How NRIs Cut Excess TDS With a Lower or Nil Deduction Certificate (Form 13) From the Assessing Officer

For a non-resident selling a flat in Pune, drawing rent from a Bengaluru property or earning interest on an NRO deposit, the single biggest cash-flow problem is not the eventual tax bill - it is the tax deducted at source before the money ever reaches them. Under Section 195 of the Income-tax Act 1961, the person paying an NRI must withhold tax at the rates in force, and on a property sale that deduction is calculated on the sale value at long-term capital-gains rates, not on the actual gain. The result is that lakhs of rupees sit locked with the exchequer for 12 to 18 months until a refund is processed after the return is filed.

The statutory escape route is a certificate for lower or nil deduction of tax at source under Section 197, applied for in Form No. 13. As the Income Tax Department's guidance sets out, any assessee - expressly including a non-resident - may apply to the jurisdictional Assessing Officer for a certificate authorising the payer to deduct no tax, or tax at a lower rate, where the assessee's estimated total tax liability justifies it. The application is filed electronically under digital signature or electronic verification code. This article explains where Form 13 sits in the FEMA and treaty framework, how the Indian tax is actually computed, how the foreign side interacts through the foreign tax credit, and how the released funds are repatriated.

FEMA / DTAA Position

Form 13 is a provision of tax law, not of exchange-control law, but the two frameworks meet at the point of remittance. The Foreign Exchange Management Act 1999 governs whether and how much an NRI may send abroad; the Income-tax Act, through Sections 195 and 197, governs how much tax is withheld before that remittance. A lower or nil deduction certificate reduces the tax leg, but the FEMA repatriation caps discussed later still apply independently.

The Double Taxation Avoidance Agreement (DTAA) sets the ceiling rate at which India may tax a particular stream of NRI income. Section 195 requires the payer to withhold at the rate in force under the Act or the applicable treaty rate, whichever is lower, provided the NRI furnishes a valid Tax Residency Certificate and Form 10F. A DTAA does not make income disappear; on capital gains India retains its taxing right at 12.5 per cent for long-term gains, and the treaty typically caps only interest, dividend and royalty rates. The table below shows the position under three of India's most-used treaties.

Rates are drawn from India's notified treaties with the United States (in force from 12 September 1991), the United Kingdom (26 October 1993) and the United Arab Emirates (22 September 1993). Note that the US treaty caps portfolio dividends at 25 per cent under Article 10, so for dividends the domestic 20 per cent rate is actually the lower figure - a good illustration of why the "whichever is lower" test in Section 195 must be run stream by stream rather than assumed in the NRI's favour.

Where the treaty rate is lower than the domestic rate, a Form 13 certificate can bake that lower rate directly into the payer's deduction, so the NRI does not have to over-withhold at the Act rate and then reclaim the treaty benefit through a return. This is the practical reason the certificate matters even when a treaty already offers relief.

Tax Treatment in India

The mechanics of over-deduction are clearest on a property sale. When an NRI sells Indian immovable property, the buyer is the payer under Section 195 and must deduct TDS. For a long-term asset - property held for more than 24 months - the gain is taxed at 12.5 per cent without indexation under the Budget 2024 regime effective 23 July 2024. Property acquired before that date may instead be taxed at 20 per cent with indexation under the grandfathering option, and the taxpayer takes whichever is lower.

The difficulty is the base. Section 195 obliges the buyer to deduct on the amount chargeable to tax, but a buyer who cannot compute the exact gain routinely deducts on the full sale consideration to stay safe. On a sale of Rs 1 crore where the actual long-term gain is only Rs 20 lakh, deducting at 12.5 per cent on the gain would be Rs 2.5 lakh, but deducting on the gross value inflates the withholding many times over. Add surcharge and the 4 per cent health and education cess and the locked-up sum grows further. A Form 13 certificate lets the Assessing Officer certify deduction on the correct chargeable gain, or at a reduced effective rate, ending the over-withholding.

Surcharge for an NRI follows the same slabs as for residents: 10 per cent where total income exceeds Rs 50 lakh, 15 per cent above Rs 1 crore, and 25 per cent above Rs 2 crore. In the new tax regime the surcharge is capped at 25 per cent - there is no 37 per cent rate in the new regime. Importantly, the surcharge on long-term capital gains is itself capped at 15 per cent regardless of the income level, which is a further reason the raw gross-value deduction over-states the true liability. You can model the combined figure on the NRI income-tax calculator and the rental case on the NRI rental-income tax calculator.

The relevant provisions sit together in the Act. Section 195 imposes the withholding obligation; Section 197 empowers the Assessing Officer to issue the lower or nil certificate; and the procedure is prescribed in Rule 28 and Rule 28AA of the Income-tax Rules. The table below summarises the route.

A critical point for non-residents: the self-declaration route through Form 15G or Form 15H is closed to them, because those forms are available only to residents. For an NRI, Form 13 is the only mechanism to secure nil or reduced withholding in advance rather than through a post-year refund. Our companion explainer on Section 195 TDS on payments to NRIs covers the payer's obligations in more detail.

The application is made to the Assessing Officer having jurisdiction over the non-resident, and is supported by an estimate of income, the computation of the expected gain or receipt, and documentary proof of cost, holding period and treaty eligibility. Because the certificate is prospective, filing well before the transaction closes - ideally before the sale deed is executed - is what preserves the cash-flow benefit. A certificate issued after the buyer has already deducted at the gross rate cannot claw the money back; it only helps future deductions within the same financial year.

Tax Treatment Abroad

An NRI is by definition tax-resident somewhere else, and that country will usually assert the right to tax the same India-sourced gain or income. The DTAA's function here is to prevent the same rupee being taxed twice, and the mechanism in most of India's treaties is the foreign tax credit rather than exemption. Under Article 24 of the India-US treaty, for example, the United States allows a credit in the country of residence for tax paid in India, subject to US domestic limitation rules.

