₹30 lakh
- Without LDC: Buyer deducts ₹20 lakh TDS (20% on ₹1 crore)
- With LDC (based on actual taxable gain): TDS may be only ₹6 lakh
- Apply for LDC 2–3 months before property sale
How to Claim TDS Refund
If excess TDS was deducted, NRIs can claim refund by filing ITR (Income Tax Return) in India:
- File ITR-2 (for NRIs with capital gains, salary, and other income)
- Declare all Indian income for the financial year
- Compute actual tax liability at correct rates
- Claim TDS already deducted (available in Form 26AS / AIS on Income Tax portal)
- If TDS > actual tax = REFUND issued to your NRE/NRO account
Where to Find TDS Details
- Form 26AS: Income Tax portal (www.incometax.gov.in) shows all TDS deducted against your PAN
- Annual Information Statement (AIS): More detailed; shows all financial transactions linked to your PAN
Key 2026 Updates for NRI TDS
1. Section 194LBA - REIT/InvIT Distributions
TDS on distributions from REITs and InvITs to NRI unitholders now at 5% for interest component and 10% for dividend component (subject to DTAA).
2. TDS on Mutual Fund Units
When NRI redeems mutual fund units, the AMC deducts TDS:
- Equity funds LTCG: 10%
- Equity funds STCG: 15%
- Debt funds: 20% with indexation for LTCG; 30% for STCG
3. Digital Process Improvement
Form 10F can now be filed online (from 2023) without needing to register a PAN if you don't have one making DTAA claims easier.
NRE vs NRO Accounts: TDS Impact
Strategy: Keep foreign salary in NRE FD for tax-free returns. Route Indian income (rent, dividends) through NRO account.
Expert Tips
- Apply for LDC before selling Indian property saves massive TDS deduction
- File ITR every year even if below taxable limit to claim TDS refunds
- Submit Form 10F and TRC before receiving dividends/interest can't claim DTAA benefit retrospectively for the same year
- Prefer NRE FD over NRO FD for tax efficiency on savings
- Track Form 26AS ensure all TDS deducted is reflected; disputes are easier to resolve before filing ITR
Conclusion
TDS on NRI income can be substantial 20–30% on dividends and interest, and up to 30% on property sale proceeds. But with proper planning, submitting Form 10F to claim DTAA benefits, applying for Lower Deduction Certificates before property sales, and filing ITR to claim refunds. NRIs can significantly reduce their effective Indian tax burden. In 2026, with digital processes improving and DTAA benefits becoming easier to claim, there's no reason for NRIs to overpay taxes on their Indian investments.
Disclaimer: Tax laws change frequently and vary by country. This article is for general information only. Please consult a qualified CA or international tax advisor for advice specific to your situation.
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