CMA Ramesh Krishnan
Introduction: Tax Deducted at Source (TDS) is the first way of collection of any taxes. Under Income tax also TDS is the very important tax collection method. TDS under income tax varies based on the nature of transaction and payment by different sections, such as section.194A, 194B, 194C, 194I etc. Out of different TDS sections, section 195 is the very important section which covers the TDS on Non resident payments. Under globalisation scenario the business boundaries are not restricted with one country; it spread over all over the world. Accordingly tax laws are also differing. In our country the TDS on Non resident under section 195 is the unique section to identify the tax rates and deductions on our business transaction with non resident day to day basis. In this article I would like to discuss about the Frequently Asked Questions (FAQ) on TDS on Non resident payments under section 195 of Income tax act.

Q.1 What is the meaning of Non resident?

Ans : To decide the residential status of person under income tax, we need to check the basic and additional conditions and other criteria prescribed under section.6 of the Income tax act, 1961. Only Non resident covered under this section, Resident but not ordinary resident ( RNOR) not covered this section.

Q.2 Who is the Payer under section.195?

Ans: Under section.195 all the payers are covered irrespective of their status like Individual, HUF, and Firm & Corporate etc. So all the payers are responsible to deduct TDS under this section if they are making payment to non resident as per prescribed conditions.

Q.3 Who is the payee under section 195?

Ans: Under this section all the payees are covered whether Individual or Corporate or any other status. So making payment to non resident, not being company or to a foreign company covered under payee if they meet the non resident status under section.6 of the Income tax act.

Q.4 Which payments & expenses are covered under sec.195?

Ans:  As per this section any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”).

So following payment not required TDS deduction under this section

a. Interest referred under sections.195LB/LC/LD

b. Salary payment

c.  Dividend payment u/s.115-O

Above payments are exclude under this section from TDS deduction and all other payments are covered under this section. But payment against import is not comes under purview of TDS.

Q.5 What about the Salary & Dividend payment to Non resident?

Ans: Section.195 specifically excludes Salary and dividend payment, Salary payment to non resident covered u/s.192 not under section.195.  Dividend not taxable in the hands of recipient since the dividend distribution tax paid by the declaring company.

Q.6 When to deduct the TDS?

Ans: TDS has to be deducted at the time of credit or payment whichever is earlier. Crediting which means even crediting in suspense account or any other name called considered as deemed to be credited, accordingly the TDS will apply.

Q.7 What is the threshold limit for deduction of TDS?

Ans: Under this section, there is no threshold limit is prescribed, TDS need to be deducted the entire amount without any threshold limit.

Q.8. What is the TDS rate as per section.195?

Ans: Relevant rate in force as per chapter XVIIB.  Incase payee not having valid PAN, then TDS rate  as per rate prescribed chapter XVIIB or 20% whichever is higher will apply. While calculating TDS rates we need to consider the provisions under Double Taxation Avoidance Agreement (DTAA) for the relevant country if any. In case payee fulfilling all the conditions as prescribed in the DTAA then rates as per DTAA will apply. Generally rates under DTAA will be lower than normal TDS rates.

Q.9 What will be the exchange rate for TDS on non resident?

Ans: Exchange rate of Reserve Bank of India ( RBI) on the day which TDS required to be deducted has to be considered

Q. 10 What is DTAA?

Ans: Double Taxation Avoidance Agreement (DTAA) is the agreement between two countries with an objective to avoid taxation on same income in both countries. Presently India has the comprehensive DTAAs with more than 80 countries.

Q.11 What is the conditions & procedure to avail DTAA benefit by NR?

Ans: The Non Resident Deductee has to submit the following documents with deductor to avail the TDS rates as per DTAA

a.      Tax Residency Certificate (TRC)

b.      PAN card copy

c.       Self  declaration

d.     Passport copy & Visa copy (if any)

The above documents need to submit with deductor annual basis every year.

Q.12 What is Tax residency certificate and how & where to get that?

Ans: Tax Residency certificate (TRC) is the certificate duly verified and issued by the Government of the country of which NR claims to be a resident for the purpose of tax.  The TRC certificate can be obtained from the Government or Tax authorities of the particular country of NR.