The interaction with Form 13 is subtle but important. A foreign tax credit is generally limited to the tax actually and finally payable in India on that income - not the amount over-withheld and later refunded. If an NRI resident in the United States allows a buyer to deduct on the gross sale value, the excess is an Indian refund, not a creditable foreign tax, and claiming credit for the over-withheld amount in the US return would be incorrect. By right-sizing the Indian deduction to the true 12.5 per cent-on-gain liability, a Form 13 certificate aligns the Indian tax with the amount that is genuinely creditable abroad, avoiding a mismatch between the Indian refund cycle and the foreign filing year.

Timing differences compound this. India's financial year runs 1 April to 31 March, while the US tax year is the calendar year and the UK tax year runs 6 April to 5 April. An over-withholding in one Indian financial year that is refunded in the next can leave the NRI having claimed a credit in the wrong foreign year. A certificate that fixes the deduction up front removes that whipsaw, since relief abroad tracks the final Indian liability shown on the NRI income-tax calculator.

Two caveats apply. First, the credit is only as good as the documentation: the Form 16A TDS certificate and the Form 26AS entries must reflect the deduction, so the deductor must correctly report the lower-rate deduction against the certificate number. Second, treaty benefits on the foreign side still depend on the NRI's residence status there; a nil certificate in India does not, by itself, create a foreign exemption.

Repatriation Mechanics

Reducing the TDS is only half the exercise - the released proceeds must then leave India within FEMA's limits. The account into which the money is credited decides how freely it can be repatriated.

Sale proceeds of property and rental income are ordinarily credited to a Non-Resident Ordinary (NRO) account. From an NRO account, an NRI may repatriate up to USD 1 million per financial year, covering the balance of current income and capital receipts after applicable taxes, under the Reserve Bank of India's remittance-of-assets facility. Interest earned in an NRE or FCNR account, and the principal in those accounts, is freely repatriable without the USD 1 million cap. The table below sets out the distinction, and the repatriation calculator helps convert a rupee balance into the deployable foreign-currency figure.

The remittance itself requires the twin certificates - Form 15CA and Form 15CB. Form 15CB is a chartered accountant's certificate confirming the nature of the payment and that the correct tax has been deducted; Form 15CA is the remitter's undertaking, filed on the income-tax portal, that draws on the 15CB. Here the Form 13 certificate does real work: the CA issuing Form 15CB will reference the lower or nil deduction certificate as the authority for the reduced withholding, so a valid certificate keeps the remittance paperwork clean and consistent.

Because the USD 1 million ceiling operates per financial year, large sales sometimes have to be repatriated across two Indian financial years to stay within FEMA. An NRI who has minimised the Indian deduction through Form 13 keeps more of the sale value inside that USD 1 million envelope, rather than tied up in a refund claim. For the choice of account itself, our guide comparing NRE, NRO and FCNR accounts walks through the FEMA basis for each.

FAQ

Can an NRI file Form 15G or Form 15H instead of Form 13?

No. Form 15G and Form 15H are self-declarations available only to residents whose income falls below the taxable threshold. A non-resident cannot use them for any income stream. Under Section 197, the only route to a nil or lower deduction in advance for an NRI is Form No. 13, filed online to the Assessing Officer under digital signature or EVC.

On what value does a buyer deduct TDS when an NRI sells property?

Section 195 requires deduction on the amount chargeable to tax. For a long-term asset held more than 24 months the gain is taxed at 12.5 per cent under the post-23 July 2024 regime (or 20 per cent with indexation for property acquired before that date). In practice many buyers deduct on the full sale consideration to be safe, which is precisely the over-withholding a Form 13 certificate corrects by having the Assessing Officer certify deduction on the true gain.

Does a DTAA make an NRI's capital gains tax-free in India?

No. A treaty caps the rate on certain streams but does not exempt capital gains. India retains its taxing right on long-term gains at 12.5 per cent. What a treaty can do is reduce the withholding on interest, dividends or royalties, and Section 195 applies the treaty rate or the Act rate, whichever is lower, provided a valid Tax Residency Certificate and Form 10F are furnished.

How long is a lower or nil deduction certificate valid?

A certificate issued under Section 197 is valid for the financial year specified in it and cannot extend beyond that financial year. Because it is prospective, it should be obtained before the transaction - ideally before the sale deed is executed - since it cannot recover tax already deducted at the higher rate; it only governs deductions made after issue within the same year.

How does Form 13 affect the foreign tax credit in the country of residence?

A foreign tax credit generally tracks the tax finally payable in India, not an over-withheld amount that India later refunds. By fixing the Indian deduction at the correct liability, Form 13 aligns the creditable Indian tax with the amount claimed abroad - for instance under Article 24 of the India-US treaty - and avoids a mismatch between India's April-March year and the foreign tax year.

How much can an NRI repatriate after the sale?

From an NRO account, up to USD 1 million per financial year may be repatriated after applicable taxes, under the RBI's remittance-of-assets facility, supported by Form 15CA and a chartered accountant's Form 15CB. Balances and interest in NRE and FCNR accounts are fully repatriable without that cap. A repatriation calculator converts the post-tax rupee figure into deployable foreign currency.

Where is the certificate applied for and what supports the application?

The application is made in Form No. 13 to the Assessing Officer having jurisdiction over the non-resident, supported by an income estimate, the gain computation, proof of cost and holding period, and treaty documents where a treaty rate is claimed. The Assessing Officer decides the appropriate rate on the basis of the estimated existing and current-year liability under Rule 28AA of the Income-tax Rules.