{"id":7398,"date":"2022-03-02T20:07:44","date_gmt":"2022-03-02T14:37:44","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=7398"},"modified":"2022-05-24T10:42:19","modified_gmt":"2022-05-24T05:12:19","slug":"section-195-of-income-tax-act","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/","title":{"rendered":"Section 195 of Income Tax Act: Overview and Applicability of TDS for NRI"},"content":{"rendered":"\n<p>Non-Resident Indians (NRIs) <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in India and earn returns on their incomes. Furthermore, NRIs might have a source of income from India. In such cases, when a payment is made to NRIs, a <a href=\"https:\/\/www.tickertape.in\/blog\/tds-rate-chart\/?utm_source=blog&amp;utm_medium=article\" target=\"_blank\" rel=\"noreferrer noopener\">TDS<\/a> (Tax Deducted at Source) is deducted from the income payable. This deduction is specified under Section 195 of the <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-income-tax\/\">Income Tax<\/a> Act, 1961.&nbsp;<\/p>\n\n\n\n<p>Let\u2019s understand this section in detail.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#Section-195-of-the-Income-Tax-Act-1961\" title=\"Section 195 of the Income Tax Act, 1961\">Section 195 of the Income Tax Act, 1961<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#Who-is-an-NRI\" title=\"Who is an NRI?\">Who is an NRI?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#Onus-of-deducting-TDS\" title=\"Onus of deducting TDS\">Onus of deducting TDS<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#Deducting-TDS-on-NRI-income\" title=\"Deducting TDS on NRI income\">Deducting TDS on NRI income<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#TDS-rates-on-NRI-income\" title=\"TDS rates on NRI income\">TDS rates on NRI income<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#Nil-deduction-certificate\" title=\"Nil deduction certificate&nbsp;\">Nil deduction certificate&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#Non-compliance-of-TDS-rules-under-Section-195\" title=\"Non-compliance of TDS rules under Section 195\">Non-compliance of TDS rules under Section 195<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/section-195-of-income-tax-act\/#The-bottom-line\" title=\"The bottom line&nbsp;\">The bottom line&nbsp;<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"section\"><span class=\"ez-toc-section\" id=\"Section-195-of-the-Income-Tax-Act-1961\"><\/span><strong>Section 195 of the Income Tax Act, 1961<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 195 of the Income Tax Act, 1961 states the rules for <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-tds-and-how-to-file-it\/\">TDS<\/a> deduction on NRI income arising in India. Payment of the income is subject to TDS at specified rates depending on the type of income earned. TDS is, however, deducted, provided that such an income is taxable in India.&nbsp;<\/p>\n\n\n\n<p>For instance, say, an NRI invests in a mutual fund in India. When the NRI redeems the fund, and if a return is earned, the mutual fund company would deduct TDS on the redemption amount and then credit the amount to the NRI\u2019s bank account.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"who\"><span class=\"ez-toc-section\" id=\"Who-is-an-NRI\"><\/span><strong>Who is an NRI?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An individual is called an NRI if he doesn\u2019t fulfill any of the following conditions:<\/p>\n\n\n\n<ul><li>His stay in India is for 182 days or more in the last financial year.<\/li><li>His stay in India is for 60 days in the last financial year and 365 days or more in the 4 yrs immediately before the last financial year.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"onus\"><span class=\"ez-toc-section\" id=\"Onus-of-deducting-TDS\"><\/span><strong>Onus of deducting TDS<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>TDS deduction from NRI income would be done by the following types of entities if they pay an income to the NRI:<\/p>\n\n\n\n<ul><li>Resident Indians<\/li><li>Hindu Undivided Families<\/li><li>Other NRIs<\/li><li>Partnership firms<\/li><li>Foreign companies<\/li><li>Juristic individuals<\/li><li>Individuals that earn tax-exempted income in India&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"tds\"><span class=\"ez-toc-section\" id=\"Deducting-TDS-on-NRI-income\"><\/span><strong>Deducting TDS on NRI income<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If you are paying an income to an NRI, here are the points that you should keep in mind:<\/p>\n\n\n\n<ul><li><strong>A TAN number is mandatory&nbsp;<\/strong><\/li><\/ul>\n\n\n\n<p>You have to avail of a TAN (Tax Deduction Account Number) if you are liable to deduct TDS. This number captures the TDS deductions that you do. You can get a TAN number if you fill up and submit Form 49B online or offline. After assessing and verifying the form, the income tax department allots a TAN number. To get the TAN number, you would have to provide yours and the NRI\u2019s PAN card number in the TAN form.&nbsp;<\/p>\n\n\n\n<ul><li><strong>TDS should be submitted within the required timeline<\/strong><\/li><\/ul>\n\n\n\n<p>Just deducting the TDS is not enough. You need to submit the TDS to the Government too. Submit the TDS through a challan or a TDS form within the 7<sup>th<\/sup> of the following month. This means that TDS deducted in August should be submitted within the 7<sup>th<\/sup> of September and so on. You can deposit the TDS through the income tax department or authorized banks.