Section 195 - TDS on Non-resident payments
PrintListen to this Article
Section 195 of Income Tax Act 1961
Section 195 of the Income Tax Act is a section that covers the TDS on Non-resident payments. This section identifies the tax rates and deductions on business transaction with a non-resident from a day –to-day basis.
Under Section 195, the income is chargeable under Income Tax Act.
Any sum is charged and the certificate for remittance is mandatory.
Any sum chargeable to tax is the amount that is paid which bears the character of income and gross amount, the whole of which may or may not represent income or profits.
The Act lays out a provision to avoid a revenue loss as a result of tax liability in the hands of a foreign resident, by deducting the same amount from payments made to them at source.
Payer is the person who is remitting the payment to a non-resident payee. The payer can be individuals, Hindu Undivided Family, firms, non-residents, foreign companies, persons having exempt income in India and any juristic person irrespective of whether that person has income chargeable to tax in India or not.
Payee is a non-resident whose residential status is as per Section 6 of the Act.
TDS under section 195:
The following are the ways to be followed to deduct TDS under Section 195:
- TAN (Tax Deduction Account Number): Buyer should first obtain TAN under section 203A of the Income Tax Act, 1961 before deducting TDS.
- TAN can be obtained by applying by filling up Form 49B. This form is also available online. Buyer should also have his own PAN number and PAN number of the NRI seller.
- TDS must be deducted at the time of making the payment to the NRI. The information about the TDS being deducted and the rate at which it was deducted should be mentioned in the sale deed between the NRI seller and the buyer.
- The TDS deducted by the buyer should be deposited through Form number or challan for TDS payment on or before the 7th of next month in which the TDS is deducted.
- The TDS can be deposited through banks that are authorized by government of India or the Income Tax Department to collect Direct Taxes. The deposit has to be made by the buyer.
- After the TDS has been deposited, the buyer has to electronically file TDS return by submitting Form 27Q. TDS returns are filed quarterly. TDS deducted during the first quarter from 1st April to 30th June must be filed on 15th July. TDS deducted during the second quarter from 1st July to 30th September must be filed on 15th October. TDS deducted during the third quarter from 1st October to 31st December must be filed on 15th January. TDS deducted during the fourth quarter from 1st January to 31st March must be filed on 15th May.
- After the TDS returns have been filed, buyer can issue TDS certificate or Certificate of Deduction of Tax which is Form 16A to NRI seller. This certificate should be issued to the seller within 15 days from the due date of TDS returns for the quarter.
Rate of TDS under Section 195:
Rates prescribed under the Act have to be increased by surcharge and education cess at the prescribed rate. Where DTAA Exists, then there is no need to add surcharge and education cess. The rates are as follows:
| Particulars | TDS rates |
| Income in respect of investment made by a NRI | 20% |
| Income by the way of long term capital gains in Section 115E in case of a NRI | 10% |
| Income by way of long-term capital gains | 10% |
| Short Term Capital gains under section 111A | 15% |
| Any other income by way of long-term capital gains | 20% |
| Interest payable on money borrowed in Foreign Currency | 20% |
| Income by way of royalty payable by Government or an Indian concern | 10% |
| Income by way of royalty, not being royalty of the nature referred to be payable by Government or an Indian concern | 10% |
| Income by way of fees for technical services payable by Government or an Indian concern | 10% |
| Any other income | 30% |
By
CA Pooja Mittal
Mob. 9990746500
poojamittal2006@yahoo.co.in
Category : Income Tax | Comments : 0 | Hits : 1322
Income Tax Alert - Here Are 5 High-Value Transactions That May Come Under Scrutiny. Large Cash Deposits: Any cash deposit exceeding Rs 10 lakh in a financial year across savings accounts draws the attention of the income tax department. Even if deposits are spread across multiple accounts, the cumulative amount beyond the threshold triggers scrutiny. Fixed Deposits: Surpassing the Rs 10-lakh limit in fixed deposits within a financial year prompts inquiries regarding the source of f...
Delhi Court Sentences Woman to 6 months Jail for not filing the return of income (ITR) discussed. Accordingly, the accused is held guilty of not filing the return of income for the assessment year 2014-15 under Section 276CC of The Act. Accordingly, the accused is convicted for an offence punishable under Section 276CC of the Act," the court said in the judgement. "The convict is awarded a sentence of simple imprisonment for six months with a fine of Rs 5,000 and in default to unde...
Corporates, Non-corporates or government department all are procuring major part of services or goods from the MSMEs. There are provision under the Micro, Small, and Medium Enterprises Development (MSMED) Act, to ensure that businesses make payments to MSMEs within a specified time frame, and failure to which can impact the deduction claims for such payments. To facilitate timely payments to micro, small, and medium enterprises (MSMEs) and address the challenges faced by these businesses in rec...
In the Income tax act, the words “Turnover”, “Gross receipts” and Sales are used at many places. In the common business parlance, the terms sales and turnover are used interchangeably. However, as per Income Tax law, guidelines are available on the question of what constitutes turnover. Understanding the concepts of these words is necessary for the purpose of the tax audit. An audit is mandatory for corporate assessees, irrespective of the amount of turnover. In ...
Very Important Income Tax Update regarding Micro and Small Enterprises Section 43B-any amount remains unpaid on year end to creditors, being micro/small entity, beyond 45 days or less, as agreed or 15 days if no agmt, shall be added to taxable Income resulting in huge additional tax liability. Keeping such creditors unpaid is risky. If payment for purchases made from *Micro and Small units* remains outstanding on 31st March, there may be huge tax liability. Therefore...
Comments