Under the Income Tax Act, there are certain transactions have been specified under which TDS shall be deducted at the time of credit or payment as per the requirement of section. These sections includes 194A, 194B, 194C, 194J, 194Ietc. In these sections, there’s a section U/s 195 which when payment is being made to any Non-Resident.
In this article, we shall discuss the TDS on the payment made to Non-Resident.
The objective is to monitor and curd the tax evasions on the payment made to a non-resident. Since once the payment has been credited to the non-resident then it would be very hard for the government to collect the tax amount from such non-resident due to geographical boundaries. Hence, the burden to collect and deposit the tax has been transferred to the resident buyer.
This article discusses on the Frequently Asked Questions (FAQ) made on deducting TDS on the payments made to Non-resident under section 195 of the Income-tax act.
In this article, we will discuss about...
Q.1 Meaning of Non-resident?
Ans: Section 6 of the income tax act, 1961 has specified the criteria to decide the residential status of the assessee. Although, if the assessee stays more than 182 days in India in the relevant previous year, then he shall be resident otherwise he shall be called Non-Resident.
Q.2 Who shall be responsible to deduct TDS under section.195?
Ans: As per section 195, irrespective of their status, all the taxpayers are covered like Individual, HUF, and Firm & Body Corporate, etc. So as per this section, TDS is required to be deducted by all payers.
Q.3 Who is the payee under section 195?
Ans: Whether Individual or Corporate or any other status, all the payees are covered under this section. So making payment to any non-resident, other than any company, covered under payee only if they fall under the definition of nonresident status as per section 6 of the Income-tax Act, 1961.
Q.4 what kind of transactions are covered under sec.195?
Ans: Under this section, any interest amount (other than interest as per section 194LB or section 194LC or section 194LD) or
Other than salary, all other sums shall be chargeable under this section.
Following are the payment in which TDS is not required to be deducted under section 195:
- Interest under sections 195LB/LC/LD
- Payment of Salary
- Payment of Dividend u/s 115-O
i.e. except for the above-specified payments, all other payments are covered under this section. However, if payment made against any import then it would not be covered under the purview of TDS.
Q.5 If the above-specified payments are not covered under section 195 then in which section the TDS would be deducted for these payments?
Ans: As we discussed above, Section.195 totally excludes Salary and dividend payment. So, TDS shall be deducted u/s.192 not under section.195, if any salary payment is made to any NRI. Also, Dividend is not taxable in the hands of recipient i.e. NRI because dividend distribution tax (DDT) is required to be paid by the company from whom the dividend is to be received.
Q.6 What is the time limit for deducting TDS u/s 195?
Ans: TDS is required to be deducted at the time of credit or payment whichever is earlier. Time of credit means the time when the property is being handed over to the buyer but the payment is yet to be made and accordingly the TDS will apply.
Q.7 What Would be the Threshold limit for deducting of TDS?
Ans: Under this section, no threshold limit has been prescribed, TDS would be deducted on the entire amount of consideration without any threshold limit.
Q.8. At what rate the TDS would be deducted under section.195?
Ans: There are different rates that have been specified as per the nature of the transactions. These rates have been defined in chapter XVIIB. However, if the payee i.e. If the NRI does not contain a valid PAN, then TDS shall be deducted at @ 20% or any other rate as prescribed chapter XVIIB whichever is higher shall be applicable.
When we are calculating TDS rates, we should consider the provisions of the Double Taxation Avoidance Agreement (DTAA) of the relevant country if any. Rates as per DTAA shall be applicable, in case NRI is fulfilling all the prescribed conditions of DTAA then. Generally, rates under DTAA are lower than normal TDS rates.
Q.9 Which exchange rate shall be considered for TDS on non-resident?
Ans: The RBI exchange rate shall be taken on the day on which TDS is required to be deducted.
Q. 10 What is the Double Taxation Avoidance Agreement (DTAA)?
Ans: Double Taxation Avoidance Agreement (DTAA) is an agreement established between the two countries with the objective to avoid taxation on the same income in 2 countries. Currently, India has multiple DTAAs with more than 80 countries.
Q.11 How can an NRI take the benefit of DTAA?
Ans: The NRI is required to submit the following documents with the payer to avail the TDS rates as specified under DTAA
- Tax Residency Certificate (TRC)
- PAN card copy
- Self-declaration
- Passport copy & visa copy (if any)
If the NRI has regular transactions with the payer then these documents are required to submit on an annual basis.
Q.12 What is Tax residency certificate and from where to get this?
Ans: It is the certificate that has duly verified and issued by the Government of the country in which NRI claims to be a resident for the purpose of tax. This can be obtained from the Government or Tax authorities of that particular country of NRI.