<\/p>\n\n\n\n<ul><li><strong>File TDS returns<\/strong><\/li><\/ul>\n\n\n\n<p>After depositing the TDS, you also have to file TDS returns quarterly in Form 27Q. The due dates for filing the returns are as follows :<\/p>\n\n\n\n<ul><li>April \u2013 May \u2013 June quarter \u2013 31 July<\/li><li>July \u2013 August \u2013 September quarter \u2013 31<sup> <\/sup>October<\/li><li>October \u2013 November \u2013 December quarter \u2013 31<sup> <\/sup>January<\/li><li>January \u2013 February \u2013 March quarter \u2013 31 May<\/li><li><\/li><li><strong>TDS certificate<\/strong><\/li><\/ul>\n\n\n\n<p>After the filing is done, you have to issue a TDS certificate to the NRI showing the details of the TDS deducted. The certificate is issued in <a href=\"https:\/\/www.tickertape.in\/blog\/form-16\/?utm_source=blog&amp;utm_medium=article&amp;utm_campaign=\" target=\"_blank\" rel=\"noreferrer noopener\">Form 16<\/a>A within 15 days of filing the quarterly TDS returns.<\/p>\n\n\n\n<ul><li><strong>Salary and <a href=\"https:\/\/www.tickertape.in\/blog\/cash-dividend-vs-stock-dividend\/\">dividend<\/a> income are exempt<\/strong><\/li><\/ul>\n\n\n\n<p>Section 195 specifically excludes TDS deductions on salary and dividend payments to NRI. <a href=\"https:\/\/www.tickertape.in\/blog\/all-you-need-to-know-about-tds-on-salary\/\">TDS on salary<\/a> is applicable under Section 192 of the Income Tax Act, 1961.&nbsp;<\/p>\n\n\n\n<p>On the other hand, dividend income is taxed in the hands of the NRI at 20% plus surcharge and cess.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"rates\"><span class=\"ez-toc-section\" id=\"TDS-rates-on-NRI-income\"><\/span><strong>TDS rates on NRI income<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As mentioned earlier, the TDS rates differ for different NRI incomes. Here are the applicable TDS rates \u2013<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Investment income&nbsp;<\/td><td>20%<\/td><\/tr><tr><td>Long term capital gains<\/td><td>10%<\/td><\/tr><tr><td>Long term capital gains under Section 115E<\/td><td>10%<\/td><\/tr><tr><td>Other types of long-term capital gains<\/td><td>20%<\/td><\/tr><tr><td>Short term capital gains under <a href=\"https:\/\/www.tickertape.in\/blog\/section-111a-income-tax-act\/\">Section 111A<\/a><\/td><td>15%<\/td><\/tr><tr><td>Interest income from an amount in foreign currency&nbsp;<\/td><td>20%<\/td><\/tr><tr><td>Earning from technical services rendered to the Government or any other Indian company&nbsp;<\/td><td>10%<\/td><\/tr><tr><td>Royalty income from services rendered to the Government or any other Indian company<\/td><td>10%<\/td><\/tr><tr><td>Royalty income from any other source except the Government or Indian company&nbsp;<\/td><td>10%<\/td><\/tr><tr><td>Other sources of income&nbsp;<\/td><td>30%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"nil\"><span class=\"ez-toc-section\" id=\"Nil-deduction-certificate\"><\/span><strong>Nil deduction certificate&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NRIs can avoid TDS deduction if they avail of a nil deduction certificate. However, this certificate is allowed only if the following parameters are met \u2013<\/p>\n\n\n\n<ul><li>The NRI is not defaulting on any type of interest, tax, or gratuity.<\/li><li>The NRI has a running business in India continuously for 5 yrs, and the value of the fixed assets of the business is more than Rs. 50 lakh.<\/li><li>The assessee has been assessed to tax and has filed income tax returns regularly.<\/li><li>The NRI is not facing any penalty under Section 271 (1) (iii).<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"195\"><span class=\"ez-toc-section\" id=\"Non-compliance-of-TDS-rules-under-Section-195\"><\/span><strong>Non-compliance of TDS rules under Section 195<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Every individual is required to deduct TDS on NRI payments as per the provisions of Section 195. If the provisions are not complied with, the following repercussions will ensue:<\/p>\n\n\n\n<ul><li>Expenses specified under Section 40 (a) (i) would be disallowed.<\/li><li>If TDS has been deducted but not submitted to the Government within the specified time limits, interest would be charged at 1.5% per month or part thereof. This interest would be charged from the date of deduction of TDS to the date the TDS is submitted.<\/li><li>If TDS is deducted but not deposited with the Government, a penalty would be levied. This penalty would be equal to the TDS deducted.<\/li><li>If TDS is not deducted at the specified rates and there is a shortfall, a penalty would be levied. This penalty would be the shortfall between the TDS deducted and the TDS deductible.&nbsp;<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The-bottom-line\"><\/span><strong>The bottom line&nbsp;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If you are liable to pay any form of payment to an NRI, know the TDS implications. TDS is applicable, as specified in the provisions of Section 195. Deduct the specified TDS and also deposit it with the Government within the due date to avoid penalties. Consult your CA or tax advisor for more details on TDS and its nuances.&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Looking for information on section 195 of income tax act? Check out this guide to know what is section 195 &#038; find out the latest TDS rates that NRIs are charged!<\/p>\n","protected":false},"author":54,"featured_media":7429,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[8,1741],"tags":[1451,1450,1452,1453],"acf":[],"modified_by":null,"jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/03\/2.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/7398"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/54"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=7398"}],"version-history":[{"count":6,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/7398\/revisions"}],"predecessor-version":[{"id":8538,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/7398\/revisions\/8538"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/7429"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=7398"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=7398"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=7398"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}