What is Section 195 of the
Income Tax Act: TDS on
NRI Income
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Section 195 of the Income Tax Act, 1961 controls TDS
deductions on non-resident Indian income and payments. This
section lists provisions that help avoid double taxation and
focus on NRI business tax deductions and rates.
Section 195 of the Income Tax Act deals with the provisions
related to tax deducted at source (TDS) for non-resident
Indians (NRI). This section is vital for any person responsible
to pay specified sums, such as interest, royalty, and fees for
technical services. It helps deduct tax at the mentioned rates.
NRIs have to file tax returns for the income they earn in India.
They may also claim the withheld tax or TDS when filing tax
returns. For more on this, continue reading this article about
Section 195 TDS.
Table of Content
Who is a Non-Resident?
What is Section 195 of the Income Tax Act?
Threshold Limit to Deduct TDS u/s 195
How TDS is Deducted Under Section 195
Applicable Situations for TDS Under Section 195 of the Income Tax Act
Consequences of Not Paying TDS Under Section 195 of the Income
Tax Act
Conclusion
Frequently Asked Questions
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Who is a Non-Resident?
NRI’s full form is Non-Resident Indian. It is a term applied to a
person who is not a resident of India as defined under Section
6 of the Income Tax Act. A person shall be a resident of India
if they stay in India for 182 days and above in any financial
year, 60 days and above in that year and 365 days and above in
the four preceding financial years. Anyone not complying with
these criteria is an NRI or non-resident Indian. NRIs hold an
Indian passport but have migrated to another country and work
there.
What is Section 195 of the Income Tax
Act?
Under Section 195 of the Income Tax Act, TDS must be
deducted at the time of credit or payment on certain payments
made to non-residents. It applies to interest, royalty, fees for
technical services, and other sums chargeable for tax in India.
People making such payments deduct tax before making the
payment. This includes individuals, HUFs, firms, non-residents,
and foreign companies.
The payee must be a non-resident per their residential status
under Section 6. Section 195 TDS helps ensure tax is
collected before payment is made to non-residents.
Threshold Limit to Deduct TDS u/s 195
There is no threshold limit under Section 195 of the Income
Tax Act to deduct TDS. However, the payer must deduct tax
only when the payment made to a NRI is taxable in India. No
TDS is required if the payment is exempt from tax in India.
How TDS is Deducted Under Section 195
Buyers must obtain a TAN number by filing Form 49B
online or physically, along with the buyer and NRI
seller's PAN details.
TDS must be deducted from payments made to NRIs
as per section 195 and details provided in the sale
deed.
The deducted TDS must be deposited by the 7th of
the next month via challan/form to authorized banks
or income tax department.
Quarterly TDS returns must be filed electronically
using Form 27Q by the 15th of the month - July,
October, January, and May.
Periods for various quarters are as follows:
Quarter Period of Deductions TDS Return Filing
Date
First Quarter 1st April to 30th June 15th July
Second Quarter 1st July to 30th September 15th October
Third Quarter 1st October to 31st 15th January
December
Fourth Quarter 1st January to 31st March 15th May
After filing TDS returns, buyers must issue Form 16A/TDS
certificate to the NRI seller within 15 days of the return due
date for the quarter.
TDS Rates Under Section 195
Particulars TDS Rates
NRI income from investments 20%
Under Section 115E, income from 10%
long-term capital gains for a NRI
Long-term capital gains income 10%
Short-term capital gains (under 15%
Section 111A)
Other sources of long-term capital 20%
gains
Payable interest on borrowed 20%
money in foreign currency
Royalty payable income by the 10%
Government or an Indian concern
Royalty income other than that 10%
which is payable by the
Government or an Indian concern
Technical services income payable 10%
by the Government or an Indian
concern
Any other income source 30%
Applicable Situations for TDS Under
Section 195 of the Income Tax Act
There are two times when Section 195 TDS needs to
be deducted. That’s when the income is credited to
the payee’s account or during the transaction.
Whichever comes first.
Income that is credited to either interest payable,
suspense accounts, or other accounts is considered
to be credited to the payee's account.
Regarding government or public sector bank income,
TDS should only be deducted at the time of
cash/cheque/draft payment.
According to section 5(2)(b), an NRI’s total income
includes all income accrued/arisen/deemed accrued
in India.
Tax must be deducted for everything that accrues or
arises according to section 195 of the Income Tax
Act.
Consequences of Not Paying TDS Under
Section 195 of the Income Tax Act
Any allowance or deduction for that year will be
cancelled if you don't submit the deducted tax on
time.
At an interest rate of 1.5% from the date of deduction
until deposit, you’ll be charged if TDS is deducted but
not submitted by its due date.
A penalty will also come your way by deducting an
equal TDS amount if not deposited.
If partial TDS is deducted/deposited, a penalty will
equal out the difference between original and
deductible amounts.
Conclusion
Section 195 of the Income Tax Act ensures that non-resident
Indians pay their taxes in India. To make it easier for
taxpayers and tax authorities, it mandates the deduction of
money from specified payments made to NRIs. It doesn’t
matter if they must carry the burden of compliance. If there’s
fairness and a way to prevent tax leaks, then we’re on the
right path. Ultimately, this makes collecting taxes from
nonresident taxpayers more efficient.
