195:-TDS on Payment made to Non-Resident
Clause -1
(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, 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”) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force
Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
A) Payer/ deductor: Any person being Resident or Non-Resident
B) Payee / deductee : Non-Resident outside India
C) Types of Payments Covered Under Section-195
i) Specified Interest (Other than Interest Covered U/s194LB/LC/LD)
ii) Any other sum chargeable to tax (Other than Salary-U)
NOTES:-TDS U/s-195 is not applicable on following payments:-
a) Following Interest payment :-
-
- Interest on Infrastructure Debt Fund-194LB @5% plus surcharge
- Interest on External Commercial Borrowings-194LC@5% plus surcharge
- Interest on Certain bonds/Govt. Securities to FII or QFI-194LD @5% plus surcharge plus cess.
b) Salary payment to NR not covered u/s-195 as it is already covered U/s-192
c) Other Payments to NR not Covered U/s-195 :-
-
- Payment to NR Sports person or NR Sports Association or NR entertainer-U/s-194E
- Income from winning from Lottery or Crossword puzzle :U/s-194B
- Income from winning from horse race : U/s-194BB
- Specified income distributed by Business Trust to NR Unit holders :U/s-194LBA
- Income w.r.t investment inSecuritization Trust:U/s-194LBC
- Income from Mutual Fund Units referred U/s-115AB :U/s -196B
- Income from GDRs referred U/s-115AC :U/s -196C
- Income from FIIs referred U/s-115AD :U/s -196D
d) Any other Sum chargeable to tax includes:-
-
- Royalty or Fees for technical services
- Dividend
- Capital Gains
- Business profits/ Other Income
e) Payment Taxable on GROSS BASIS (Unless P.E/Fixed base exists in India)
Interest, Royalty, Fees for technical services and dividend are taxable on GROSS BASIS-Unless P.E/Fixed base exist in India.It means no deduction is allowed for any expenditure and withholding tax rate (10/15%) would be applied on the amount of remittance to be made to NR. If terms of Treaty provide otherwise, they would override the above.
f) Payment Taxable on NET BASIS
Certain payments like business profits, income from immovable property, capital gains, income from independent professional services are taxable on Net Basis I,e withholding tax will be calculated on net income after allowing expenses as per IT Act or relevant treaty.If terms of Treaty provide otherwise, they would override the above.
g) Section -195 excludes dividends on which DDT is paid by Indian Company and which is exempt in the hands of NR Shareholders-Section-115-O
D) TDS Rate :-Rate in force referred U/s-2 (37A)(iii)
As per Section 2(37A)(iii) :
for the purposes of deduction of tax under section 195, it means:-
- The rate or rates of income- tax specified in the Finance Act of the relevant year or
- The rate or rates of income- tax specified in an agreement (DTAA/Treaty) entered into by the C.G u/s- 90,
Whichever is applicable by virtue of the provisions of section 90 ;( i, e whichever is more beneficial to assessee)
Note:-Source 🙁 https://www.incometaxindia.gov.in)
For Relevant Finance Act:-
Refer any relevant finance Act like Finance Act 2020, >> Chapter II (Rates of Income Tax) >>Section-2 (5)
Section -2(5) of Finance Act is reproduced below(5) In cases in which tax has to be deducted under sections 193, 194A, 194B, 194BB, 194D, 194LBA, 194LBB, 194LBC and 195 of the Income-tax Act, at the rates in force, the deductions shall be made at the rates specified in Part II of the First Schedule and shall be increased by a surcharge, for the purposes of the Union, calculated in cases wherever prescribed, in the manner provided therein.
There is Five Schedules to Finance Act:-
THE FIRST SCHEDULE (INCOME TAX):
PART-I:INCOME-TAX SLABS RATES, TAX RATE OF COMPANIES, LLP OR FIRM ETC.
PART-II:RATES FOR DEDUCTION OF TAX AT SOURCE IN CERTAIN CASES (TDS RATES)
PART-III:RATES FOR CHARGING INCOME-TAX IN CERTAIN CASES, DEDUCTING INCOME-TAX FROM INCOME
HARGEABLE UNDER THE HEAD “SALARIES” AND COMPUTING “ADVANCE TAX” (SALARY TDS AND ADVANCE TAX RATES)
PART-IV:RULES FOR COMPUTATION OF NET AGRICULTURAL INCOME
For Relevant DTAA or Tax Treaty:-
Refer relevant Tax treaty or DTAA with concerned country
Important clauses of Double Taxation Avoidance Agreement
ARTICLE -1: Applicability
ARTICLE 2 Taxes covered
ARTICLE 3 General Definitions.
ARTICLE 4 Residents.
ARTICLE 6 Income from Immovable property.
ARTICLE 10 Dividends
ARTICLE 11 Interests
ARTICLE 12 Royalty &fees for Technical Services.
ARTICLE 13 Capital Gains Immovable Property
ARTICLE 14 Independent Personal Services
ARTICLE 15 Dependent Personal Services
ARTICLE 17 Artists and Sportsperson
ARTICLE 22 Other Income
ARTICLE 23 Elimination of Double Taxation
ARTICLE 24 Non Discrimination
Clause-2
(2) Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.(Like in Case of capital gain on capital gain instead of sales consideration)
Clause-3
(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting taxthereon under sub-section (1).
Clause-4
(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation
Clause-5
(5) The Board may, having regard to the convenience of assesses and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.
Clause-6
(6) The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum (in Form 15CA with 15CB CA. Certificate), in such form and manner, as may be prescribed
Clause-7
(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.
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