Non-Resident Indian (NRI) is determined by the residential status of the person under the income tax. We need to check the basic and additional conditions and other criteria’s prescribed u/s 6. In this section, only Non-residents are covered not the RNOR (Resident but Not Ordinary Resident). Form 27Q is for the TDS on Non-resident payments.
Payer and Payee under section 195
- The payer (irrespective of their status like individual, HUF, Firm etc.) are responsible for deducting TDS if payment is made to a non-resident.
- The payee is a non-resident whose residential status is according to Section 6 of the Act.
Payments and expenses
Any interest or any other sum chargeable under the provisions of this Act is included as payments or expenses.
Payments that are excluded
- Interest referred under sections 195LB/LC/LD
- Salary payment
- Dividend payment u/s 115-O
Note: Payments against import do not come under the purview of TDS which is reported in Form 27Q.
Salary & Dividend payment to Non-resident
Section 195 excludes Salary and dividend payment. Salary payment to non-resident is covered u/s 192 not under section 195. Tax on the dividend is not in the hands of the recipient as dividend distribution tax is paid by the declaring company.
Procedure to deduct the TDS u/s 195
- TDS must be deducted at the time of making the payment to the NRI. The information about the TDS deducted and rate should be mentioned in the sale deed between the NRI seller and the buyer.
- TDS deducted by the buyer should be deposited by challan (for TDS payment) on or before the 7thof next month in which the TDS is deducted. The deposit has to be made by the buyer.
- After the TDS is deposited:
- The buyer has to file TDS return (online) by submitting Form 27Q.
- TDS returns are filed quarterly usually within 15 days (next month of quarter end), for e.g. first quarter from 1st April to 30th June then it is filed on 15th
- After the TDS returns are filed in Form 27Q, the buyer can issue TDS certificate (Form 16A to NRI seller). This certificate should be issued within 15 days to the seller from the due date of TDS returns for the quarter.
TDS rate under section 195
There is no threshold limit prescribed under this section i.e. TDS need to be deducted on the entire amount. Rates mentioned u/s 195 is increased by surcharge and education cess. If the payment is being made as per DTAA rates, then no surcharge and education cess are added. For DTAA rates, all conditions under DTAA should be satisfied.
The rates are as follows:
|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%|
For both NR and foreign companies is 3%.
Payment to non-residents
- Up to Rs. 1Cr. = Nil
- More than Rs. 1Cr. = 15%
Payment for foreign companies
- Up to Rs. 1Cr. = Nil
- More than Rs. 1Cr. = 2%
- More than Rs. 10Cr. = 5%
Exchange rate for TDS
Exchange rate for TDS on a non-resident is set by the Reserve Bank of India (RBI). The day, on which TDS is required to be deducted, rates of that day should be considered.
Documents required for DTAA benefits
Double Taxation Avoidance Agreement (DTAA) is an agreement between two countries with an objective to avoid taxation on same income in both countries. Presently, India has the comprehensive DTAA with more than 80 countries.
- Tax Residency Certificate (TRC): This certificate is verified and issued by the Government of the country in which NR claims to be a resident for tax purposes. The TRC certificate can be obtained from the Government or Tax authorities of the particular country of NR.
- PAN card copy
- Self declaration
- Passport & Visa copy (if any)
- Deductor annual basis
Eligibility for getting a Nil Deduction Certificate
As per section 195 (3) & Rule 29B, a non-resident can make the application to income tax department for a nil deduction certificate, if fulfills the following conditions:
- If the assessee filed all the returns timely.
- The assessee is not a defaulter in respect of tax, interest, penalty etc.
- Not subject to penalty u/s 271(1)(iii).
- Business in India for at least 5 years. The value of the fixed assets in India exceeds Rs. 50Lakhs.
The validity of nil deduction certificate is valid until the expiry or is not canceled by the Assessing Officer (whichever is earlier).
Consequences of non-complying u/s 195
- If the TDS is deducted but not paid within the time limit, then interest @ 1.50 % per month is applied. Also, a penalty equivalent to TDS amount u/s 221.
- TDS deducted is less than the amount to be deducted then, a penalty equivalent to the difference.
- It is important to file Form 27Q online that involves a detail of TDS.
In case you are confused about TDS Return Filing as a deductor, feel free to consult the experts at LegalRaasta. You can get comprehensive assistance with our TDS Return Filing Software which supports TDS on Salary payments (Form 24Q), Rent, Interest, Commission and other Non-salary transactions (Form 26Q), NRI (Form 27Q)and TCS (Form 27EQ).