Q.13  What are the details should contains in TRC?

Ans: A TRC should contain the following details

a.      Name of the assessee

b.      Status of the assessee (Individual, Firm, Company Etc.)

c.       Nationality

d.     Country

e.      Assessee Tax Identification or Unique Identification number of the relevant Country

f.        Residential status for the purpose of tax

g.      Validity Period of the certificate

h.      Address of the applicant

Q. 14 What is the procedure to deduct the TDS u/s.195?

Ans: Remitter as per section.195(6) & rule 37BB need to obtain the form 15CB from a Chartered Accountant while remitting the payment to non resident and need to file the form 15CA ( undertaking by remitter)  in online in the income tax website through their PAN login. After online preparation of form 15CA need to take print out and sign and submit along with form 15CB to their banker/AD to remit the payment. For every remittance, remitter need to above procedure to remit the payment.

Q.15 What details are required to obtain form 15CB certificate from a CA?

Ans: The following details need to be produced with CA for getting form 15 CB

Ø  Agreement and Invoices;

Ø  Payment details

Ø  Correspondences

Ø  Technical Advice – prove bonafides

Ø  Proof of services being rendered in case of Group Company transactions

Ø  E-mails etc regarding pricing in case of Group Company transactions

Ø  Remitting bank details

Ø  Rate of conversion of foreign currency

Q.16  Whether Non resident eligible for getting Nil deduction certificate?

Ans: Yes.  As per section.195 (3) & Rule 29B, a non resident can make the application to income tax department if he fulfils the following conditions

a.      Assessee has been regularly assessed to tax and has filed all returns of income due as on date of filling of application

b.      Not in default in respect of any tax, interest, penalty or any other sum

c.       Not subject to penalty u/s.271(1)(iii)

d.     Carrying on business in India continuously for at least 5 years and the value of the fixed assets in India exceeds Rs.50 Lakhs

Q.17  What is the validity of the certificate issued for Nil deduction?

Ans: Nil deduction certificate issued under section.195 (3) shall remain in force till the expiary of the certificate or cancel by the A. O whichever is earlier.

Q.18 Whether reimbursement of actual expenses covered u/s.195?

Ans: Since there is no income element in the reimbursement of expenses actually incurred by a non resident or foreign company not covered u/s.195. However the nature of transactions and payments depends upon the situation because different contradictory citations are available to justify for both the applicability and non applicability.

Q.19 What is the status of TDS deducted if after deduction the contract or work is cancelled?

Ans: There is cases that after making advance payment to Non resident or making partial payment to non resident the contract or work is cancelled by both parties. Such as case if any TDS deduction made while making payments, the same can be claimed from the department CIRCULAR NO. 7/2007 DATED 23-10-2007

Q.20 What will be the consequences of non complying of section.195?

Ans: following will be the consequences for non compliance of section 195

a. Disallowance of the particular expenses u/s.40a(i) if the TDS not at all deducted

b. If the TDS is deducted but not paid within time lime then interest @ 1.50 per month or part of the month from the date of deduction to date of deposit (Sec.201 (1A)

c. If the TDS deducted and not paid – Penalty equivalent to the TDS amount  Sec.221

d. TDS deducted short – Penalty equivalent to difference between actual deductible and deducted amount Sec.271C .

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64 responses to “FAQ – TDS on Non residents – Section 195”

  1. Sachin says:

    sir,
    i have to pay payment to Go daddy for domain , Advise me whats the rate of TDS deduct ? & tell me also other Advise if required.

  2. sandhya says:

    i have booked stall for Exhibition purpose in Sri lanka in INR 1,80,000/. Is their is TDS applicable or not? I want to pay this amount to Vendor. if applicable please tell mi TDS rate ?

  3. Hemakumar says:

    we deducted TDS and paid under section 195, how we can show in filing Quarterly Returns.. is it mandatory to file quarterly returns like 194C & 194J

  4. Deepak says:

    higher rate of TDS on Foreign Payment

  5. Varidhi Shayana says:

    Suppose I sell an immovable property for 1crore, with a TDS of 20 lakhs (NRI). Suppose I wish to repatriate half the net proceeds (ie, 40 lakhs). On 15CB, should the CA enter the TDS amount as 20 lakhs, or 10 lakhs? Thanks in advance for your answer.

