NRI Tax Services

Tax Exemption Certificate

Lower or Nil Rate of TDS:
The rate prescribed for TDS from NRI's income is the maximum rate of tax at which relevant Income is taxable in India . However, in majority of the cases of NRI, the actual tax liability is lower than this. However, the higher deduction of tax so made is generally not claimed as refund by filing Return of Income. In order to assist such situation, the Income-tax Act has provided procedure under section 197 whereby a NRI can apply to the Assessing officer (in prescribed form) to issue specific certificate authorising the payer of income (who normally deducts tax at highest prescribed rate) to deduct tax at a lower rate or nil rate. The NRI should estimate his income, tax liability and likely TDS and then apply for partial or complete Tax Exemption Certificate. The payer shall deduct tax in accordance with the certificate of the Assessing officer.

Set-off of Gains against losses:
When NRI has incurred loss on sale of shares and later when he sells other shares where he has capital gains, in such a case the NRI is eligible to claim set off provided both the transactions are in the same year i.e. during April- March financial year. In this case, NRI can apply for tax exemption certificate prior to the sale of shares of second lot where he has capital gains to ensure set - off and Nil or lower deduction of tax.

Re-investment of capital gains

The re-investment of capital gains/sales proceeds as presicribed may exempt the capital gain from tax partially or fully but nevertheless the tax is deducted on such capital gains.

1)	Who can apply for Tax Exemption Certificate ?
	Any Non Resident Indian from whose Income the Tax is likely to be deducted at source can apply to obtain exemption for tax deduction provided his/her taxable Income in India is less than Rs. 50,000/- per year. Or If the tax likely to be deducted is more than the estimated tax liability, is eligible to apply for certificate permitting deduction of tax at lower rate.

2)	What is the time taken to issue such certificates ?
	Normally the Exemption Certificate is issued within 30 Days.

3)	For how much period the exemption certificate is valid ?
	The income tax department generally issues Exemption Certificate for a period of 1 year.

4)	Action to be taken after obtaining exemption certificate
	Any NRI who has obtained Exemption Certificate need to submit it to the Payer of the income who will follow the certificate and not deduct the tax or may deduct at a lower rate as given.

5)	Misrepresentation in the application - consequences
	If there is genuine mistake in representation for obtaining the Exemption Certificate, no penalty is attracted. However you may have to pay interest if you are liable to pay income tax later on.