Income earned or accrued by NRIs in India is subject to tax in India. Section 195 of the Income Tax Act covers Tax Deducted at Source (TDS) on payments made by non-resident Indians. The rates and conditions for TDS are different for Non Resident Indians compared to Indians. From time to time the tax rules in India get amended and in the same series only the recent amendments are made regarding TDS for the NRI policy holders. In order to simplify matters, here is a brief overview on taxation rules that have been amended recently and impact NRI policy holders.
Payments made by policy holders of Life Insurance, Annuity Products, Pension Plans and Health Insurance products who are NRIs will be subject to TDS. Life insurance policies that are exempt from this are those policies that are exempt under section 10(10D) of the Income-Tax Act 1961. There is also a provision in section 197A by which self-declaration in Form No.15G/15H for non-deduction of tax at source can be submitted by the policy holder. The policyholder will need to submit the following documents to ascertain the applicable tax rate
– Tax Residency Certificate (TRC), duly verified by the Government of the country of which the policyholder is a resident.
– Self attested Form 10F (since the TRCs issued by different countries may not contain all the particulars mandatorily required to be included under section 90(4) or 90A (4) of the Income-tax Act.
The Indian central Government has entered into Double Taxation Avoidance Agreement (DTAA) with many countries so that a taxpayer (who is resident of one of these countries) can claim beneficial provisions either of DTAA or of the domestic law to be applicable.
The rate of TDS will be determined as per rules of Income Tax Act 1961 and DTAA with residence country of the policy holder if it has been signed. For availing the benefits of DTAA, a policy holder needs to submit a Tax Residency Certificate (TRC) containing defined particulars and other required documents. The maximum rate will be 30% + surcharge and education cess. For the better understanding of the things, contacting a NRI tax services company would always provide fruitful results.