  6. GONA CNS says:

    Dear Sir,

    My company recently started inspection services. We have been contracted by an Indian company for providing inspection services overseas. For performing such services overseas we hire freelancing individuals / companies, who do not have permanent establishment in India nor PAN. For example recently inspection service has been provided by a German freelancer in Germany. He will send us invoice for his service. Now my question is do we need to deduct tax from his payable invoice?

    Second question how do I transfer him the money from companies current account? What formalities I need to complete? Can we use Paypal services linked to our company current account?

    Look forward to receive your kind answer.

    Best regards

  7. Shirish says:

    If an educational institute wants to make payment as Honorarium to a foreign faculty (Individual) for teaching the students in India, marking their answer papers. Also expenses are reimbursed to such foreign national who visit india. Some are covered under DTAA while some not. If they don’t have Indian PAN, Pl.let me know at what rate to deduct the TDS from such payment. How TDS can be minimised than the rates stipulated.

    Whether TRC is essential in above cases and advantages to foreign national of such TRC.

  8. LOKESHA HK says:

    Dear sir/madam,

    Please guide me

    Yearly trademark licence fee with Switzerland company. is it TDS Applicable or not

    IF Applicable please guide us what is rate of TDS and how to file it,

  9. Umamaheshwar says:

    Please let me know if there is any surcharge on 20% TDS (without PAN of Non Resident Company)? The payment is u/s 195 – Fees for Technical Services. Thanks.

  10. Manda Kadam says:

    Sir/Madam,
    I have booked stall in London for exhibition purpose @ USD 2500, USD 1=Rs.66.77 =166925/- is their TDS will applicable or not? if applicable please tell mi TDS rate?

  11. CA V K SHARMA says:

    Please advise us to deduct the TDS on LC Interest u/s 195

    • Makkhan L Yadav says:

      Hi CA V K Sharma
      Section 194LC cover of payment of NR By way of interest. This section applied money borrowed from abroad when money borrowed time between 1st July 2012 to 1st July 2017. Money borrowed from abroad as per this money borrowed from outside India when this amount borrowed under a loan agreement or by way of issue of long term bonds as approved by the Central government in this behalf.

      This section rate of TDS is 5%.

      Note- This section specially for small foreign investor than section 206AA (PAN no. Not furnish than rate of tds of higher) not applicable for here.

      Thanks

      Makkhan L Yadav

  12. Divyesh says:

    Sir,
    Do we need to compulsorily obtain TRC from the country of residence? OR the annual tax return copy /earning statement from the company is sufficient to prove to Indian Authority to avoid tax.

  13. himanshu says:

    is tds deduct on foreign payment of reiumbersement of expenses in indian company

  14. Sanmit says:

    Sir why is the text of Section 195 states that, “Any person responsible for paying to a non-resident, not being a company, or to a foreign company”? What is the meaning of the same?

    • Hari Kumar Chandu says:

      Hi Sanmit to cover both companies and individuals the sections has been framed as “Any person responsible for paying to a non-resident, not being a company, or to a foreign company”.

      1.Any person responsible for paying to a non-resident, not being a company = Individual
      2.To a foreign company = foreign company as per IT act

      Hope this is clear

  15. RAGHAVENDRARAO M says:

    sir please advice tds rate for uae payment towards equity arrange ment ( professional fee)

  16. OP Agrawal says:

    Good

  17. Raman says:

    We are going to take up a service job in Malaysia. For this job, we will have to sub-contract a portion of the job.

    Payment will be made by us to the Sub-contractor by us US Dollars.

    Do we deduct TDS? If yes, why, for the Sub-contractor has not done any job in India and our service is in Malaysia?

  18. Manjit Modi says:

    Hello, my company is from Spain. We are dedicated to the ceramic sector.

    We are rendering consulting services from Spain to India, ie. Fees for Technical Services.

    Regarding DTAA, when the Indian company has to pay us, they are deducting 20% and paying us 80 %.

