NRI Income Tax Compliance

Difference Between TDS and ITR for NRIs

Updated on: July 24, 20267 mins Editorial Standards

Difference Between TDS and Income Tax Return

For NRIs earning income in India through rent, bank interst, dividend, or property sale, it's quite common to come across two terms that create a lot of confusion. These terms are TDS and ITR. Many NRIs have this wrong assumption that their tax obligation gets over once tax is deducted at source.

This wrong assumption often costs them lakhs of rupees in unclaimed refunds every year. In this blog, we will cover TDS vs ITR for NRIs in simple terms, know the current rates, and understand when and why you need to file a return even after TDS has been deducted already.

Key Takeaways

TDS deducted by banks, tenants, or companies is just a provisional estimate at flat high rates and not your actual tax liability.
Filing an ITR is the only way to claim refunds from the government if excess TDS has been deducted.
Submitting Form 10F and a tax residency certificate can reduce TDS rates from 20-30% to as low as 10-15% under DTAA treaty benefits
ITR-1 is strictly for Indian residents, and NRIs must file ITR-2 for salary, property, capital gains, and ITR-3 for business income.
Even if your Indian income is below the exemption limit, but TDS was deducted, filing an ITR is still important to recover every rupee withheld.

What is TDS for NRIs?

Under Section 195 of the Income Tax Act, TDS (Tax Deducted at Source) is a mechanism where anyone paying you, like a bank, tenant, or company, deducts income tax before the money reaches you and deposits it directly with the government.

For Non-Resident Indians (NRIs), this tax is automatically taken out at a much higher flat rate than for residents because the government cannot easily track an NRI's global income. The most important thing to remember is that this high TDS rate is just a temporary estimate, not your final tax bill,

Common TDS Rates for NRIs for FY 2025-26

Here are the common TDS rates for NRIs based on the type of income:

Type of Income	TDS Rate
Dividend income	20% + surcharge & cess
Rental income	31.2% (30% + surcharge + cess)
Interest on NRO account/deposits	30% + surcharge & cess
Long-term capital gains on property held for more than 24 months	13%
Short-term capital gains on property	As per the slab rate
Other payments under Section 195	Typically 20%, subject to DTAA treaty

**Note: No TDS applies on interest on NRE and FCNR accounts as these are fully tax-exempt in India under Section 10(4)(iii) and 10(15)(iv). However, you must still report it in your ITR as exempt income.

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What is ITR for NRIs?

An Income Tax Return (ITR) is the annual filing where you report your total Indian income, apply the correct deductions and exemptions, calculate your actual tax liability, and reconcile it against the TDS already deducted.

Now, this is where the two terms connect. TDS is the tax collected automatically throughout the year, while an ITR is the final record that shows the government exactly what you owe and helps you get back any excess money you already paid.

When Does an NRI Need to File an ITR?

An NRI must mandatorily file an ITR if their total Indian income exceeds the basic exemption limit, which is:

Old Regime: ₹2.5 lakh
New Regime: ₹4 lakh (default for FY 2025-26)

Even if your income is below the exemption limit, you should file an ITR if excess TDS has been deducted and you wish to claim a refund. This is because filing an ITR is the only way to claim a refund for the excess TDS deducted.

For FY 2025-26, the deadline to file an ITR for NRIs with no audit cases is the 31st of July 2026 (unless extended).

Why TDS Alone Is Not Enough?

The Indian government deducts tax (TDS) automatically from your income at flat, high rates. They don't check your actual financial situation automatically. So, if you don't file an ITR, you will lose the money because the system ignores:

Your Actual Tax Slab: TDS on rent (31.2%) is often far higher than what you might actually owe if taxed at your real slab rate.
DTAA Benefits: If your residence country has DTAA with India, you may be eligible to cut your tax rates in half (often 10-15%, instead of 20-30%) on interest, dividends, and royalties.
Deductions & Exemptions: Standard deduction on rental income (30%), property tax paid, basic exemption limit, and Section 80C type deductions (where applicable) all reduce your real tax obligation.
Capital Losses: Losses incurred from other transactions can offset gains, reducing the tax you actually owe.

If you do not file your ITR within the applicable time limits, you may lose the opportunity to claim a refund of excess TDS.

Real Example

Sakshi is an NRI who holds a fixed deposit in an NRO account and earns ₹1 lakh in interest, with no other Indian income. The bank automatically deducts TDS at 30%, which is ₹30,000. However, since her total Indian income is below the ₹2.5 lakh threshold (or ₹4 lakh under the new regime), she owes zero tax.

