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What Is Section 195 Under Income Tax Act?

Updated on: 22 Mar, 2022 06:44 PM

The Tax Deducted at Source (TDS) for non-resident nationals of India is governed by section 195 of the Income Tax Act, 1961. This section focuses on the tax deductions and rates that are involved in a non-resident citizen of India's day-to-day business dealings. Section 195 of the Income Tax Act applies to all types of income. The legislation creates a mechanism to offset revenue loss owing to a foreign resident's tax burden by deducting an equal amount from payments made to them at source.-

Section 195: TDS on Other Payments Made to NRI (Individual) or Foreign Company

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 is required to deduct TDS tax under this section.

What is the rate & time of tax deduction u/s 195?

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

  • Specified in the Double Taxation Avoidance Agreements between India and the country of the payee.
  • Specified in the Income Tax Act.

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 done according to DTAA rates. The following are the rates:

Particulars TDS rates
Income in respect of investment made by a NRI 20.80%
Income by the way of long term capital gains in Section 115E in case of a NRI 10.40%
Income from long-term capital gains 10.40%
Short Term Capital gains under section 111A 15.60%
Other income from long-term capital gains 20.80%
Interest payable on money borrowed in Foreign Currency 20.80%
Income from royalty payable by Government or an Indian entity 10.40%
Income from royalty, not being royalty of the nature referred to be payable by Government or an Indian entity 10.40%
Income from fees for technical services payable by Government or an Indian entity 10.40%
Any other income 31.20%

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

No Requirement of TDS

No such exemption is provided in this section.

Frequently Asked Questions

Q- What are the conditions & procedures to avail DTAA benefit 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 a property from an NRI?

TDS on purchase of property from non-resident is deducted in section 195. When purchase on the property from non-resident TDS is deducted on capital gains, not on the 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 payee and Section 195 for non-resident payee

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

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

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?

Ans. 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

  1. Name of assessee
  2. Status of assessee
  3. Nationality of assessee
  4. Residential status
  5. Period for which the certificate is applicable
  6. Address of applicant for the period for which the certificate is applicable

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.


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