    End of the year as DTAA, we are getting back this 20 % in our Spanish Corporate Tax.

    One Tax Consultant from India is telling us that a foreign company that is in receipt of taxable fees for technical services is required to submit a tax return with tax authorities EVEN though tax liability has been met by way of deduction of tax.

    He says that my Spanish company is “OBLIGED” to File Income Tax Return of Foreign Companies in India. If I do so, he says that in the future my withholding tax rate will be 10 %.
    In order to file a Income Tax Return in India, will have to obtained PAN from Indian authorities…

    Otherwise Indian tax authorities will start to calling us for information. If we not obtain a PAN there will be a Penalty of 10.000 INR, and if we don´t file an ITR 5.000 INR each year.
    Apart from that, there would be a Prosecution under section 276CC, and that could lead to heavy fines and that the law even provides for rigorous imprisonment.

    Is this true? Am I obliged to provide information to Indian Authorities?
    I don´t want to create PAN in India, I just want to continue working as says DTAA, keep collecting 80 % of my invoices.
    Can you help me?

    Thanks.

  19. B. Nagaraj says:

    My son who is in USA, has invested in LIC single premium NRI policies by issuing cheques from his NRE a/c. LIC has special scheme for Non Resident Indians Policies. They Register his NRE a/c details and credit the Insurance proceeds to his NRE a/c with the Bank.

    But the Bankers here, are insisting to credit the Insurance proceeds to his NRO a/c and compelling him to submit submit audited 15 CA/CB for crediting the Insurance proceeds back to his NRE a/c.
    As Insurance proceeds are not chargeable to tax in India, please let me know weather the Bankers are in order in insisting form 15 ca/cb and other papers.
    We are arguing that what is invested is repatriable funds and hence it should be credited to his NRE a/c directly, similar to Bank NRE Term deposit proceeds.
    Please let me know the correct procedure

    • Sandeep Yadav says:

      Dear sir,

      I invested some money in NRE FD with bank and some money in Life insurance policy. There is no TDS fro NRE FD but Life Insurance company is deducting 30% TDS on NRE money. This is right or not and why they are deducting TDS on NRE money.

      Also if they are deducting than can i file ITR and ask for Nil deduction.

  20. Ajay Kumar says:

    Sir
    If a person resident in India pays to NR for legal service of creating LLP in foreign country. Is TDS needs to be deducted?????

    • Makkhan L Yadav says:

      Hi ajay
      TDS Will be deducted at rate of 10% with pan no. If PAN no. Not provided than section 206AA Will be apply here.

  21. jinson says:

    what is the TDS amount to be deducted in case of annual website subscription payment for educational use to UK by a army institute?

  22. Abhay says:

    Thanks for a detailed guidance indeed. I have one question : Is this only applicable for remittances in INR or is irrespective of currency ?

    Let me explain 2 cases :

    a) Suppose an exporter pays his non-resident technical consultant from the export payment (in foreign currency). The consultant provides the service sitting in his home country.

    b) A resident Indian company’s foreign branch pays to the same supplier from their overseas bank account.

    For certain businesses which are small, the compliance and cost requirements for remitting money and depositing the tax (Form CA / CB) is prohibitive, especially for payment of lesser denomination. Another problem is that many non-resident consultants will refuse to work if they find that they need to do so many paper work to get their tax-credit – 10-20% withheld in India

    Comment / clarification / guidance on this from an expert like you will benefit us all. Thank you.

  23. Rajat Gupta says:

    Dear Sir

    I would like to ask regarding any loophole in case of payment made to non resident for due diligence fees and it is written in agreement that tax if any would be borned by my company.now I dont want to pay tax. is there any loophole either through treaty or any other provision.

    thanks & regards.

  24. R.C. SHARMA says:

    Sir,
    We have limited company and we import raw material from a non resident co. and pay commission to non resident co . My query is that are we liable to deduct Tax u/s 195, on commission paid outside India on purchases, to a non resident co. The Non resident co assembles the material from different suppliers outside India makes payment to them and issue a bill in our name separately for material and buying commission.

