Section 195 of the Income Tax Act focuses on tax deductions on payments paid from India to Non-Residents of India. Tax Deducted at Source is applicable on an amount earned by non-residents for performing financial transactions in India. Besides knowing what section 195 is all about, scroll down to read its vital aspects.
As stated earlier, a payer deducts the tax at the source before making payments to Non Residents under Section 195 of the Income Tax Act. Here is the list of entities who are regarded as payers and are responsible for a tax deduction before making payments:
Deductors need to deduct tax at source while making payments to such non-residents is mandatory under Section 195 of the Income Tax Act.
Payers need to follow the ways mentioned below while deducting tax at source under Section 195 of the Income Tax Act:
| Particulars | Rates of Tax Deducted at Source |
| Income made by NRs from investment [Source] |
20% |
| Income earned by NRIs as long-term capital gains as specified under Section Section 115E [Source] |
10% |
| Income earned as long-term capital gains as specified under Section 112 (1)(c)(iii) [Source] |
10% |
| Income made by NRIs as short-term capital gains as specified under Section 111A [Source] |
15% |
| Other income earned as long-term capital gains, which is not specified under clauses 10(33), 10(36) and Section 112A [Source] |
20% |
| Interest payable by an Indian citizen or Government on borrowed money which is in foreign currency (this is not the income earned through interest as specified under Section 194LB or Section 194LC) [Source] |
20% |
| Income earned through royalty payable by an Indian individual or Government [Source] |
10% |
| Income earned through royalty (it is not the royalty referred to above) payable by an individual or Government [Source] |
10% |
| Income through fees for rendering technical services and payable by an Indian individual or Government [Source] |
10% |
| Other income [Source] |
30% |
Thus, Section 195 of the Income Tax Act allows payers to deduct tax at source before making payments which removes the possibilities of tax evasion. It also makes it easier for non-residents to remain tax compliant as the responsibility of tax deduction is of payers.
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