Summary: The Income Tax Department’s material on TDS Compliance for Non-residents explains that payments by a resident taxpayer to a non-resident or foreign company require TDS where the income is taxable in India. It covers interest, royalty, dividends, capital gains, technical service fees and specified winnings, stating that TDS rates are based on the Finance Act or DTAA, whichever is lower, with no minimum limit for taxable payments. A non-resident is identified by reference to the residency conditions under section 6 of the Income-tax Act, 1961, while section 195 applies to payments other than salary to non-residents. For FY 2025-26, the material specifies different TDS rates, including 20% for investment income, 12.5% for specified long-term capital gains, 20% for royalty/technical fees and 30% for winnings and other income. The compliance process includes obtaining TAN, deducting and depositing TDS, filing quarterly Form 27Q, and issuing Form 16A. The material also addresses lower/nil deduction under section 197, Form 15CA/15CB, the ₹1 lakh penalty under section 271-I, and consequences of non-compliance.
Income Tax Department
Central Board of Direct Taxes
TDS Compliance for Non-residents
- Why Tax Deducted at Source (TDS) on Payment to Non-Residents Is Required
- Key Highlights of TDS Compliance for Non-Residents
- Who Are Non-Residents?
- TDS Under Section 195 on Payments to Non-Residents
- TDS Rates for Non-Residents for FY 2025-26
- Steps of TDS Compliance for Payments to Non-Residents
- Lower or Nil TDS Under Section 197
- Form 15CA and Form 15CB for Foreign Remittances
- Why Submission of Form 15CA and Form 15CB Is Required
- Penalty for Failure to Furnish Form 15CA and Form 15CB Information
- Consequences of Non-Compliance With TDS Provisions
- Attention for Taxpayers Making Payments to Non-Residents
Why Tax Deducted at Source (TDS) on Payment to Non-Residents Is Required
Whenever any person(Resident tax payer) makes a payment to a Non-Resident or foreign company, that person is required to deduct tax at source (TDS) before sending /remitting the money, if that income is taxable in India. This ensures that the government collects tax at the source itself.
Key Highlights of TDS Compliance for Non-Residents
- Covers Non-residents & Foreign Companies – Applies to interest, royalty, dividends, capital gains, technical service fees, winnings (lottery, games, horse races, online games) etc.
- No minimum limit – Even a small taxable payment requires TDS deduction.
- TDS Rate – Based on Finance Act or DTAA (whichever is lower).
- Compliance is strict – Deductor require Tax Deduction and Collection Account Number (TAN), challans, quarterly returns, and to issue TDS certificates.
- PAN is important – If Non-resident doesn’t give PAN to the deductor, TDS will be deducted at higher rate (u/s 206AA of the Income-tax Act).
Who Are Non-Residents?
Q.1. Who are Non-Residents?
Ans. A person is a non-resident, if they do not meet the residency conditions under section 6 of Income-tax Act, 1961.
| Resident if: | Stayed in India ≥ 182 days in a year, OR |
|---|---|
| Stayed in India ≥ 60 days in a year + ≥ 365 days in last 4 years. | |
| Special rules for Indian citizens/PIOs: | Income > ₹15 lakh (other than foreign income): 120 days rule applies. |
| Leaving India for employment / ship crew: 182 days rule applies. | |
| If these conditions are not met | Person is a Non-resident. |
TDS Under Section 195 on Payments to Non-Residents
Q.2. Who should deduct TDS u/s 195 of the Act?
Ans. Anyone (resident or non-resident) making payments (other than salary) to non-resident:
- Individuals
- HUFs
- Firms
- Companies
- Govt. bodies / Agencies
TDS Rates for Non-Residents for FY 2025-26
Q.3. What is TDS Rate for FY 2025-26 as per Finance Act?
Ans.
| Income Type | TDS Rate |
|---|---|
| Investment income (Interest/Dividend) | 20% |
| Long-term capital gains (shares, debentures, govt securities) u/s 115E | 12.5% |
| LTCG on listed shares (u/s 112A) | 12.5% (after 23/07/24) / 10% (before) |
| Other LTCG | 12.5% |
| Short-term capital gains on securities (FII/fund) | 20% |
| Interest on foreign currency loans | 20% |
| Royalty/Technical Fees | 20% |
| Winnings (lottery, games, horse races, online games) | 30% |
| Any other income | 30% |
Steps of TDS Compliance for Payments to Non-Residents
4. What are the steps of TDS Compliances?
Ans. (i) Get TAN (Tax Deduction Account Number)
(ii) Deduct TDS at payment time.
(iii) Deposit TDS using challan 281 by 7th of next month.
(iv) File TDS return (Form 27Q) every quarter:
-
- Q1 (Apr-Jun): 30 July
- Q2 (Jul-Sep): 31 Oct
- Q3 (Oct-Dec): 31 Jan
- Q4 (Jan-Mar): 31 May
(Form 27Q) is a quarterly statement for deduction of tax on payments other than salary made to non-residents.)
(v) Issue TDS certificate (Form 16A) to Non-resident within 15 days of return filing.
Lower or Nil TDS Under Section 197
Q.5. What is Lower/Nil TDS (Form13)?
Ans. (i) Non-resident can apply to jurisdictional assessing officer (u/s 197 of Income-tax Act) for nil or lower deduction certificate.
(ii) If approved, deductor/payer can deduct at lower rate.
Form 15CA and Form 15CB for Foreign Remittances
Q.6. What are Foreign Remittance Declarations?
Ans. Before remitting money abroad, payer must submit Form 15CA & Form 15CB on income-tax portal. These forms are required to be filed even if payment is not taxable, except in cases where such compliance in exempted under the relevant rule.
Why Submission of Form 15CA and Form 15CB Is Required
Q.7. Why submission of Form 15CA & Form 15CB is required?
Ans. Filing of Form 15CA and Form 15CB enables correct accounting for the TDS deducted and enable Bank to process remittance, if these forms are filed on Income-tax portal.
Penalty for Failure to Furnish Form 15CA and Form 15CB Information
Q.8. Whether there is any penalty, if there is a failure to furnish information or furnishing inaccurate information in Form 15CA and Form 15CB as per section 195(6) of the Income-tax Act, 1961?
Ans. Penalty for non-compliance is a sum of ₹1 lakh (as per u/s 271-I of the Act).
Consequences of Non-Compliance With TDS Provisions
Q.9. What are consequences of Non-Compliance?
Ans. (i) Expense disallowed for business.
(ii) Interest @1.5% per month till deposit.
(iii) Penalty equal to TDS amount if not paid.
(iv) Penalty for short deduction = difference between correct & deducted TDS.
(v) Bank may not process remittance.
Attention for Taxpayers Making Payments to Non-Residents
Attention for Taxpayers:
If a person is making any payment to a Non-resident (property purchase, interest, royalty, dividends etc.) check if such payment is taxable in India. If yes, deduct TDS under Section 195 of Income-tax Act at the rate applicable as per Act or DTAA, then deposit it in appropriate account, then file returns in Form 27Q and issue TDS certificates. This ensures tax compliance and it will avoid any penalties.
