Tax Deduction at Source and Non Residents

In Income Tax Act, 1961 we have different TDS provisions for residents payee and nonresident payees.

We have Income From Salaries (Sec 192), Premature withdrawal of PPF (Sec 192A), Winning from Lotteries (Sec 194B), Winning from Horse Race (Sec 194BB), NSS (Sec 194EE), Repurchase by MFs (Sec 194F), Lottery Commission (Sec 194G), Income from units of business trust (Sec 194LBA), Distribution of Rental Income to unit holders (Sec 194 LBA), Income from Units of Investment Fund (194LBB), Income of Investment in Securitization Fund (Sec 194LBC), Certain Payment by Individual/HUF (Sec 194M) and Payment of certain amount in cash (Sec 194N) which are applicable to both Residents and Non Residents.

On the other hand we have Interest on Securities (Sec 193), Dividends (Sec 194), Interest other than securities (Sec 194A), Contractors (Sec 194C), Insurance Commission (Sec 194D), Maturities of Life Insurance Policies (Sec 194DA), Commission Brokerages(Sec 194 H), Rent (Sec 194I), Transfer of certain Immovable Properties (Sec 194IA), Rent by Individual / HUF (Sec 194 IB), Payment by Joint Development Agreement to Individual /HUF (Sec 194IC), Professional or Technical Person or Call center or  Directors  (Sec 194J), Payment of Income of Mutual Funds (Sec 194K), Compensation on transfer of Immovable Property other than Agriculture Land (Sec 194 LA), Payment to Specified Senior Citizen (Sec 194 P) and Payment by buyer to seller (Sec 194Q) which are Applicable to Residents Only.

Similarly there are some TDS provisions are applicable to Non Residents Only – Payment of Interest by an Indian company to nonresident for Loan or Infra Bonds out side India (Sec 194 LC), Payment of Interest by an Indian company to nonresident for Rupee Bond or Listed Long term Bonds  out side India (Sec 194 LC), Interest on certain bonds from Govt securities ( Sec 194LDA), Investment Income or Long Term Capital Gain or Short Term Capital Gain or Royalty or Technical service fee or Interest Income by Govt or Other Income (Sec 195), Income paid by Mutual Funds (Sec 196A), Income from Units to Offshore Funds (Sec 196B), Income from Foreign Currency Bonds (Sec 196 C) and Payment of Income from Foreign Institutional Investor (Sec 196D).

This seems to be very clear that TDS has to be deducted on each and every of Non Residents, If any specific provision of deduction is contained then deduction has to be made according to that section and that specific rate shall be applicable on that portion of NRI income. If such is the case there is no complicacy involved in the process of deduction and process of deduction shall be very simple.

Where person paying the income fees that whole of the payment not constitutes Income in the hands of Non Resident then an application can be made to Assessing Officer for TDS on Income component contained under that payment. Form 15C in case of Banking Company and For 15 D in case of any other person has to be filled.

To be Eligible Person : Person has to be regularly assessed and has furnished return for all assessment years for which return became due, not a assessee in default, not been subject to penalty under section 271 (1) (c), Lastly when he is carrying business other than banking he must have carrying business/profession for more than 5 yrs of and has fixed asset worth more than 50 lacs in India.

These provisions are unique for Non Residents since Section 197A not apply on Non residents as well. However  section 197 applies to both residents and non residents (Person receiving income under 192 and 194 G can take benefit out of it). .

Reading of Bare Act and Rules :

Section 195

……………………….

(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 tax thereon under sub-section (1).

[Application for certificate authorising receipt of interest and other sums without deduction of tax.

29B.(1) Any person entitled to receive any interest, or other sum, on which income-tax has to be deducted under sub-section (1) of section 195 may, if he fulfils the conditions specified in sub-rule (2), make an application for the grant of a certificate under sub-section (3) of section 195 authorising him to receive without deduction of tax under sub-section (1) of that section any such income as is specified hereinbelow, namely :—

(i) where the person concerned is a [banking company or an insurer] which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India, and which carries on operations in India through a branch, any income by way of interest, not being [interest on securities (other than interest payable on securities referred to in proviso to section 193)], or any other sum, not being dividends;

(ii) in the case of any other person who carries on a business or profession in India through a branch, any sum, not being interest or dividends,

in so far as such interest or other sum is receivable by such branch on its own account and not on behalf of its head office or any branch situated outside India, or any other person.

