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What Is Section 195 Under the Income Tax Act?

Updated on: 05 Apr, 2024 04:24 PM

Serving as a tax collection mechanism, the government mandates that the payer deduct tax from payments made to another entity. Section 195 of the Income Tax Act of 1961 outlines the TDS provision for individuals making payments, excluding salary, to NRIs or foreign companies.

NRIs are required to file tax returns for income earned in India and can also claim TDS when filing their tax returns. In this article, we will explore the various aspects of section 195, TDS rates under section 195, and a lot more.

Who is a Non-resident?

According to the specified provisions, an individual is considered a non-resident in India if they do not meet the criteria for being a resident in India under section 6 of the Act.

  • An individual will be deemed a resident of India for a given financial year if they meet either of the following conditions:
    • If they stay in India for 182 days or more during the financial year.
    • If they stay in India for 60 days or more during the financial year and 365 days or more during the immediately preceding four financial years.
  • There is an exception to the second point:
  • In the case of an Indian citizen or a person of Indian origin (PIO) whose total income, excluding income from foreign sources:
    • If the total income exceeds Rs 15 lakhs during the relevant financial year, the 60 days mentioned in the second point above will be substituted with 120 days.
    • If the total income is less than Rs 15 lakhs during the relevant financial year, the 60 days mentioned in the second point above will be substituted with 182 days. Similarly, for an Indian citizen leaving India in any year as a crew member or for employment outside India, the 60-day period in the second point above will be substituted with 182 days.
  • As a result, an Indian citizen or PIO earning a total income over Rs 15 lakhs (excluding income from foreign sources) is considered a resident in India if they are not taxed in any other country.
  • Consequently, any individual not meeting the aforementioned conditions will be classified as a non-resident Indian. For additional information, refer to the provided source.

Who is required to deduct TDS u/s 195?

Any person (resident or non-resident) who pays any sum other than salary to a non-resident not being a company or to a foreign company is required to deduct tax under this section. The payer can be any individual, HUF, Partnership Firm, other NRIs, a foreign company, firms, or any juridical person, irrespective of whether that person has income chargeable to tax in India or not.

What is the Threshold Limit to Deduct TDS u/s195?

There is no threshold limit to deduct TDS under section 195. The payer is responsible for deducting tax only when such payment is made to the non-resident of India. Hence, tax deduction is not required for income that is exempt or falls outside the scope of taxation under the Income Tax Act unless explicitly notified by the government.

What is the rate of TDS u/s 195?

The rate of tax deduction u/s 195 shall be either of the below rates, whichever is beneficial to you:

Surcharges and education cess must be added to the rates provided by the Act at the relevant rate. There is no need to add a surcharge or education cess if the payment is made according to DTAA rates. The following are the rates:

Particulars TDS rates
Income in respect of investment made by an NRI 20%
Income by way of long-term capital gains in Section 115E in case of an NRI 10%
Income from long-term capital gains from listed shares specified u/s 112A 10%
Short Term Capital gains under section 111A 15%
Other income from long-term capital gains 20%
Interest payable by the government or Indian Concern on money borrowed in Foreign Currency 20%
Royalty & fees for technical services payable by the Government or an Indian entity 10%
Winnings from lotteries, online games, and horse races 30%
Any other income 30%

Further, if the payee doesn’t have a PAN then the rate could be rate as per the law in force or 20% whichever is higher.

What are the consequences of Not Complying with Section 195?

  • If TDS is not deducted, then expense will be disallowed under section 40 (a)(i)
  • If TDS is deducted but not paid within the time limit, then interest @ 1.5% per month or part of the month will be levied from the date of the deduction to the date of deposit.
  • If TDS is deducted but not paid at all, then a penalty is implied equivalent to the TDS amount u/s 271C of the Income Tax Act.
  • For the cases where the TDS deducted is less, a penalty equal to the difference between the actual amount deductible and the actually deducted would be levied.
  • Where TDS has not been deducted, interest will be charged u/s 201(1A) of the Income Tax Act.

TDS Payment Under Section 195

Payment of TDS under Section 195 involves several steps:

  • Obtain a TAN (Tax Deduction Account Number) under section 203A before deducting TDS, ensuring PAN details for both the buyer and NRI seller.
  • Deduct TDS at the time of payment to NRIs.
  • Deposit TDS through an authorized bank on or before the 7th of the following month.
  • Electronically file quarterly TDS returns (Form 27Q) by specified due dates.
  • Issue TDS certificates (Form 16A) to NRI sellers within 15 days from the due date of TDS returns.


  • Apply for a nil or lower TDS deduction certificate using Form 15E when needed.
  • Submit complete payment information to the Assessing Officer via Form 15CA and Form 15CB.
  • Ensure compliance with TDS return and certificate issuance obligations to avoid penalties under Section 271-I.

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Frequently Asked Questions

Q- What are the conditions & procedures to avail of DTAA benefits by NRI?

DTAA is an agreement between the 2 countries. This agreement provides a benefit that the income is taxed once. The assessee has to file form 10F and self-declaration to the person responsible for deducting tax.

Q- Section 195 An IT company has to pay professional fees to a company based in the USA that doesn't have any permanent establishments in India nor a PAN card, at what rate TDS should be deducted?

As per section 195 where the payee does not have a valid PAN then the TDS rate is the rate prescribed under Chapter XVII B or 20% whichever is higher.

Q- Can I pay 1% TDS under section 194IA for purchasing an immovable property from an NRI?

TDS on the purchase of immovable property from non-residents is deducted in section 195. When immovable property is purchased from a non-resident, then TDS is deducted from capital gains, not from sale prices.

Q- Under which section is tax withheld on sitting fees to a non-resident director of an Indian company?

Section 194J for resident payees and Section 195 for non-resident payees.

Q- What will be the head under which the income from dance performance will be shown as per the Income Tax Act, 1961?

If the main income is from dance performance, then income is shown in the profession, and if the main income is other than dance performance, then income is shown in other sources.

Q- What is a tax residency certificate and how & where to get that?

A tax residency certificate is required from the resident country tax authorities to claim relief under DTAA

Q- Do I need a TAN to pay TDS under Section 195 while buying a property from an NRI?

Yes, TAN is necessary to deduct TDS. You must apply for the TAN.

Q- What details should be included in TRC?

The following details must be there in TRC

  • Name of assessee
  • Status of assessee
  • Nationality of assessee
  • Residential status
  • Period for which the certificate is applicable
  • Address of applicant for the period for which the certificate is applicable
  • Tax Identification Number of taxpayer

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.