a) Section 195(1) of the Income-tax Act, 1961 provides for the applicability of TDS provisions on “any person” responsible for paying to a “non-resident” subject to exceptions as provided in the section. Practically, the fact that every person including individuals, making any payment to non-residents, is liable to deduct tax at source is not known to many. There have been instances where the payment of rent is made to a non-resident through online banking by a salaried employee who is claiming HRA, without knowing that he is required to deduct tax. This not only leads to loss of revenue but also causes hardship to the assessee only due to ignorance of law, which but of course is not an excuse.

b) Section 195(2) provides that where the person responsible for paying any sum chargeable under this Act to a non-resident considers that 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 portion of sum so chargeable. Further section 195(3) gives the recipient an option to make an application to Assessing Officer for the grant of certificate authorizing him to receive any sum without deduction of tax at source, subject to the rules notified in this regard. Making an application to the Assessing officer and follow ups thereafter leads to administrative hassles.

c) The provisions of section 54 to 54F relating to investments allow the assessee to save tax on capital gains arising from transfer of property. However, such investments are made over the period of time i.e. within 6 months or 1 year. Certain assessees face hardship on this account since their income becomes nonchargeable to tax only after taking into consideration the proposed investments. The issue arises since the investments proposed to be made under sections 54 to 54F are not taken into account by the Assessing Officer while giving a certificate of lower deduction of tax at source or no deduction of tax.


It is suggested that

a) the fact that any person including individuals, making any payment to non-residents, is liable to deduct tax at source should be widely publicized by the Department.

b) To remove administrative hassles, the payer or the payee should be allowed to issue certificate for short or non-deduction of tax at source) Since a benefit has been extended to the assessees by way of the provisions of section 54 to 54F, the same should be taken into account by the Assessing officers while issuing certificate of lower deduction of tax at source or no deduction under section 195 and 197.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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June 2021