Section 195 — TDS on Payments to Non-Residents from India

Section 195 of the Income Tax Act requires any person making a payment to a non-resident (or foreign company) to deduct TDS if the payment is chargeable to tax in India. This is one of the most important withholding tax provisions for businesses with international dealings. Here is the complete guide.

Scope of Section 195

• Applies to any person (resident or non-resident) making a payment to a non-resident or foreign company
• Payment must be: (a) of any sum chargeable under the Income Tax Act, and (b) other than salary (salary to non-residents is covered by Section 192)
• Includes: Interest, royalties, technical service fees, capital gains, business income (if PE in India), dividends, rent, any other taxable income

TDS Rates Under Section 195

• Interest (other than bank): 20% + surcharge + cess
• Royalties: 10% (for agreements before April 2023) or 20% — check current Finance Act
• Technical service fees (Section 194J scope extended to NR): 10%–20%
• Long-term capital gains: 10% (equity) or 20% (other assets) depending on asset type
• Short-term capital gains (equity): 20%
• Any other income: Rates applicable under the Finance Act + applicable surcharge
• DTAA rates may be lower — applicable if non-resident furnishes TRC and Form 10F

When Is Section 195 NOT Applicable?

• Payment is not taxable in India (e.g., business income of non-resident with no PE in India)
• Income is exempt under a DTAA provision
• Non-resident obtains a nil/lower deduction certificate under Section 197 from the Assessing Officer — then TDS at the lower rate specified
• Non-resident applies under Section 195(2) for a determination by the AO on the appropriate TDS amount

Remittance Compliance

• File Form 15CA online (on IT portal) before making the remittance
• Obtain Form 15CB from a Chartered Accountant (for payments above ₹5 lakh other than Part D exempt transactions)
• Submit 15CA and 15CB to the authorised dealer (bank) — bank processes the remittance
• File TDS return in Form 27Q (quarterly return for TDS on non-resident payments)
• Issue Form 16A TDS certificate to the non-resident

Conclusion

Section 195 TDS compliance is mandatory for all international payments from India — requiring careful determination of taxability, applicable rates (domestic or DTAA) and timely 15CA/15CB filing. SPOTON provides complete foreign payment TDS compliance for businesses in Kerala. Contact us for expert international tax services.