Follow Us :
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 expiry 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.40(a)(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 .

Republished with Amendments

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

81 Comments

  1. Sioj Hsemu says:

    1. NRI living in USA owned home in India
    2. NRI passed away
    3. Nominee is a White foreign National without OCI or PAN.
    4. Nominee wants to sell spouses property
    Question 1. How spouse can pay TDS? What%?
    Question 2. How to take money from here to USA?

    Please answer
    Thx for your help

  2. Rajeev Agrawal says:

    a medical society in Europe asked by a hospital to conduct a medical course for 3 days in india and raised a bill to the hospital for a sum of 5981 Euro, which is to be remitted by the hospital in india to the medical society in Europe,
    Society has no PE in india, banks are asking for 15CA and 15CB , what is the rate of TDS , society is not having any PAN in india

  3. KRIPAL SINGH RAWAT says:

    If a foreigner (German Citizen) rents a house in India from an NRI ( Indian US citizen) and the rent is more than 1 lakh INR firstly how much TDS he has to deduct and also since he is Foreigner and does not have pan-card, how can he deposit the TDS to the income tax department in India.
    Also wanted to add that the German citizen does not earn any remuneration in India and the rent is also reimbursement to him from Germany directly.

  4. Maneesh Singh says:

    Dear Mr. Krishnan,
    As re Q9, exchange rate to be used is SBI TT buying rate and not RBI rate as you have mentioned. You may refer to Rule 26 of Income Tax Rules.

  5. Srinivas Potluri says:

    Sir, A Non-resident Indian who is having funds in his NRO account to be transferred to US. As per the latest provisions it is necessary to deduct tax @ 5% on the amounts to be remitted

  6. Parneet Singh says:

    Suppose (Co. in india) but we receive some technical services from a company located outside india i.e. USA and we have to make payment to that company i.e. USA. USA Company have provided PAN of India to US.

    So, we have to deduct TDS under Sec 195 by grossing up of amount payable to party or we have to deduct TDS amount from amount payable.

  7. Pravat says:

    Please sir clear my doubt that, if we get service as Trademark service from Bangladesh through consultancy situated in Bangladesh and service provider and service recipient both are Bangladesh and service provider provide service on behalf of Indian company and rise the bill on the name of Indian company with containing govt fee of trademark and consultancy fee. My doubt is, will we deducted TDS or not while payment is to be made through bank u/s 195. The service provider dont having any business in India. Please clear my doubt.

  8. Rajan T says:

    Sir
    I have applied TAN under individual catagory. Before getting TAN i have to register the sale deed for purchase of flat from NRI since he has to UK . Can i deduct TDS from sale deed amount and remit the tax to IT within sch.date. Only thing i donot have TAN number at the time of sale deed registration i.e at the time time of payment to NRI but remit the tax within due date with TAN number. Pl advise whethet i can go for sale deed registration and sub. Registrar can be convinced with any provision as per tax law. Pl advise

  9. Saurabh Kochar says:

    I HAVE REMITTED A NON-RESIDENT AN AMOUNT FOR PURCHASE OF A RESIDENTIAL FLAT IN PUNE BY DEPOSIT OF THE MONEY IN HIS NORMAL SAVINGS ACCOUNT IN A SCHEDULED BANK AND DEDUCTED AND DEPOSITED TAX UNDER SECTION 195. WHAT RETURN OF FORM I HAVE TO FILE AND ISSUE A TDS CERTIFICATE TO THE NON-RESIDENT

  10. S.SAMYNATHAN, ADVOCATE says:

    sir

    we have deducted and paid tds for royalty payment to spain company how we file form 27a they have issued trc and id no B 28635513 PLS clarify weather we have to put their pan no of spain company in 27a or not if any problem for foreign company to get refund from their tax authorities

  11. Kashif Ansari says:

    Sir please tell me whether tds will be applicable on Interest payable on term loan from bank ?

    I have booked for interest payable on term loan but tds not deducted , is it correct entry?

  12. Hari says:

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

    Kindly verify your answer. It appears that a CA ‘s service is mandatory to pay TDS amounts to government? Can’t individuals make online payments when they deduct tax on behalf of NRIs?

    Also, review provided details when TDS is related to purchase of property by residents from NRIs.

    Thanks.

  13. 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 ?

  14. 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

  15. 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.

  16. 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

  17. 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.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Post by Date
March 2024
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031