Section 195 - TDS on transactions/payments of NRIs

LLP registration for NRIs and foreign nationals

Taxation
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December 11, 2021

Section 195 of the Income Tax Act 1961 contains provisions regarding tax deductions for Non-Resident Indians (NRI’s). The focal point of this section is on tax rates and deductions for day-to-day business transactions with a non-resident. Any proceeds from these business-related transactions are taxable under the Income Tax Act, 1961. This amount may or may not be profit or income. Certificate of remittance is compulsory. This section provides further instructions for avoiding a loss of income due to tax liability from an NR (that is Non- resident) by deducting the same amount from their payments at the source.

Payer
The payer, i.e., the person remitting payments to an NRI, can be an individual, Hindu Undivided Family (HUF), Indian or foreign company, a person with exempt income in India, and the juristic individual with or without a payment that is chargeable to income tax in India.

Payee
The beneficiary is any non-resident with a residential status subject to Section 6 of the Income Tax Act, 1961.

The following are the steps for tax deductions as per section 195 of the Income Tax Act, 1961:

The buyer must first obtain TAN, i.e. Tax Deduction Account Number, according to section 203A of the Income Tax Act, 1961, before asserting tax deductions at source. It can be obtained by filing Form 49B, which can be used online and offline. To complete the Form 49B filing procedure, the buyer must have their PAN number and the PAN number of the NRI vendor.
TDS must be deducted from the source while making payment to the NRI. TDS deductions and the applicable rates should be outlined in the sale deed of the transactions entered into between the buyer and the NRI seller.
The TDS deducted by the buyer must be submitted via challan or Form number for TDS remittance on or before the 7th of the following month in which the TDS deductions were made.
Buyers can deposit tax deducted at source through banks that have been permitted by the government of India or the income tax department to collect direct tax.
After the TDS has been deposited in accordance with section 195, the buyer must submit a TDS return via electronic mode by submitting Form 27Q. TDS returns are submitted on a quarterly basis. TDS deductions for the first quarter of a particular financial year must be filed by July 15 of that year. TDS deducted for the second quarter of the financial year must be filed by October 15. TDS deductions for the third quarter must be filed by January 15. TDS deductions for the fourth quarter must be filed by May 15.
After filing a TDS return, the buyer may issue a TDS certificate to the NRI vendor, referred to as a certificate of deduction of tax or Form 16A. The buyer must provide this certificate to the seller within 15 days of the due date for filing TDS returns for that quarter.

TDS rates under section 195
The TDS rates, as referred under section 195 of the Income Tax Act, 1961, are further increased by applicable education cess and surcharge. However, no additional education cess or surcharge is considered if payments are made according to DTAA rates.

The applicable TDS deduction rates under section 195 of the Income Tax Act 1961 are as follows:

Particulars	TDS Rates
Income from investments made by an NRI’s	20%
Income from long-term capital gains under section 115E (for an NRI)	10%
Income from long-term capital gains	10%
Short-term capital gains under section 111A	15%
Any other income from long-term capital gains	20%
Interest payable on money borrowed in foreign currency	20%
Income from royalty payable by the government or an Indian concern	10%
Income from royalty other than that which is payable by the government or an Indian concern.	10%
Income from fees for technical services payable by the government or an Indian concern.	10%
Any other source of income	30%

At AJSH, we assist our clients in dealing with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or would like to know more about Section 195 TDS on transactions of NRIs, kindly contact us.