Section 195 – TDS for Non-Resident Indians

Section 195 of the Income Tax Act, 1961, is all about the Tax Deducted at Source (TDS) for Non-Resident Indians. This section basically highlights the tax rates and deductions related to all business transactions.

Meaning of Section 195 of the Income Tax Act

The first measure/step taken by the IT department to collect taxes is by way of Tax Deducted at Source. Section 195 of the Income Tax Act covers the area of TDS on Non-resident payments. It recognizes the tax rates as well as deductions on various business transactions with a non-resident Indian on a regular basis. 

Under Section 195, the income is charged under the Income Tax Act. Under this section, any sum will be charged and it is mandatory to provide the certificate for remittance. The sum which will be charged to tax is that amount which is paid and that has the essence of income and the gross amount, of which, the whole may or may not be a representation of income or profit.

The Act has laid a provision in order to avoid any kind of revenue loss due to tax liability in the hands of an NRI, by way of deducting the specific amount from the payments which have been made to them at the source.

The person who remits the payment to the non-resident payee is known as Payer. The payer can be an individual, foreign company, Hindu Undivided Family, non-residents, firms, persons who have an exempt income in India or/and any juristic person regardless of whether the particular person has income which is chargeable to tax or not, in India. A Non-resident who has a residential status which is as per Section 6 of the Income Tax Act is known as Payee.

Ways of the deduction of TDS under section 195 of the Income Tax Act:

The ways which are to be followed in order to deduct TDS u/s 195 are as under:

• TAN (Tax Deduction Account Number): A buyer has to get a TAN first u/s 203A of the Act, before the TDS is deducted. One can get a TAN by applying and filling up of Form 49B. This form can be procured online too.  A buyer must also their own PAN along with the PAN of the NRI seller. 
• TDS has to be deducted while the payment is made to the NRI. The data regarding the TDS which is being deducted as well as the rate at which TDS was deducted has to be disclosed in the sale deed which is between the buyer and the NRI seller.
• The TDS that has been deducted by the buyer must be deposited via Form number/ challan for TDS payment either on or before the 7th of the following month in which the TDS has been deducted.
• The buyer has to deposit the TDS through banks which are authorized by either the government of India or the Department of Income Tax to collect the Direct Taxes.
• Post deposit of the TDS, the buyer must file the TDS return electronically by submission of Form 27Q. TDS returns are filed every quarter. For instance, TDS that is deducted in the first quarter starting 1st April to 30th June has to be filed on the 15th of July. 
• Post the filing of the TDS returns, the TDS certificate or the Certificate of Deduction of Tax (this is Form 16A to the NRI seller) can be issued by the buyer. This certificate has to be issued to the seller in a period of 15 days from the due date of the TDS returns for the specific quarter.