TDS on Non residents Section 195 – Exemption, Rates, Due Dates
TDS on Non residents Section 195 – Any person (resident or non-resident) responsible for paying any sum chargeable under this Act (excluding income chargeable under the head “Salaries”) to a non-resident is responsible to deduct tax at the time of payment or crediting the payee, whichever is earlier at the rate in force during the financial year
Exemption or relaxation from the provision
When the recipient applies to the Assessing Officer in Form 13 and gets a certificate authorising the payer to deduct tax at lower rate or deduct no tax [Refer section 197]
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Key Features Section 195
- Tax collection at the earliest point of time
- Section 195 of the Act applicable if any sum chargeable to tax is paid as against any sum referred in other provisions of Chapter XVII
- Applicable to all tax payers (say Individual / HUF etc.)
- No threshold limit prescribed for the applicability of section 195 of the Act
- Section 195 to be read alongwith other provisions of the Act (such as section 5, section 6, section 9 etc.) and the Double Tax Avoidance Agreements (if any) entered by India
- Where the assessee does not withhold taxes under Section 195, the tax officer is required to determine the income component involved in the sum on which withholding tax liability is to be computed and the payer to be considered as in default for non– ‐withholding of taxes only in relation to such income component – CBDT Instruction No 2/2014
TDS on Non residents – Section 195
TDS is the initial step of payment of income tax to the income tax department. Among all the TDS provisions only very few are there to which we should give more priority in interpretational sense. Sec 195 is one of those few sections. This section is wider in scope than all the other TDS sections as all payers are covered and there is also no threshold exemption is there. Here I’m discussing the aspects of this section in a simple manner.
Section 195(1) in The Income- Tax Act, 1995 :
Any person responsible for paying to a non resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head” Salaries”) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.]
In simple :
To avoid a revenue loss as a result of tax liability in the hands of a foreign resident, by deducting the same from payments made to them at source, this provision was laid in the Act.
Terms to be known :
- Payer & Payee : Payer is the person who remits the payment to a non resident payee. Payer includes
- Hindu Undivided Families
- Firms and AOPs
- Non Residents
- Foreign Companies
- Persons having exempt income in India
- Any other juristic person irrespective of whether such person has an income chargeable to tax in India or not
Payee include all the non residents if their residential status as per Sec 6 of the act is non residents.
2) Non Resident :
For this we have to check the residential status of the person to whom we are making payments. If the result of the check conclude that he is a non resident then this section would be applicable. This is not applicable to residents but not ordinarily resident.
3) Due date for deduction :
Earlier of the following is the due date for deduction
a..Date of crediting the party
b..Date of actual payment.
4) Rate of TDS :
Considering the Double taxation avoidance agreements between India the country of payee rate is to be determined. Generally rate would be as said in the act or rate as per DTAA which ever is beneficial provided all the conditions as per DTAA are met.If the payee doesn’t have a PAN then rate could be rate as per the law in force or 20% which ever is higher.
5) Rate of exchange :
Exchange rate of Reserve Bank of India on the day which TDS is required to be deducted has to be considered
Consequences if payer doesn’t deduct TDS :
- 1) Disallowances of the amounts paid under Section 40 (a)(i).
- 2. Penalties for non deduction
- 3.Simple Interest at 12 % p a on month to month basis.
TDS Rate Chart U/s 195
Section 195: Payment of any other sum to a Non-resident
a) Income in respect of investment made by a Non-resident Indian Citizen
b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen
c) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112
d) Income by way of short-term capital gains referred to in Section 111A
e) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses (33), (36) and (38) of Section 10]
f) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC)
g) Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India
h) Income by way of royalty [not being royalty of the nature referred to point g) above E] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy
i) Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy
j) Any other income
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