Section 195 – TDS on Non-Residents of India

5. Other provisions of Section 195

Provisions related to TDS as prescribed under Section 195 of the Act are discussed below-

• Tax Deduction Account Number (TAN) should be first obtained by the person deducting tax under Section 203A of the Act. In order to obtain the same, application in Form 49B (also available online) is required to be made to the Income Tax Department. For completing the submission of the form, the deductor should have his/ her own PAN as well as the PAN of the NR deductee.
• No Tax or Lower Tax order can be taken by applying to the Assessing Officer, if the deductor or the deductee is certain that the whole income is not chargeable to tax. Rate on which tax is to be deducted and the validity period are mentioned on the said order of the Assessing Officer.
• TDS is required to be deducted at the time of payment to the NR or while crediting the account in the books of accounts by whatever name called, whichever is earlier.
• The TDS amount deducted by the payer is to be deposited through banks authorized by the Government of India or Income Tax Department via a form number or challan for TDS payment on or before 7^th of subsequent month in which such TDS is deducted.
• After depositing the TDS, the payer must electronically file TDS return by submitting Form 27Q within the stipulated time frame.
• TDS returns are filed quarterly. Due dates for filing Form 27Q are 31^st July, 31^st October, 31^st January and 31^st May for Quarter 1, 2, 3 and 4 respectively.
• On successful submission of TDS returns, the deductor is mandatorily required to issue TDS certificate to the NR deductee within 15 days from the due date of filing the TDS return for the respective quarter. The certificate of deduction of TDS is available in Form 16A.

6. Rate of TDS under Section 195

The rate of TDS under Section 195 depends on the nature of payment and the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of which the NR is a resident. In case there is no DTAA, the TDS rate shall be as per the provisions of the Income Tax Act, 1961 .TDS rates as prescribed under Section 195 shall be increased by surcharge and education cess as applicable thereon. If the payment to the NR is being made as per DTAA rates, then the surcharge and education cess are not to be included. The rates prescribed in respect of various nature of income for non-residents under the Income Tax Act are as follows-

7. Form 15 CA and 15 CB

A person responsible for making such remittance (payment) has to submit the form 15CA, before remitting the payment. In certain cases, a Certificate from Chartered Accountant in form 15CB is required before uploading the form 15CA online.

The furnishing of information for payment to NR in Form 15CA has been classified into 4 parts:

PART A: Where the remittance or the aggregate of such remittance does not exceed Rs. 5 lakh during the financial year.

PART B: Where remittance or the aggregate of such remittances exceeds Rs. 5 lakh during the financial year and an order/ certificate u/s 195(2)/ 195(3)/197 of the Act has been obtained from the Assessing Officer.

PART C: Where the remittance or the aggregate of such remittance exceeds Rs. 5 lakh during the financial year and a certificate in Form No. 15CB from an accountant has been obtained.

PART D: Where the remittance is not chargeable to tax under the Act.

8. Consequences of Non-Compliance of Section 195

In case the TDS is not deducted or is not deducted in accordance with the provisions of the Income Tax Act, 1961, the person responsible for making the payment shall be liable to pay the tax so deductible, along with interest and penalty as may be imposed by the Income Tax Department. The consequences of non-compliance with the provisions of Section 195 of the Act can be iterated as below-

• If TDS is not deducted, it will lead to disallowance of expense under Section 40(a)(i).
• If tax has been deducted but not deposited within the due date, interest at the rate of 1.5% per month or part of the month shall be levied from the date of deduction to the date of deposit.
• If tax has been deducted and not at all paid, penalty equivalent to the TDS amount shall be levied.
• In case of short deduction of TDS, penalty equivalent to the difference between actual amount of TDS deductible and that actually deducted shall be levied.

9. Procedure of obtaining TDS exemption Certificate

If the whole of the income is not chargeable to tax, an application can be made for TDS exemption certificate.

1. NR can voluntarily apply for a Lower TDS Certificate to the concerned Income Tax Authority, to seek relief in the TDS implication.
2. To apply for the said certificate the NR is required to file Form 13 on the Income Tax Portal using the login credentials used to create their account on the portal.
3. The applicant is also required to provide the supporting documents asked in the form for Lower TDS Certificate. The required documents are submitted with Form 13 Application online.
4. On successful completion and submission of required documents, the application is forwarded to the Jurisdictional TDS Certificate Officer. The officer reviews the application and raises observations & further requirements if any.
5. Once satisfied with the authentication of the application, the officer processes the certificate and allots the Lower TDS to the NR/Foreign citizen in relation to the transaction.

10. Conclusion

Section 195 of the Income Tax Act, 1961 lays down the provisions regarding TDS on payments made to non-residents and is an important section for those making such payments to ensure compliance with the provisions of the Income Tax Act, 1961. It primarily focuses on the rates and deductions on the business transactions entered into with NRs and consequences of its non-compliance. It is also important to note that the primary responsibility for ensuring the collection and deposit of the tax due from the NR is placed on the deductor, and not the NR recipients.