Section 195 of the Income Tax Act, 1961 lays down provisions for tax deductions for Non-Resident Indians (NRIs). This section focuses on tax rates and deductions on daily business transactions with a non-resident. Any amount generated through these business transactions is chargeable under Income Tax Act, 1961. This amount may or may not be income or profits. The certificate for remittance is compulsory.
Section 195 further mentions guidelines on avoiding a revenue loss arising out of a tax liability from a non-resident by the way of deducting the same amount from their payments at source. The payer, that is, the person remitting payments to a NRI, can any individual, Indians and international companies, Hindu Undivided Family (HUF), person with exempt income in India and juristic person with or without an income that is chargeable to tax in India. The payee, under Section 195, is any non-resident with a residential status that comes under the purview of Section 6 of the Income Tax Act, 1961.
The following are the ways for TDS deduction as per Section 195 of Income Tax Act, 1961:
The buyer should first obtain Tax Deduction Account Number or TAN, as per Section 203A of the Income Tax Act, 1961, before claiming TDS tax deductions. It can be obtained by submission of Form 49B, which is available online and offline. The buyer should have his/her own PAN number as well as the PAN number of the NRI seller to complete the Form 49B submission process.
Under Section 195, TDS should be deducted from source while making payment to the NRI. The details related to TDS deductions and the applicable rate should be mentioned in the sale deed of the transactions made between the buyer and the NRI seller.
The TDS deducted by the buyer as per Section 195 has to be deposited through challan or Form number for TDS payment on or before the 7th of the following month in which TDS deductions have been made.
Under Section 195, the TDS can be deposited by the buyer through banks that have been authorised by the Government of India, or the Income Tax Department to collect Direct Taxes.
After deposition of the TDS as per Section 195, the buyer has to file TDS return through the electronic medium by submitting Form 27Q. TDS returns are filed on a quarterly basis. TDS deductions made in the first quarter, that is, between 1st April and 30th June of a particular financial year must be filed on 15th July of that year. TDS deducted during the second quarter, which is between 1st July and 30th September of a financial year, has to be filed on 15th October. TDS deductions for the third quarter between 1st October and 31st December should be filed on 15thJanuary. TDS deductions for the fourth quarter between 1st January and 31st March have to be filed on 15th May.
After filing the TDS returns, as per Section 195, the buyer can issue a TDS certificate, referred to as the Certificate of Deduction of Tax or Form 16A, to the NRI seller. It is mandatory for the buyer to issue this certificate to the seller within 15 days from the due date of filing for TDS returns for that quarter.
TDS rates mentioned under Section 195 of Income Tax Act, 1961 gets increased by adding the applicable education cess and surcharge. For payments made according to DTAA rates, no additional education cess or surcharge is applicable.
The following are the TDS deduction rates applicable under Section 195 of Income tax Act, 1961:
| Particulars | TDS Rates |
|---|---|
| Income from investments made by a NRI | 20% |
| Income from long-term capital gains under Section 115E for a NRI | 10% |
| Income from long-term capital gains | 10% |
| Short-term capital gains under Section 111A | 15% |
| Any other income from long-term capital gains | 20% |
| Interest payable on money borrowed in foreign currency | 20% |
| Income from royalty payable by the Government or an Indian concern | 10% |
| Income from royalty other than that which is payable by the Government or an Indian concern | 10% |
| Income from fees for technical services payable by the Government or an Indian concern | 10% |
| Any other source of income | 30% |
What is Section 195?
Section 195 of the Income Tax Act, 1961 lays down provisions for tax deductions for Non-Resident eductions on regular business transactions with a non-resident. All business transactions made under this section, irrespective of whether they are a source of income or profit, are chargeable under Income Tax Act, 1961. The certificate for remittance is mandatory.
Section 195 also mentions the guidelines on prevention of revenue loss caused due to tax liability from a non-resident through the deduction of the same amount from their payments at source. The payer, that is, the individual remitting payments to a NRI, another individual, Hindu Undivided Family (HUF), Indians and international companies, person with exempt income in India and juristic person, with or without an income that is taxable in India. The payee can be any non-resident with a residential status as per Section 6 of the Income Tax Act, 1961.
What is TDS for NRI?
Section 195 of the Income Tax Act, 1961 lays down provisions for tax deductions for Non-Resident Indians (NRIs). This section comprises of details about tax rates and deductions on daily business transactions with a non-resident. Any amount earned through these business transactions is chargeable under Income Tax Act, 1961. This amount may or may not be profits or income. Furnishing the remittance certificate is an integral part of the process.
Section 195 also contains guidelines on avoiding revenue losses arising from tax liabilities from a non-resident through the deduction of the same amount from their payments at source. The payer, that is, the person remitting payments to a NRI, any individual or Indians and international companies, Hindu Undivided Family (HUF) or a person with exempt income in India and juristic person, with or without an income that is tax deductible in India. The payee is any non-resident with a residential status that comes under the purview of Section 6 of the Income Tax Act, 1961.
What Percentage of TDS is Deducted?
The following are the TDS rates for different sources of income:
| Income from investments made by a NRI | 20% |
| Income from long-term capital gains under Section 115E for a NRI | 10% |
| Income from long-term capital gains | 10% |
| Short-term capital gains under Section 111A | 15% |
| Any other income from long-term capital gains | 20% |
| Interest payable on money borrowed in foreign currency | 20% |
| Income from royalty payable by the Government or an Indian concern | 10% |
| Income from royalty other than that which is payable by the Government or an Indian concern | 10% |
| Income from fees for technical services payable by the Government or an Indian concern | 10% |
| Any other source of income | 30% |
What is Section 195 of the Income Tax Act?
Section 195 of the Income Tax Act, 1961, covers TDS deductions on transactions/payments of Non-Resident Indians. Any entity (resident or non-resident) who pays any amount other than salary to a non-resident has to deduct tax. The section lays out the provisions to avoid double taxation and identifies the tax rates and deductions over business transactions with non-residents. Tax will be deducted either during the time of actual payment of such income or its credit to the payee’s account, whichever is earlier.
How to deduct TDS under Section 195 of the Income Tax Act, 1961?
Section 195 of the Income Tax Act, 1961, comprises of the provisions for tax deductions for Non-Resident Indians (NRIs). It focuses on tax rates and deductions on daily business transactions with a non-resident. As per Section 195, TDS should be deducted from source while making payment to the NRI. The rates have been specified under Section 195 of the Income tax Act, 1961.
What is Section 195 TDS rate without PAN?
All financial transactions liable for TDS will have tax deduction at a higher rate of 20% if the Permanent Account Number (PAN) of the payees is not available. This is also applicable to all non-residents in respect of payments/remittances liable to TDS.
