1. Whether all the payments to Non-Residents are covered under Section 195 of Income Tax Act, 1961?

No, There are various sections under which tax is required to be withheld as per provisions of that sections, which are as follows:

1. Section 194E – Payment to Non-Resident Sportsmen or Sports Association

2. Section 194LC – Income by way of interest from Indian Company

3. Section 194LD – Income by way of interest on certain bonds and Government securities

4. Section 196B – Income from units

5. Section 196C – Income from foreign currency bonds or shares of Indian company

6. Section 196D – Income of Foreign Institutional Investors from securities

If the income is not falling under any of the above sections or not meeting the criteria or conditions specified in any of the specific section as mentioned above then in such case tax will be required to be withheld as per the Provisions of Section 195 – Other Sums.

2. What is TDS under Section 195?

While making the payment or remittance to the person who is non-resident whether under the Income-tax Act, 1961 tax is required to be withheld u/s 195

3. Who is the payer u/s 195?

Payer is the person who pays or remits the money to the non-resident, Payer can be any person viz.

  • An Individual
  • HUF
  • Firm or LLP
  • Company
  • AOP / BOI
  • Or Any Other person

whether or not resident of India

4. Who is the payee u/s 195?

Payee means any person who is not resident of India as per the provisions of Income-tax Act, 1961

5. When TDS is required to be deducted u/s 195?

TDS u/s 195 is required to be deducted

  • At the of crediting the Vendor or Payee or
  • At the time of Payment

whichever is earlier.

6. Is there any Threshold defined under the Act for the deduction of TDS u/s 195?

No, there is no threshold prescribed under the Act for applicability of TDS u/s 195. If the sum or payment is chargeable to tax then in such case tax is required to be withheld on such sum.

7. What is rate of TDS under section 195?

The rate of TDS is not prescribed u/s 195, however the TDS is to be deducted as per rate prescribed under Part II of First Schedule of Finance Act. Also such TDS rate is further subject to Cess and Surcharge as per applicable rate in force.Countrywise Withholding tax rates / Chart as per DTAA

Disclaimer: I have prepared the FAQ’s based on my past experience and based on questions or queries asked to me by clients or professional colleagues. The views expressed here are based on Income-tax Act and interpretation of the Act. Suggestions and questions are welcome, so that I can incorporate in upcoming series of FAQs.

Author Bio

Qualification: CA in Practice
Company: Haraniya & Kedia
Location: Mumbai, Maharashtra, IN
Member Since: 31 Jul 2018 | Total Posts: 1
Myself Chirag M. Haraniya, I am partner in Haraniya & Kedia, Chartered Accountants, Firm located at Andheri East Mumbai. I am looking after Direct and International Taxation, Statutory Audit ,Tax Audits, Transfer Pricing Assignments. View Full Profile

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6 Comments

  1. LAKSHMAIAH SETTY & CO says:

    Opinion Wanted
    A.Facts of the case:

    – My Client M/s. Foreign INC who is a Limited company incorporated in United States of America got the Income from an Indian company after deduction of Tax At Source. This company is not having PAN.
    Sources of Income to this company:
    1.Royalty
    2.Technical services rendered out side India to an Indian Company M/s. W Ltd.
    3. The Indian company has remitted the amounts after deduction of With holding tax @ 10% in the absence of PAN and issued a TDS Certificate.
    Opinion / Suggestion requested: What Is the course of action for my client M/s. Foreign INC to claim this TDS :
    1. Should it claim this amount over seas as taxes paid in India and adjust this against their tax liability over there? or
    2. Since it is not having any PE in India Should it claim this TDS from Income Tax Department of India. I am not aware of the DTAA provisions applicable in this case and hence this request.
    3. Since this is a continues process is there any way to the foreign company to apply for no deduction of taxes at source if so what is the procedure.
    My Present request:
    Request the professionals to quote the fee to give opinion so that I can talk to my client and get back to you. You are most welcome to ask for any supplementary information.

  2. Ramachandra Reddy says:

    Hi Sir,

    I have downloaded today Form 26AS and found tax amount paid in the section 195 by HSBC bank. But I have no idea why they have paid tax on my PAN card. Can you help me how and why they have paid.

  3. Vivek Khakhkhar says:

    Very useful article Chirag.
    What is the applicability of health and education cess in addition to regular TDS rate? And if applicable then what is the rate?

    1. chirag.haraniya says:

      Thanks Vivek.
      Health and education cess will be applicable, if you are applying rate as per Income-tax Act. In case you are applying the DTAA rate same will not be applicable. Currently rate is 4% for HE Cess.
      Same will be in the case of surcharge.

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