TDS on Non-Residents- Section 195

Tax Deducted at Source for the non-resident people of India is governed by section 195 of the Income Tax Act, 1961. This section highlights the tax rates and deductions related to all business transactions.

According to this section, the income is chargeable under the Income Tax Act and the certificate for remittance is mandatory.

A person remitting the payment to a non-resident payee is called a payer. A payer can be individuals, Hindu Undivided Family (HUF), firms, non-residents, foreign companies, persons having exempt income in India 

A payee is a person whose status, being non-resident, has been derived as per the Section 6 of Income Tax Act,1961

Below listed are the steps to be followed for deducting TDS under Section 195:

  • A buyer should first obtain TAN as per section 203A of the Income Tax Act, 1961 before deducting TDS. A buyer should also have his PAN and PAN of the NRI seller.
  • TDS must be deducted at the time while making the payment to the NRI. 
  • The TDS deducted by the buyer should be deposited in prescribed Form number or challan for TDS payment on or before the 7th of next month in which the TDS is deducted.
  • TDS shall be deposited through banks that are authorized by the government of India or the Income Tax Department to collect Direct Tax
  • After depositing the TDS, the payer has to file TDS return, electronically, in Form 27Q. Returns are filed quarterly.
  • After TDS returns have been filed, buyers can issue a TDS certificate or Certificate of Deduction of Tax which is Form 16A to NRI seller.

 Rate of TDS specified under Section 195

Rates prescribed as per the Act has to be increased by surcharge and education cess at the prescribed rate, But where the payment, being made, is as per DTAA rates, then surcharge and education Cess need not to be added. The rates are as follows:

ParticularRate of TDS
Income in respect of investments made by a NRI20%
Income by the way of long term capital gains in Section 115E in case of a NRI10%
Income by way of long-term capital gains10%
Short Term Capital gains under section 111A15%
Any other income by way of long-term capital gains20%
Income by way of royalty, not being royalty of the nature referred to be payable by Government or an Indian concern10%
Income by way of fees for technical services payable by Government or an Indian concern10%
Income by way of royalty payable by Government or an Indian concern10%
Any other income30%

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