Section 195 TDS on Payment to Non-Resident

Section 195(1) of the Income Tax Act

• Deductor/ Payer: Any person
• Deductee/ Payee:
  • Non-Resident (not being a company) or
  • Foreign company
• Nature of Payment:
  • Any interest other than the interest referred to
    • section 194LB (i.e. interest from infrastructure debt fund)
    • section 194LC (i.e. interest from Indian company)
    • section 194LD (i.e. interest on certain bonds and Government securities)
    • section 115O (i.e. Dividends on which dividend distribution tax has been paid) (Omitted by Finance Act 2020)
  • Any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”)
• Time of deduction:
  Deductor is required to deduct TDS within earlier of the following dates:
  • 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

Exception:
In case of interest payable by the following in respect of the notified mutual funds, then TDS is required to be deducted at the time of the payment:

• • Government
  • Public sector bank
  • Public financial institution

Section 195(2) of the Income Tax Act

• • Application made by Payer/deductor to Assessing Officer
  • Application contain the matter that whole of such sum would not be income chargeable to tax in the hands of the recipient and disclose the appropriate proportion of such sum so chargeable to tax.
  • After determining the appropriate proportion, AO may issue special or general order
  • Then, TDS shall be deducted only on that proportion which is chargeable to tax.

Section 195(3), 195(4) & 195(5) of the Income Tax Act

• • Application made by the Payee/deductee to Assessing Officer
  • Application to be made by payee for grant of EXEMPTION certificate
  • If EXEMPTION certificate is granted by the AO to payee, then payer/deductor is not required to deduct TDS on payment of such interest or other sum.
  • This certificate shall remain valid till earlier of the followings date:
    • Date mentioned in the certificate OR
    • Date of cancellation of certificate by the AO
  • The Board by notification in the Official Gazette may, make rules specifying the cases and circumstances under which application may be made for the grant of a certificate and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

Section 195(6) of the Income Tax Act

• • The Payer is required to furnish the information relating to payment of such sum in Form 15CA/15CB

Section 195(7) of the Income Tax Act

• • • Sub-section 195(7) overrule the sub-section 195(1) & 195(2)
    • Board by notification in the Official Gazette specify the class of persons or cases
    • Application may be made by Payer/deductor to Assessing Officer for the income whether or not chargeable under the provisions of this Act
    • Application contain the matter that whole of such sum would not be income chargeable to tax in the hands of the recipient and disclose the appropriate proportion of such sum so chargeable to tax.
    • After determining the appropriate proportion, AO may issue special or general order
    • Then, TDS shall be deducted only on that proportion which is chargeable to tax.
  • Rate of TDS:

S. No.	Particulars	Rate of TDS
1	Income with respect of investment made by the non-resident	20%
2	Income by way of Long Term Capital Gain (LTCG) referred in (1) section 115E or (2) section 112 (1) (c) (iii) (3) section 112A	10%
3	Income by way of Short Term Capital Gain (STCG) referred in section 111A	15%
4	Any other Long Term Capital Gain income [except Long Term Capital Gain referred in clause 10 (33), section 10 (36) and 112A]	20%
5	Interest income payable by the Government / an Indian concern against money borrowed / debt incurred by Government / an Indian concern in foreign currency [except interest income referred in section 194LB or section 194LC]	20%
6	Royalty income payable by the Government / an Indian concern in pursuance of an agreement where the royalty is in consideration for the transfer of all or any rights with regard to copyright in any book on the subject referred in section 115A (1A) of the Income Tax Act, to an Indian concern, or in respect of any computer software referred in second proviso to section 115A (1A), to a person resident in India.	10%
7	Royalty income payable by the Government / an Indian concern in pursuance of an agreement with the Government / an Indian concern (agreement with an Indian concern should be approved by the Central Government)	10%
8	Fees for technical services payable by the Government / an Indian concern in pursuance of an agreement made by it with the Government / an Indian concern.	10%
9	Any other income	30%

• Non-applicability of section 206AA (i.e. Requirement of furnishing of PAN):
  • Non-Resident is not required to furnish PAN if the following condition are satisfied:
    • Non-Resident required to furnish details like: Name, E-mail ID and Contact number
    • Provide the address of the country or specified territory outside India in which he is a resident
    • Submit the Tax Residency Certificate (TRC)