(2) The conditions referred to in sub-rule (1) are the following, namely :—

(i) the person concerned has been regularly assessed to income-tax in India and has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application under sub-rule (1) is made;

(ii) he is not in default or deemed to be in default in respect of any tax (including advance tax and tax payable under section 140A), interest, penalty, fine, or any other sum payable under the Act;

(iii) [***]

(iv) where the person concerned is not a [banking company or an insurer] referred to in clause (i) of sub-rule (1)—

a) he has been carrying on business or profession in India continuously for a period of not less than five years immediately preceding the date of the application, and

(b) the value of the fixed assets in India of such business or profession as shown in his books for the previous year which ended immediately before the date of the application or, where the accounts in respect of such previous year have not been made up before the said date, the previous year immediately preceding that year, exceeds fifty lakhs of rupees.

(3) The application under sub-rule (1) by a¹[banking company or an insurer] shall be in Form No. 15C and by any other person [referred to in clause (ii) of sub-rule (1)] shall be in Form No. 15D.

(4) The [Assessing Officer] may give a certificate authorising the person con-cerned to receive the income specified in clause (i) or clause (ii) of sub-rule (1), without deduction of tax under sub-section (1) of section 195, if he is satisfied that all the conditions laid down in sub-rule (2) are fulfilled and the issue of any such certificate will not be prejudicial to the interests of revenue.

(5) The certificate shall be valid for the financial year specified therein, unless it is cancelled by the [Assessing Officer] at any time before the expiry of the said financial year. An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate, or within three months before the expiry thereof.

 [Explanation.—for the purposes of this rule, “insurer” shall have the same meaning as assigned to it in sub-clause (d) of clause (9) of section 2 of the Insurance Act, 1939 (4 of 1938).]

(6) [* * *]].

TDS Rate Chart for F.Y. 2021-22 (A.Y: 2022-23)

