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section 195

TDS under section 195 For Non-Residents

Last Update Date : August 11, 2018

section 195

Different sections comprise of different provisions for deducting taxes and based on the nature of the transaction and payment, various sections are applied like 194A,194B,194C etc. Section 195 is applied for deducting TDS on non-resident, which covers all transactions/payments. This guide will cover section 195 in detail.

Who are Non-Residents?

An individual will be treated as a resident in India in any previous year if he/she is in India for:

  1. At least 182 days in that year, OR
  2. At least 365 days for 4 years preceding that year AND at least 60 days in that year.

An individual who does not satisfy both the conditions, as mentioned above, will be treated as a “non-resident” in that previous year. Also, the residential status needs of the person to whom payments are made needs to be checked.. If after verification, it is concluded that he/she is a non-resident, then Section 195 will apply. Only Non-resident are covered under this section and not Resident but not ordinary resident (RNOR). The status of a person as a resident or non-resident depends on his/her period of stay in India. The period of stay is counted in number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income-tax Act).

What is Section 195?

Every income/ sum of money has its share of TDS (Tax deducted at Source) along with deductions. Similarly, section 195 talks about deductions on income/payments belonging to non-residents. It provides provisions to avoid double taxation on the amount and also decides the tax rates and deductions on business transactions with non-residents.

Who is the Payer u/s 195?

Payer is the person who pays the non-resident or remits the payments. The payer can be:

  • An individual;
  • HUF (Hindu Undivided Family);
  • Firms;
  • Non-Residents;
  • Foreign Companies;
  • Persons having exempt income in India;
  • Juristic person (regardless of his income is chargeable to tax in India or not);

Who is the Payee u/s 195?

Under this section, the non-residents (as per section 6 of the Income Tax) whose sum is chargeable under this act are considered as payee.
TDS u/s 195 needs to be deducted as following:

  1. At the time of crediting a Party;
  2. On actual payment date;

Exchange Rate for TDS on Non-Residents

The Exchange rate of the Reserve Bank of India (RBI) must be considered on the day which TDS is required to be deducted.

What is the Threshold Limit for Deduction of TDS?

There is no such prescribed threshold limit under this section so TDS will be deducted from the entire amount/transaction/payment.

TDS Rate Chart u/s 195

Payment of any other sum to a Non-resident citizen other than company

Sources of Income Applicable TDS Rate
Income in respect of investment made by a Non-resident Indian Citizen 20
Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen. 10
Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112. 10
Income by way of long-term capital gains as referred to in Section 112A 10
Income by way of short-term capital gains referred to in Section 111A 15
Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A. 20
Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) 20
Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern where such royalty is in consideration for the transfer of all orany rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India 20
Income by way of royalty [not being royalty of the nature referred to point g) above E] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy. 20
Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the  Government of India, the agreement is in accordance with that policy 20
Any other income 10

Payment of Sum Includes Company, Which is not Domestic

Sources of Income Applicable TDS Rate
Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of Section 112 10
Income by way of long-term capital gains as referred to in Section 112A 10
Income by way of short-term capital gains referred to in Section 111A 15
Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A 20
Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) 20
Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st day of March 1976 where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India. 10
Income by way of royalty [not being royalty of the nature referred to in point e) above C] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy :

  • where the agreement is made after the 31st day of March 1961 but before the 1st day of April 1976
  • where the agreement is made after the 31st day of March 1976
 

 

 

 

 

50

10

Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy:

  • where the agreement is made after the 29th day of February 1964 but before the 1st day of April 1976
  • where the agreement is made after the 31st day of March 1976
 

 

 

 

50

10

Any other income 40

What is DTAA?

DTAA stands for Double Taxation Avoidance Agreement. It is an agreement between two countries on how to avoid double taxation on same income in both the countries. India at present shares complete DTAA’s with 80 other countries.

Conditions & Procedure to Avail DTAA Benefit by NR?

Certain documents are required to be submitted by the deductor /payer to gain the TDS rates as per DTAA

  1. Tax Residency Certificate (TRC)
  2. PAN card copies
  3. Self-Declaration
  4. Passport copy & Visa copy(If any)

These documents are needed to be submitted by the payer every year.

How and Where to get Tax Residency Certificate (TRC)?

Tax Residency certificate (TRC) is a verified and Government issued certificate of our country which non-residents claims to be a resident for tax. This certificate can be found from the Government or Tax authorities of the country of Non-Residents.

Details in TRC Certificate

TRC should include the following details:

  1. Name of the Assessee
  2. Status of the Assessee (Individual, Firm, Company Etc.)
  3. Nationality
  4. Country
  5. Assessee Tax Identification or Unique Identification number of the relevant Country
  6. Residential status for tax
  7. Validity Period of the certificate
  8. Address of the applicant

15CB and 15CA

15CA is a form that contains details about payments and transactions made by remitter and can be filled online/offline. 15CB is a certificate provided by Chartered Accountant certifying and providing clearance to the tax.

Eligibility to Avail “nil” Deduction Certificate

Under section 195(3), a non-resident can make an application to the income tax department if he/she fulfills the following conditions:

  1. If he is a regular taxpayer and has filed all his returns due as on date of filing of application.
  2. If you don’t have any dues with respect to tax, interest, penalty or any other sum.
  3. Not exposed to penalty u/s 271(1)(iii).
  4. Continuing business in India for at least 5 years and have value of the fixed assets in India exceeding Rs.50 Lakhs.

The nil certificate will remain in force till the expiry of the certificate or cancelled by Assessing Officer whichever is earlier.

Can TDS Deducted be Claimed Back?

There might be many cases where TDS is deducted by making advance payments or partial payments to non-residents and say, the ongoing contract or work is cancelled mutually by both parties. In such cases TDS deducted can be claimed back from department when filing your income tax return, in the form of a refund.

Punishments and Penalties in case of Non-Compliance with Section 195

As every section has some rules and regulations if anyone tries to break or violates it, he/she may face the following consequences:

  1. If withholding tax is not being deducted or not submitted at time then u/s.40a(i), his allowances are cancelled, deduction in year of payments.
  2. If the TDS is deducted by the payer, but not submitted within time then interest @ 1.50 per month or part of the month (varying for different situations and nature of payments) from the date of deduction to date of deposit (Sec.201 (1A)) is charged.
  3. If the TDS is deducted by payer and is not paid then – Penalty equivalent to the TDS amount is charged under Sec.221.
  4. TDS deducted short i.e. partial or a part of TDS is submitted and rest is withheld – Penalty faced is equivalent to difference between actual deductible and deducted amount Sec.271C i.e. not exceeding the amount of TDS.

No doubt, tax saving is difficult and complicated requiring special attention. Even after taking care of everything diligently we make small mistakes in same.  To ensure your TDS returns are filed accurately, enlist the aid of the experts at H&R Block India.

Still Have Questions?