Q.13 What kind of details should be covered in TRC?
Ans: A TRC should cover the following details
- Name of the assessee
- Status of the assessee (Individual, Firm, Company, Etc.)
- Country of origin
- Assessee Tax Identification or Unique Identification number of the relevant Country
- Residential status for the purpose of tax
- Validity Period of the certificate
Q.14 Procedure for the deduction of TDS u/s.195?
Ans: NRI needs to obtain 15CB form from a Chartered Accountant while making the payment to non-resident as per section.195(6) & rule 37BB and needs to file the form 15CA ( undertaking by NRI) online at income tax website through their PAN login. Once form 15CA is prepared then NRI needs to take a print out of the form and sign and submit it along with Form 15CB to their banker/AD to make the payment. On every remittance, NRI needs to follow the above procedure to remit the payment.
Q.15 What kinds of details are covered in form 15CB certificate?
Ans: The following details need to be submitted to a CA for form 15 CB:
- Agreement and Invoices copy;
- Details of Payment
- Technical Advice
- In the case of Group Company transactions, Proof of rendering of services.
- E-mails, Remitting bank details, Rate of conversion of foreign currency and other general information.
Q.16 Can an NRI eligible for taking the Nil deduction certificate?
Ans: Yes, as per section 195 (3) & Rule 29B, an NRI may make the application to the department if he fulfills the following conditions
- NRI has filed all his ITR due, as on the date of filing of an application.
- He should not be in assessee in default
- He should not be liable for the penalty u/s.271(1)(iii)
- If he is Carrying a business in India for continuously at least 5 years and the value of the fixed assets in India exceeds Rs.50 Lakhs.
Q.17 For how many transactions, the nil deductions certificate is valid?
Ans: Nil deduction certificate issued under section 195 (3) shall remain valid up to the expiry of the certificate or it has canceled by the A. O whichever is earlier.
Q.18 What would be the penalty If the person does not comply with section.195?
Ans: If the buyer does not comply with the requirements of this section then following will be the consequences:
- Such expenses shall be disallowed u/s 40a(i).
- If the TDS has been deducted but not paid within 30 days from the end of the month in which TDS was deducted then interest @ 1.50% per month or part of the month shall be levied from the date of deduction to date of deposit (Sec.201 (1A))
Also, in the above case, the penalty shall be levied which is equivalent to the TDS amount Sec.221
- if TDS has short deducted or not deducted then interest shall be charged @ 1% per month or part of the months and Penalty equivalent to the difference between actual deductible and deducted amount Sec.271C shall be levied from the date in which it is required to be deducted to the date of actual deduction of TDS.
Q.19 Where the property to be sold is being owned by residents and an NRI jointly, then what will be the provision of TDS?
As we know that in case where the seller is resident then the TDS shall be deducted under section 194IA @ 1% on the sale value of consideration, in case the value exceeds Rs.50 Lakhs, however, in case the seller is being Non-Resident then the TDS shall be applicable at the rate as applicable under section 195 of Income-tax Act, 1961. For a resident, TDS shall be deducted at 1% and for NRI TDS shall be @ 20.8% of the value in the proportion of their holding. For example; a property that is equally and jointly owned by Mr. A (resident) and Mr. B (NRI) is to be sold at Rs 50 lakh rupees, TDS would be deducted @1% on Rs.0.5 lakhs for MR. A and @ 20.8% on Rs 10.40 lakhs for Mr. B.
Q.20 What are the other compliances required for the Buyer who has applied for TAN and has also paid the number of TDS?
Yes. The buyer will also have to file the TDS return within 30 days from the end of the particular quarter in which TDS payment is done. He has to file this before the due date to avoid the penalty for late filing of TDS return.
Q.22 When the TDS liability is being occurred whether it is to be paid is at the time of the agreement or at the time on which the amount of advance paid without an agreement?
Ans. TDS would have to be paid on or before the 7th working day of next month. It depends on whether the agreement is made or not. If the agreement has not been made than TDS would have to be deducted on the advance paid amount. If the agreement exists than TDS will be deducted on the entire amount of consideration.
Q.23 What are the due dates for the filing of TDS return
Ans. Due dates for the filing of return is as follows:
| Quarter | Period | The due date for filing |
| 1st Quarter | 01.04.2019 to 30.06.2019 | 31.07.2019 |
| 2nd Quarter | 01.07.2019 to 30.09.2019 | 31.10.2019 |
| 3rd Quarter | 01.10.2019 to 31.12.2019 | 31.01.2020 |
| 4th Quarter | 01.01.2020 to 31.03.2020 | 31.05.2020 |
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