Section 195 of Indian Income Tax Act

Section 195 is related to the deduction of TDS on any payment made to non-resident. As per this section, if any person is responsible for any payment to any non-resident (not being a company) or to a foreign company by way of interest or any other sum chargeable under the provisions of income tax excluding salary, he is liable to deduct TDS at the rates in force.

Section 195 of Indian Income Tax Act

However, in case of interest payable by the government or public sector bank or a public financial institution, TDS will be applicable only on payment basis. TDS is to be deducted at the time of credit or at the time of payment, whichever is earlier. Surcharge and education cess & SHEC are also applicable at the prescribed rate. The provisions of Double Tax Avoidance Agreement (DTAA) shall apply if there is such agreement between India and the residence country of the payee. But one has to obtain the PAN and TRC (Tax Residency Certificate) of the non-resident, to take advantage of DTAA.

The payer may be an individual or HUF, firm, non-residents, foreign companies, persons having exempt income in India or any juristic person irrespective of whether that person has income chargeable to tax or not.

Any sum credited to suspense account or payable account or by whatever name called is considered as paid. There is no threshold limit of exemption for senior citizen under this section. Tax is deductible on “sum chargeable to tax”, which is the basis of determining whether tax is to be deducted or not.

An assessee can make an application to the assessing officer for lower deduction or no deduction of tax U/S 197.
Here, the tax shall be deducted not just from payments which are fully incomes, but also from payments where only a portion of the payment may be income. The payer before deducting any TDS must obtain the TAN U/S 203A, by filling Form 49B. The TDS so deducted shall be deposited through form no. or challan for TDS payment within 7 days from the end of that month, in which TDS is deducted.

The payer has to electronically file TDS return by submitting Form 27Q after the DS is deposited. TDS returns are filed quarterly, i.e., on 15th July, 15th October, 15th January and 15th May. After that, the payer can issue TDS certificate in Form 16A to the payee.

Exceptions to section 195

  • Payment on capital account e.g. gifts, loans, repayment of the loan, etc.
  • The sum which are on revenue account and which are not chargeable to tax under the act in the hands of the recipient.
  • Sums which fall within the scope of section 5 of this act, but which are expressly exempt e.g. dividend income.

Refund of TDS

The refund shall be claimed within 2 years from the end of the financial year in which the tax was deducted. Excess tax can be adjusted against any existing liability of deductor and the balance if any will be refunded.

TDS rates U/ Section 195

Payment of any other sum to a Non-resident (not being a company)

TDS Rates

a) Income from investment made by a non-resident Indian Citizen 20%
b) Income from long-term capital gains referred to in section 115E for non-resident Indian Citizen 10%
c) Income from long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of section 112 10%
d) Income from short-term capital gains referred to in section 111A 15%
e) Any other income from long-term capital gains 20%

f)

Income from interest payable by Government or 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)

20%

g)

Income from royalty 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 in respect of copyright in any book on a subject referred to in the first provision to sub-section (1A) of section 115A, to the Indian concern, or in respect of any computer software referred to in the second provision to sub-section (1A) of section 115A of the income tax act, to a person resident in India.

10%

h)

Income from royalty (not being royalty of the nature referred to point (g) above) payable by government or 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 long time in force, of the Government of India, the agreement is in accordance with the policy.

10%

i)

Income by way of fees for technical services 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.

10%

j) Any other income 30%

In case the payee does not furnish PAN, section 206AA is applicable and TDS rate will be 20% or higher.

Payment of any other sum to a foreign company TDS Rates
a) Income from long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of section 112 10%
b) Income from short-term capital gains referred to in section 111A 15%
c) Any other income by way of long-term capital gains 20%

d)

Income from interest payable by Government or 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)

20%

e)

Income from royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st day of march, 1976 where such royalty is in consideration for the transfer of all or any rights in respect of copyright in any book on a subject referred to in the first provision to sub-section (1A) of section 115A of the Income-tax Act, to the Indian concern, or is respect of any computer software referred to in the second provision to sub-section (1A) of section 115 of the income-tax act, to a person resident in India

10%

f)

Income from royalty (not being of the nature as in above point (e)) payable by government or 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) Where agreement is made after 31st March, 1961 but before 1st April, 1976 50%
ii) Where agreement is made after 31st March, 1976 10%

g)

Income as 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
i) Where agreement is made after 29th February, 1964 but before 1st April, 1976 50%
ii) Where agreement is made after 31st March, 1976 10%
h) Any other income 40%

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