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Sec 195 – TDS on payment to non-resident

U.C Date : 02 May 2015

Persons responsible for deducting TDS

Any person responsible for paying to a non-resident, not being a company or to a foreign company, any interest (other than u/s 194LB,194LC or 194LD) or any sum chargeable to tax other than salary.

If the payment made is in the nature of salary then TDS to be deducted under section 192 and not under this section.

However if interest is payable by the government or public sector bank or a public financial institution deduction of tax shall be made only at the time of payment.

Resident but Not Ordinarily Resident (NOR) is not covered under this section.

Rate of TDS

There is no threshold limit. It means that tax is required to be deducted irrespective of amount of payment.

The rate of TDS is the rates which is in force under chapter. Incase payee not having valid PAN, then TDS rate  as per rate prescribed chapter XVIIB or 20% whichever is higher will apply. However DTAA provisions are also to be considered. If there is Double Tax Avoidance Agreement (DTAA) between India and country of residence of payee then such provisions will apply.

TDS amount is to be increased by surcharge if the payment is made to a foreign company exceeding rs. 1 crore. EC and SHEC are to be added to the amount of TDS in case payment is made to a non-resident or a foreign company.

Assessee can apply to assessing officer for no TDS or TDS at lower rate under Section 197.

Point of Deduction

TDS is required to be deducted at the time of credit of such sum to the account of payee or at the time of payment whichever is earlier, is required to deduct income tax thereon.

Bare Act for Sec 195

Bare Act for Sec 195

(1)  Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest  [(not being interest referred to in section 194LB or section 194LC)]  [or section 194LD]  or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries” ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

[Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode :] [Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O.] [Explanation 1].—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.] [Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—

(i)  a residence or place of business or business connection in India; or

(ii)  any other presence in any manner whatsoever in India.]

(2) Where the person responsible for paying any such sum chargeable under this Act (other than  salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the  [Assessing] Officer to determine,  [by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.

[(3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the  [Assessing] Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

(4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the  [Assessing] Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

(6) The person responsible for paying to a non-resident, (not being a company), or to a foreign
company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the
information relating to payment of such sum, in such form and manner, as may be prescribed.

(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.

2 comments

  1. under sec 195 payement of TDS can be done onlly online or cheque pament can also be made

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