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TDS on Payment to a Non-Resident [Section 195]

1.   TDS on income of Non-Resident:

Any person responsible for paying to a non-resident, not being a company, or to a foreign Company, any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any sum chargeable under this Act (other than salary) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier deduct income- tax thereon at the rates in force.

Provided that in the case of interest payable by the Government or a public sector bank within the meaning of section 10(23D) or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. [First proviso to section 195(1)]
Provided further that no tax shall be deducted from any dividends referred to in section 115-O declared, distributed or paid by a domestic company. [Second proviso to section 195(1)]

2.   Who is required to Deduct TDS under section 195 [Explanation 2 to Section 195(1)]

For the removal of doubts, it is hereby clarified that the obligation to comply with section 195(1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—

(i)         a residence or place of business or business connection in India; or

(ii)        any other presence in any manner whatsoever in India.

In other words, person whether resident or non-resident is required to deduct tax at source before making payments to another non-resident, if the payment represents incomes of the payee non-resident chargeable to tax in India.

3.   The person responsible for paying:

In the context of section 195 the meaning of the "person responsible for paying" is covered under clauses (iia) and (iii) of section 204 which are as under:

(A) Where the sum representing consideration for the transfer of foreign exchange asset is payable to non-resident Indian [Section 204(iia)]

Where the sum payable to a non-resident Indian represents consideration for the transfer by him of any foreign exchange asset (other than a short-term capital asset), the "authorised dealer" responsible for remitting such sum or crediting such sum to his non-resident (External) account, shall be the person responsible for deduction of tax. For this purposes, "non-resident Indian" and "foreign exchange asset" shall have the same meaning as in Chapter XII-A of the Income-tax Act. Further, "authorised dealer" shall have the same meaning as a section 2(b) of the Foreign Exchange Regulation Act, 1973.

(B) In any other case [Section 204(iii)]

In the case of credit or, as the case may be, payment or any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.

4.   When the TDS is to be Deducted:

Tax shall be deducted either at the time of actual payment of such income or at the time of its credit to the account of the payee (by whatever name called), whichever is earlier.
However, in the case of interest payable by the Government or a public sector bank or a public financial institution, deduction of tax shall be made only at the lime of pay men: thereof in cash or by cheque or draft.

Meaning of Rate or rates in force for section 195 [Section 2(37A)]:

"Rate or rates in force" or "rates in force", in relation to an assessment year or financial year, for the purposes of deduction of tax under section 195, mean:

the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90,

whichever is applicable by virtue of the provisions of section 90.

5.   Payer of the amount may make application for TDS Deduction on the "income" comprised in the payment [Section 195(2)]:

Where the person responsible for paying any such sum, as mentioned above, to a non-resident considers that the whole of such sum would not be income chargeable in the case of payee in India, he may make an application to the Assessing Officer to determine by general or special order, the appropriate portion of such sum so chargeable and upon such determination, tax shall be deducted by him accordingly.

Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application '[in such form and manner to the Assessing Officer. to determine in such manner, as may be prescribed], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under section 195(1) only on that proportion of the sum which is so chargeable.

6.   If The person responsible for paying any sum to a non-resident to furnish information in a prescribed manner [Section 195(6)]

The person responsible for paying any sum, whether chargeable to tax or not, to a non-resident, not being a company. or to a foreign company, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. The following rule 37BB has been prescribed for this purpose:

Furnishing of information for payment to a non-resident, not being a company, or to a foreign company [Rule 37BB]

(1)     The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum chargeable under the provisions of the Act, shalt furnish the following, namely:

(i)      the information in Part A of Form No. I 5CA, if the amount of payment or the aggregate of such payments, as the case may be, made during the financial year does not exceed Rs. 5,00,000 :

(ii)          for payments other than the payments referred in clause (I), the information.—

(a)             in Part B of Form No.15CA after obtaining,—

(I)     a certificate from the Assessing Officer under section 197; or

(II)    an order from the Assessing Officer under section 195(2) or (3);

(b)     in Part C of Form No.15CA after obtaining a certificate in Form No. 15CB from a chartered accountant.

(2)     The person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum which is not chargeable under the provisions of the Act, shalt furnish the information in Part D of Form No.1 5CA.

(3)     Notwithstanding anything contained in sub-rote (2), no information is required to be furnished for any sum which is not chargeable under the provisions of the Act, if,—

(i)      the remittance is made b5 an individual and it does not require prior approval of Reserve Bank of India as per the provisions of section 5 of the Foreign Exchange Management Act, 1999 read with Schedule III to the Foreign Exchange (Current Account Transaction) Rules, 2000; or

(4)        The information in Form No. 1 5CA shall be furnished,—

(i)      electronically under digital signature in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8) and thereafter printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment; or

(ii)     electronically in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8) and thereafter signed printout of the said form shall be submitted to the authorised dealer, prior to remitting the payment.

(5)     An income-tax authority may require the authorised dealer to furnish the signed printout of Form No.15CAreferred to in clause (ii) of sub-rule (4) for the purposes of any proceedings under the Act.

(6)     The certificate in Form No. 15CB shall be furnished and verified electronically in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8).

(7)     The authorised dealer shall furnish a quarterly statement for each quarter of the financial year in Form No.15CC to the Principal Director General of Income-tax (Systems) or the person authorised by the Principal Director General of Income-tax (Systems) electronically under digital signature within fifteen days from the end of the quarter of the financial year to which such statement relates in accordance with the procedures, formats and standards specified by the Principal Director General of Income-tax (Systems) under sub-rule (8).

(8)     The Principal Director General of Income-tax (Systems) shall specify the procedures, formats and standards for the purposes of furnishing and verification of Form 15CA, Form 15CB and Form 15CC and shall be responsible for the day-to-day administration in relation to the furnishing and verification of information, certificate and quarterly statement in accordance with the provisions of sub-rules (4), (6) and (7).

7.   Board empowered to notify class of persons or cases who shall make an application to Assessing Officer to determine appropriate portion of sum chargeable to tax [Section 195(7)]

Notwithstanding anything contained in section 195(1) and section 195(2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application [in such form and manner to the Assessing Officer, to determine in such manner, as mar be prescribed], the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under section 195(1) on that proportion of the sum which is so chargeable.

8.   Where no TDS is to be Deducted at Source [Section 195(3) and Rule 29B]:

The person entitled to receive any interest or other sum (other than income from salary) may make an application in prescribed Form to the concerned Assessing Officer and obtain a certificate authorising the person responsible for making such payment to make payment of such income without deducting tax thereon.

Where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon.

9.   Where the TDS is either not to be deducted or to be deducted at Lower Rate [Section 197 Rules 28 and 28AA]

The assessee to whom income under section 195 is payable may make an application in Form No. 13 for obtaining a certificate for deduction of tax at any lower rate or no deduction of tax, as the case may be.

An application by a person for grant of a certificate for the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be. under section 197(1) shall be made in Form No. 13 electronically,—

(i)         under digital signature; or

(ii)        through electronic verification code.

Where such certificate is given, it will be valid for such period of the previous year as may be specified in the certificate and the person responsible for paying the salary, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified in such certificate or deduct no tax, as the case may be.

The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued except in certain cases direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate

However, as per section 206AA(4), no certificate under section 197 shall be granted unless the application made in Form No. 13 under that section contains the Permanent Account Number of the applicant

 

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