  25. Mohit Lungikar says:

    Dear Sir,

    Plrease advice

    what in case of external Commercial borrowing in specified period and PAN card of the deductee is not available.
    then by what rate we should deduct TDS.?

  26. samit bhawsar says:

    If i am an NRI (bahrain) ,iam having 2 life insurance policies one is pension plan which has no sum assured and second is another ulip plan which is having sum assured of 5 times of annual premium ,kindly suggest me wether iam liable to pay tds on my both the policies or not, if yes than what % tax i have to pay on each policies?

  27. Kishor D says:

    Dear Sir,

    It is a very good explanation about sec-195.
    Thanks.

  28. Abhinav says:

    very good article to understand section 195. My query is one of my Individual client has to make payment for exhibition participation out of India , whether TDS is applicable u/s 195 , the foreign firm has submitted TRC and claimed that no tax to be deduced in India. Please advise urgently as 15CB to be issued for remittance

  29. Abu sufiyan says:

    Dear Sir,

    In case of Rent, rent paid to Non resident of india through his NRO account. Monthly rental value is Rs.30000/-Per month. What is the obligation to deduction the TDS by the deductor? What is the tax rate?

    Please Kindly guide me.

  30. balayaar says:

    What to do If NRI does not have DTAA, what are the circumstances ???

  31. balayaar says:

    what to do if NRI doesn’t have DTAA…

  32. lokesh says:

    Dear Sir,
    please share your view on this:

    Our nature of business:

    We provide hosting services to different customers worldwide.
    We have contacts with datacenter and software vendors in USA. We take servers on rent from them and then provide these services to our clients.

    We pay them using Credit Cards and Debit Cards.

    Does TDS applicable on us?
    Do we need reverse service tax as well?

  33. Krishnakumar says:

    Hi,

    My query is that, if an NRI taken a money back policy in India, and the survival benefits, (Money Back) will come under this rule, or only the difference of the premium paid- maturity value will be taxes? or the TDS @30% applicable for all the money back

    Please clarify

  34. J.P.KUMAR says:

    I am having Senior Citizen Term Deposit (one year) with a private bank and my SB Account with the same bank is credited with monthly interest on the deposit after the deduction of TDS @ 10% by the bank. On the next day of credit in my SB account, I am transferring the amount in USD to my NRI daughter settled in USA for her monthly family maintenance expenses.

    What is the impact of TDS U/S 195 and is it necessary for me to generate Form 15 CA and submit the same with 15 CB from a Chartered Accountant to my bankers at the time of transferring the amount to my daughter’s USA bank account each time. Please guide me.

    Regards,
    Kumar.

  35. H M Mannunath says:

    sir,kindly let me know when TDS is not made in case sale of property. Since Sec 40a(i) is not effected when fixed assets is purchase.

  36. raj says:

    Whether payment made to NR for server rent situated in the country of NR is subject TDS u/s 195 of the act ?

  37. Dinesh Gupta says:

    We running an educational institute and We have to make the payment to a foreign faculty. Kindly let me know whether we need to deduct the TDS on payment to foreign faculty, if yes at what rate. is there any way we can avoid payment of TDS on above payment. Kindly explain.

    Thanks
    Regards
    Dinesh Gupta

  38. Amit sinha says:

    If Pvt Ltd company paid conference fess to non resident , whether tds provisions are applicable.
    if yes then rate of tds & section

  39. gaurav says:

    why do we deduct tds on import of services by non resident???

  40. PRAKASH says:

    AN INDIAN REGISTERED SOCIETY OF PROFESSIONALS(NOT CLAIMING ANY EXEMPTION UNDER INCOME TAX ACT) MAKES PMT OF HONORORIUM TO FOREIGN NATIONALS FOR LECTURES AT A SEMINAR ARRANGED IN INDIA . FOREIGN NATIONAL DO NOT HAVE PAN UNDER INDIAN INCOME TAX ACT . RATE OF TDS IF HE DO NOT PRODUCED TRC . WHETHER 20% TDS REQUIRED

  41. Vijay Sawhney says:

    correction to my earlier post..