Also, her entire ₹30,000 remains with the tax department instead of being refunded unless she files an ITR.

How to Reduce Excess TDS?

Instead of waiting for a refund after excess payments, NRIs can take the following steps:

Submit Form 10F and a tax residency certificate (TRC) to your payer to claim DTAA benefits and reduce the TDS at source.
Before a transaction, apply for a lower or a Nil deduction certificate (Form 13). This can be very useful before selling a property, where TDS can otherwise be deducted on the full sale value rather than the actual gain.
Submit your PAN to every payer. Failing to do this can attract higher TDS under Section 206AA.

Which ITR Forms Should NRIs Use?

For NRIs, the correct ITR forms depend entirely on the source of income:

ITR-2: For NRIs with income from salary, house property, capital gains, or other sources (no business income).
ITR-3: For NRIs with business or professional income in India

NRIs cannot file ITR-1, as it is strictly reserved for resident Indians.

Quick Comparison Between ITR vs TDS

The table below lists the key differences between TDS vs ITR for NRIs:

Factor	TDS (Tax Deducted at Source)	ITR (Income Tax Return)
What is it	TDS is the tax deducted upfront by the payer	ITR is the annual return filed to report total income
When it happens	At the time of payment/credit	Once a year, after the end of the financial year
Who does it	Payer (bank, tenant, buyer)	The NRI taxpayer
Purpose	Provisional tax collection	Final tax calculation and reconciliation
Can it be reduced?	Yes, by submitting DTAA/Form 13	Not applicable as this is where you claim refunds
Is filing mandatory?	Not applicable as it is deducted automatically	Yes, if income exceeds the exemption limit or the refund is due

What are the Key Documents to Keep Ready?

You must keep the following documents ready before filing the ITR:

Form 16A/ TDS certificate from payers
Rent receipts and property tax records
Bank interest certificates for NRO/NRE accounts
Broker contract notes for capital gains
Tax residency certificate for DTAA claims
Form 26AS, AIS, and TIS (download from the income tax e-filing portal)

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To Conclude

TDS and ITR are not competing concepts; instead, they are two halves of the same process. TDS is collected by the government upfront, while ITR is used to tell them what you actually owe and claim back the rest. Failing to file ITR after TDS has been deducted will leave your money on the table.

If you also had tax deducted on Indian income this year, don't assume that your tax obligation ends here; file your return and claim your rightful refund. If you find it overwhelming, contact an expert at Savetaxs. Our experts can help you file an accurate ITR on time to ensure compliance and help you claim your refunds. Contact us right away as we are actively working 24/7 across all time zones.

Glossary

Best Judgment Assessment: The Best Assessment Judgement Performed by an Assessing Officer on the Financial Conditions of the Assesse.
Double Taxation Avoidance Agreement (DTAA): DTAA, an Agreement Signed Between the Countries to Avoid Double Taxation.
Exempt Income: Exempt Income, Non-taxable as Per the Income Tax Department, Like Agricultural Income, Etc.
House Property Income Tax: House Property Income Tax, Imposed on Housing Properties, on Income Earned From Renting Them.
Basic Exemption Limit: Basic Exemption Limit, Minimum Income Threshold to File the Income Tax Return.
Surcharge: Surcharge, an additional charge on income tax, added if you cross the thresholds.

Disclaimer

Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

About Author

Shubham Jain Founder & NRI Tax Advisor

Shubham Jain is the Founder of SaveTaxs and has extensive experience in Indian and NRI taxation. He advises individuals, NRIs, and businesses on tax filing, tax planning, capital gains, DTAA benefits, fund repatriation, and compliance matters. He regularly writes about taxation and related financial topics. His focus is on making complex tax concepts easy to understand. Through his articles, he helps taxpayers stay informed, avoid common mistakes, and stay compliant with Indian tax laws. See Full Bio

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Frequently Asked Questions

TDS is only an advance tax collection mechanism. Your actual tax liability may be higher or lower after considering the nature of your income, eligible deductions, capital gains provisions, and applicable DTAA benefits.

An NRI must file an ITR if they have taxable income in India, wish to claim a refund of excess TDS, need to carry forward losses, or are required to report certain transactions under the Income-tax Act.

Yes. If the TDS deducted exceeds your actual tax liability, you can claim the excess amount as a refund by filing your income tax return.

Most NRIs file ITR-2. However, NRIs who have business or professional income in India generally need to file ITR-3.

No. Filing an ITR does not reduce the TDS that has already been deducted. It allows you to adjust the TDS against your final tax liability and claim a refund if excess tax has been deducted.