How Can NRIs without PAN Card Avoid Higher TDS?

Indiafirst Life
• 13 Jun, 2025

How NRIs Can Avoid Higher TDS Without PAN Card

Non-Resident Indians (NRIs) are required to pay tax on income earned in India, just like resident Indians. This tax is often collected through TDS. But what is TDS? Tax Deducted At Source (TDS) is a system where the tax is deducted by the payer before the income is credited to the recipient. For instance, banks deduct TDS on interest earned from deposits, while companies deduct it on salaries or professional fees.

However, a key requirement for correct TDS processing is the availability of a Permanent Account Number (PAN). If an NRI fails to furnish a PAN, Indian tax laws mandate a higher TDS rate—typically 20% or more—regardless of the actual tax liability. This can lead to excess deduction, delayed refunds, and unnecessary hassle.

In this article, we explore how NRIs without a PAN card can legally avoid higher TDS and ensure tax compliance without paying more than required.

To avoid excessive TDS, meaning Tax Deducted At Source, NRIs can use tax-efficient strategies:

1. Open NRE/FCNR accounts

Interest on NRE (Non-Resident External) and FCNR (Foreign Currency NRE) deposits is completely tax-free for NRIs. By keeping savings in these accounts, you pay no tax or TDS on the interest. (In contrast, NRO account interest is taxable – typically 30% TDS – so shifting funds to NRE/FCNR can save tax.) For example, parking a deposit in an NRE account earns you full interest, whereas an NRO deposit would see a chunk deducted.

2. Invest In Mutual Funds and NRI Plans

Specialized NRI investment plans can reduce your tax. NRIs can start mutual fund SIPs via NRE/NRO accounts. Equity mutual funds have tax advantages – dividends have no TDS, and long-term capital gains above ₹1 lakh are taxed at just 10%. In contrast, fixed-deposit interest faces 20% TDS. NRIs can also invest in ULIPs or international funds, which often yield higher post-tax returns. These routes can outperform bank fixed deposits on an after-tax basis.

3. Invest In Indian Equities (PIS)

NRIs can use the Portfolio Investment Scheme (PIS) to buy Indian stocks or equity mutual funds with an NRE/NRO account. Equity gains are taxed as capital gains (for example, 10% on long-term gains) rather than withheld by TDS. This means investing in stocks or equity funds may result in lower tax in the long run.

4. Buy NRI Life Insurance (ULIPs)

Consider NRI life insurance policies, including term insurance for NRI in India and ULIPs. Premiums on these plans are deductible under Section 80C (up to ₹1.5 lakh), reducing your taxable income. Many ULIPs allow NRIs to pay from NRE accounts; the premiums get the 80C deduction and the maturity payout is usually tax-free (under Section 10(10D)). Term plans don’t build cash value, but they are straightforward – you pay a premium, get the tax deduction, and secure a tax-free death benefit.

5. Apply For A PAN

The simplest way to avoid higher TDS is to apply for a PAN. Once you have PAN, payments to you are taxed at the normal rates (as per Indian law or any tax treaty) instead of the penal 20%. NRIs can apply online from abroad. Having PAN also lets you invest more freely (e.g. buying Indian securities) and file tax returns in India.

6. Plan And File Taxes

Use an income tax calculator to estimate your actual liability. This helps to choose investments and structures that minimize tax. If too much tax has been deducted, file an Indian income tax return (NRIs can e-file using Form 67 if needed). By filing a return, you can claim back any excess TDS. For example, if 20% was deducted but your actual rate is 10%, you would get a refund of the extra 10%.

7. Additional Tips

NRIs cannot use forms 15G/15H to avoid TDS – those are for residents. However, you can invest in instruments like Tax Saving FDs. Use an FD calculator to understand the investment required. Also, keep track of your Form 26AS (tax credit statement) to verify that your TDS is recorded correctly. Finally, for any uncertainties, refer to the Income Tax e-filing portal or consult a qualified tax advisor. Note: Tax laws change often, so always check the latest rules or consult an expert.

By combining these strategies, NRIs without PAN card can significantly reduce the TDS withheld on their Indian income. The key is to use tax-exempt accounts (NRE/FCNR), invest via NRI-friendly plans or equities, and ultimately obtain a PAN. Planning with an income tax calculator and filing returns ensures you pay only the appropriate tax and can claim refunds if needed.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.