    Please read it as “if DTAA is not applicable”

    Thanks

  42. Vijay Sawhney says:

    Hello
    This is a very nice article explaining the issue in details. However, it will be complete if you could also elucidate the issue of payment to an NRI in Rupees (not remittance) if DTAA, specially with regard to the following:
    1. TDS rate
    2. Whether Form 15CA/CB would still be required.
    3. TDS return form (27Q?) applicable
    4. Any documents required to be collected by the payer from the payee apart from PAN Card.
    Thanks

  43. nitin g chopde says:

    SIR A CONSUMER NAME M/S DADABHAI POTTERIES BALLARPUR HAS BEEN TDS DEDUCTED BY CHALLAN NO 00059 CHALLAN DATE 28/07/2014 UNDER SECTION 194A . THE PAYMENT OF TAX RS. 2651/- @20% (WITHOUT PAN NO) IS DEDUCTED AND PID ON 28/07/2014 BUT HIS TDS CERTIFICATE IS NOT GENERATED PLS HELP ME TO GENERATE HIS TDS CERTIFICATE

  44. V Nagarajan says:

    If an NRI sells shares of a listed company held for more than one year through a recognized stock exchange, any resulting Long-Term Capital Gain is exempted u/s 10(38) of the I T Act and, hence, no Tax is Dducted At Source. If the NRI desires to remit the sale proceeds from his NRO Bank A/C, how is it treated in Form 15 CB?

  45. H@rshit says:

    content are good & very easy to understand….Thanks….. 🙂

  46. Mukesh says:

    plz advise at what rate tds should be deducted for payment made to german co for job work and repair charges

  47. Mukesh says:

    Dear Team
    Plz advise at what rate of tds should be deducted for payment made to german co for job works and repair service??? and also payment to uae for service charges
    thnx

  48. Shiv says:

    please advise How we can apply PAN for a company out of India, This company finance us @ interest of 12% how we deposited the TDS and how mutch and which section

    thanks

    shiv

  49. Shiv says:

    if any ltd company out of India give the loans in India, and Indian company give interest to out of India. what is the rate of tds and what section will be deposited

  50. Deeptesh Pandya says:

    request you to please clarify ,as an NRI, US citizen ,I had invested in Life Insurance ULIPS, now on redemption of ulips after 7 years .30% TDS is deducted by Life Insurance Company, although , when i submitted on 24th March 2015, i was not told, now i am being told as USA does not have DTAA ,TDS of 30% of total Profit will be deducted .
    Kindly please help and clarify

  51. Shobhit says:

    IF a NRI is selling a property in India and the money is going to NRO account then does he needs to provide a TDS exemption certificate under Section 195 for avoiding 22.6% TDS on capital gain or is it only applicable if the money is going in abroad account?
    Can i C.A. certificate will be eligible for non deduction of tax under section 195?

  52. Amandeep says:

    Thanks for the article.

    IF a NRI is selling a property in India and the money is going to NRO account then does he needs to provide a TDS exemption certificate under Section 195 for avoiding 22.6% TDS on capital gain or is it only applicable if the money is going in abroad account?

    Regards,
    Amandeep

  53. Manoj says:

    please advise if the tax is to be deducted if the payment is for the purchase of equity shares of a unlisted Indian company from a foreign company

  54. Satheesh says:

    Dear Team
    I request your kind clarification on one point. A customer who is taking an insurance policy by showing his status as NR and post paying 5 years premium, he is deciding to surrender his policy. The total amount paid by him is 5 lacs and the profit he made out of that investment is assumed as 2 lacs, so TDS would be applicable on entire proceeds, ie; 7 lacs or only on the profit part, ie; 2 lacs ?

  55. Ravi Kumar says:

    Please clarify the following.

    An entity of USA providing services in USA for Indian Company and payment is being made from India.

    Indian company wants to withhold tax on payment.

    How does USA company can get full amount without withholding tax?

  56. Aman says:

    Dear Team,

    That is very good experience with all content was very much clear to understand the section 195.Thanks.

    Regards,
    Aman Deep Viz

  57. Anruddh Goel says:

    Please also guide if tax is required to be deducted u/s 195 if the Non Resident is receiving the payment in India in Indian Rupee and what procedure is required to be followed.

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