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Section 195 of the Income Tax Act about TDS on Non-Resident Indians

Source: squareyards.com

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.

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Who Is Responsible for Deducting Tax Under Section 195 of ITA?

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:

  • Hindu Undivided Families/ HUFs
  • Individuals
  • Indian or multinational companies
  • Foreign corporations
  • Non-residents remitting payments to other non-residents

Deductors need to deduct tax at source while making payments to such non-residents is mandatory under Section 195 of the Income Tax Act.

How to Deduct TDS 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:

  • Step 1:  Visit the official website of the Tax Information Network. Select 'Apply Online' and choose 'New TAN'. Then, select the appropriate category of deductors under the option 'Category of Deductors' and choose 'Select' to proceed and fill in Form 49B. This way, payers can obtain a TAN or Tax Deduction Account Number, as mandated under Section 195 of ITA. 
  • Step 2: Payers need to type their and NRs' PAN details in the form. Now, deduct the applicable tax at the source while remitting the payment to the recipient.
  • Step 3: Specify the TDS rate charged and the amount on which TDS has been applied in the sales deed.
  • Step 4: Payers need to deposit the TDS through a form number or challan within the 7th of the following month.
  • Step 5: Payers need to file their TDS returns by filling in Form 27Q in the appropriate quarter of the given financial year. Besides, issue a TDS certificate, Form 16 A, to non-residents. Issue this certificate to the recipient within 15 days from the due date of filing the returns for Tax Deducted at Source.

What Are the TDS Rates Under Section 195 of the Income Tax Act?

Take a look at the following table illustrating the TDS rates applicable to particular transactions:

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.

FAQs about Section 195 of Income Tax Act

Is there any maximum limit of payment from which TDS will be deducted under Section 195?

No, there is no maximum limit of payment from which TDS will be deducted under Section 195 of the Income

Is RNOR or Resident but Not Ordinary Resident covered under Section 195?

No, Resident but Not Ordinary Residents (RNORs) are not covered under Section 195 of the Income Tax Act.

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