Under India’s income tax law people making certain payments are responsible for deducting tax at source (TDS) from the amount. Section 195 of the Income Tax Act deals with TDS deductions on NRI income.
See also: Section 194H of Income Tax Act: TDS on commission and brokerage
What is Section 195?
Section 195 talks about TDS deductions on payments made to non-resident Indians or foreign companies. This must be deducted from the income paid in the form of interest or any other amount, except salary.
The income payer is responsible for deducting and submitting the TDS even though the income earner has to pay the tax. For instance, a tenant with an NRI landlord would be responsible for deducting tax under Section 195 from the landlord’s rental income.
The payer must deduct tax only when the payment is taxable in India. No TDS would be deducted in case of income exemption.
Who can deduct TDS under Section 195?
- Resident
- Non-resident
- Individual
- Hindu Undivided Families (HUFs)
- Partnership firms
- Foreign companies
- Artificial juridical person
Rate of TDS under Section 195
One can deduct tax, based on either of the following criteria:
A. According to the Finance Act of the given year, along with applicable surcharge and education cess of 4%.
| Type of income | Rate of TDS |
| Income from investment (interest/dividend) | 20% |
Long-term capital gains on transfer:
|
10% |
| Long-term capital gain from listed shares and securities referred to in Section 112A | 10% |
| Any other long-term capital gain | 20% |
| Short-term capital gains under section 111A | 15% |
| Interest payable by government or Indian concern on the money borrowed in foreign currency | 20% |
| Royalty and fees for technical services payable by the government or an Indian concern | 10% |
| Winnings from card games, lottery, crossword puzzles, horse races, etc. | 30% |
| Any other income | 30% |
B. Rates contained in the Double-Taxation Avoidance Agreement (DTAA) between India and the NRI’s country of residence. Surcharge and cess are not added to the rates under DTAA.
Responsibilities of the TDS deductor
- Get TAN details of the NRI
- Deduct and pay TDS
- Furnish the TDS return in Form 27Q within the quarterly due dates
- Issue TDS certificate in Form 16A to the NRI
FAQs
What is withholding tax?
Deducting tax at source is popularly known as withholding tax.
What does Section 195 of the Income Tax Act mean?
Section 195 of the Income Tax Act makes a payer responsible to deduct TDS from payments to an NRI at the time of payment or credit of income to the payee’s account, whichever is earlier.
On which income is TDS deducted under Section 195?
Section 195 provides for TDS deduction only on income that is taxable in India.
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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