Section	Nature of payment	Threshold Limit Rs.	Applicable from 01/04/2021 to 31/03/2022
			Resident	Non-resident *
			TDS Rate (%)	TDS Rate (%)
192	Salaries	–	Normal slab rate	Normal slab rate
192A	Premature withdrawal from EPF	50000	10	10
193	Interest on securities – 8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 during the financial year	10000	10	–
193	Interest on securities – Interest on securities for money issued by or on behalf of any local authority/statutory corporation, listed debentures of a company(other than demat form), any other interest on securities	5000	10	–
194	Dividends	5000	10	–
194A	Interest (Banking co., co-operative society engaged in banking, post office)	40000	10	–
194A	Interest (Any other person)	5000	10	–
194B	Winning from lotteries	10000	30	30
194BB	Winning from Horse race	10000	30	30
194C	Contractor-Single transaction-Individual/HUF -Others	30000	1 2	– –
194C	Contractor – Consolidated Payment During the F.Y – Individual/HUF – Others	100000	1 2	– –
194D	Insurance commission – Other than Company – Company	15000	5 10	– –
194DA	Maturity of Life insurance policy	100000	5	–
194E	Non-resident sportsmen or sports association	–	–	20
194EE	NSS	2500	10	10
194F	Repurchase units by MFs	–	20	20
194G	Commission-Lottery	15000	5	5
194H	Commission/Brokerage	15000	5	–
194I	Rent of – Plant/Machinery /Equipment – Land and Building/Furniture & Fixture	240000	2 10	– –
194IA	Transfer of certain immovable property other than agriculture land	50 lakh	1	–
194IB	Rent by Individual/HUF	50000 per month	5	–
194IC	Payment under Joint Development Agreements to Individual/HUF	–	10	–
194J	Professional Fees	30000	10	–
194J	Technical Fees (w.e.f. 01.04.2020)	30000	2	–
194J	Payment to call centre operator (w.e.f. 01.06.2017)	30000	2	–
194J	Director’s fees	–	10	–
194K	Payment of any income in respect of (a) units of a mutual fund as per section 10(23D); or (b) the units from the administrator; or (c) units from specified company (w.e.f. 01.04.2020)	5000	10	–
194LA	Compensation on transfer of certain immovable property other than agriculture land (TDS exempted if covered under RFCTLARR Act w.e.f. 01.04.2017)	250000	10	–
194LB	Income by way of interest from infrastructure debt fund	–	–	5
194LBA	Income from units of business trust -interest received or receivable from a special purpose vehicle; or – dividend referred to in sub-section (7) of section 115-O	–	10   10	5   10
194LBA	Distribution of rental income to unit holders – Other than Company – Company	–	10 10	30 40
194LBB	Income in respect of units of investment fund – Other than Company – Company	–	10 10	30 40
194LBC	Income in respect of investment in securitization fund – Individual/HUF – Company – Other Person	–	25 30 30	30 40 30
194LC	Income by way of interest by an Indian specified company to a non-resident/foreign company on foreign currency approved loan / long-term infrastructure bonds from outside India	–	–	5
194LC	Income by way of interest by an Indian specified company on rupee denominated bond / any long-term bonds from outside India, which is listed only on a recognized stock exchange located in any International Financial Services Centre	–	–	4
194LD	Interest on certain bonds from Govt. securities	–	–	5
194M	Certain payments by Individual/HUF	50 lakh	5	–
194N	Payment of certain amount in cash	1 Crore	2	2
194N	Payment of certain amount in cash (first proviso of section 194N)if- -Amount is more than Rs.20 lakh but up to Rs. 1 crore -Amount exceeds Rs. 1 crore		2 5	2 5
194-O	Applicable for e-commerce operator for the sale of goods or provision of services facilitated by it through its digital or electronic facility or platform (w.e.f. 01.04.2020)	–	1	–
194-P	Deduction of tax in case of specified senior citizen. [Change will applicable from 1st April, 2021.]	–	Applicable rates in force	–
194-Q	Payment of certain sum by the buyer to the seller (resident Indian) for purchase of goods [Change will applicable from 1st July, 2021.]	50 lakh	0.1	–
195	Income of Investment made by an NRI	–	–	20
195	Long-term capital gain – Under Section – 115E/112(1)(c)(iii)/112A – Any Other Gains	–	– –	10 20
195	Short-term capital gain – 111A	–	–	15
195	Royalty	–	–	10
195	Fees for technical services	–	–	10
195	Interest income payable by Govt./Indian concern (other than section 194LB or 194LC)	–	–	20
195	Any Other Income – Other than Company – Company	–	– –	30 40
196A	Income in respect – – of units of a Mutual Fund specified under clause (23D) of section 10; or – from the specified company referred to in the Explanation to clause (35) of section 10	–	–	20
196B	Income from units to an offshore fund	–	–	10
196C	Income from foreign currency bonds or GDR of an Indian company	–	–	10
196D	Income of foreign Institutional Investors from securities (not being dividend or capital gain)	–	–	20

* TDS rate shall be increased by applicable surcharge and Health & Education Cess.

Note: As per section 206AA, In case of non-furnishing of PAN/Aadhaar by deductee, TDS will be charged at normal rate or 20% (5% in case of section 194-O), whichever is higher.

Note: As per new section 206AB, where tax is required to be deducted at source under the provisions of Chapter XVIIB, on any sum or income or amount paid, or payable or credited, other than sections 192, 192A, 194B, 194BB, 194LBC or 194N by a person to a specified person, the tax shall be deducted at the higher of the following rates.

1. Twice the rate specified in the relevant provision of the Act; or

2. Twice the rate or rates in force; or

3. The rate of five per cent.

Note: Provision of section 206AA  (Non furnishing of PAN/Aadhaar) shall be override on the provision of section 206AB and then tax shall be deducted at higher of the two rates provided in section 206AA and in section 206AB.

[These change will be applicable from 1st July, 2021.]