Section 195 : TDS rates for NRI (Non-Resident Indian) as per Income Tax Act

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Hiral Vakil

TDS
TDS Sections
Last updated on February 3rd, 2023

Section 195 of the Income Tax Act is applicable to all Non-residents or Foreign companies whose income has been accrued or arise in India. Also, If any payment is being made by any person to a non-resident then tax needs to be deducted under this section irrespective of the amount.

What is Section 195?

Section 195 is concerned with the deduction of tax on payments or income of non-resident indian. Under this section, if any payment is being made in the nature of Interest or any other sum which is chargeable to tax in India except Salary then tax needs to be deducted at specified rates.

Also, there is no threshold limit to deduct TDS u/s 195 and the payer must deduct tax only when the payment made to a non-resident is taxable in India.

Who is a Payer under section 195?

A payer is a person who is making a payment to a non-resident. The payer can be:

TDS rates for NRI under section 195 of the Income Tax Act:

Nature of PaymentTDS Rates
Income from the investment made by an NRI  20%
Income by way of LTCG referred to in u/s 115E in case of an NRI10%
Income by way of LTCG u/s 112 or 112A10%
Short Term Capital Gain income from shares and securities referred to in Section 111A15%
Any other income by way of LTCG20%
Income by way of fees for Technical services payable by Govt. or an Indian concern10%
Interest payable on money borrowed in Foreign currency20%
Income by way of Royalty payable by the Government or an Indian concern10%
Income by way of Royalty other than the nature of the royalty payable by the Government or an Indian concern.10%
Any other income30%

Note: Furthermore, Health & Education cess is to be added to the above rate.

EXAMPLE: Ram is an NRI and invests in the stock market. He earned INR 5,00,000 as Long Term capital gains on the sale of stock, what will be the TDS amount in this case?

In this case, the payer will deduct TDS at the rate of 20% plus Health& Education cess on the total amount of gain. The total amount of TDS that needs to be deducted is INR 1,00,400 i.e ( INR 5,00,000*20.08) and also the payer should only credit INR 3,99,600 to Ram’s account after deducting the tax amount.

Disclosures in relation to Foreign payment

If the payer is responsible to make any payment to the NR or Foreign company then they are required to furnish such information and payment in Form 15CA & Form 15CB. Also, If the amount paid is exempt under the Income Tax Act the payer is required to furnish such information in Part D of 15CA.

TDS Return

The payer/deductor should obtain a TAN for deducting the tax. Also, they should file quarterly TDS returns in Form 27Q within the respective due date.

TDS Certificate

The payer should also provide a TDS certificate in Form 16A to the payee whose tax has been deducted. Further, the deductor can download the same from their TRACES account.

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FAQs

What is the meaning of Non-resident?

To decide the residential status of a person under income tax, we need to check the basic and additional conditions and other criteria prescribed under section 6 of the Income Tax Act 1961. Only non-residents are covered under this section, Resident but not Ordinary Residents ( RNOR) are not covered in this section. 

When to deduct the TDS?

TDS is deducted at the time of payment to the payee or at the time of credit of income to the payee account, whichever is earlier.

Can NRI claim a TDS refund?

Yes, the payee can claim a refund of the tax which is being deducted while filling out the income tax return. 

Is this TDS deduction mandatory even if the total taxable income in India is less than INR 2.5 lacs?

Yes, as per RBI norms every time a payment is to be made, the payer of that amount is duty-bound to deduct tax at source under section 195 of the Income Tax Act even if your total taxable income in India is below INR 2.5 lacs.

Got Questions? Ask Away!

  1. Hey @Dia_malhotra

    As per section 194A, TDS on interest other than interest on securities is required to be deducted by any person other than Individual or HUF at the rate of 10%, when paid to a resident. No surcharge, education cess or SHEC shall be added to the above rate.

    Hope this helps!

  2. Hey @HarishMehta

    TDS u/s 194J needs to be deducted by deductor other than an individual or a HUF, @ 10% on any amount paid or payable to any which is in excess of INR 30,000 as:

    1. Fees for professional services
    2. Fees for technical services
    3. Any remuneration or fees or commission by whatever name called paid to a director ( other than salary)
    4. Royalty
    5. Any sum referred to in clause (VA) of section 28.

    Hope this helps!

  3. Hello @the_AK,

    Against gross income, you can claim business expenses that you have incurred for earning that income. So you can claim this service fee as a business expense from the gross income received by you.

    Hope this helps!

  4. Hello @Anuj_Agarwal,

    TDS will be deducted by the company when the interest is actually paid on the securities, so at that time whoever is the owner of such security shall receive the interest and can claim credit of interest.

    Hope this helps!

  5. I have respectable salary income and 1000 insurance commission…ie old commission…not claiming any expenses…can i show it as other income in itr1 or have to file itr 3

  6. Hi @Shivam_B

    If you have income from salary and income from insurance commission (business income), then you will be required to file ITR 3.

  7. Itr 3 is so big…have to pay heavy charges…for filing…will it be defective if i do so ie reporting 1000 as other income in itr1 along with salary income…have closed down the insirance work since yesrs…i even contacted commssiom giving broker and closed my commission account…still they are showing in 26as wheress i am not receiving in real

  8. Hi @Shivam_B

    As per the recent utilities, ITD gives you the option to select only the schedules applicable to you while filing ITR.
    Thus, you are not required to go through the entire ITR 3 form. You can also prepare and file ITR on Quicko, where you can upload form 16 and add commission income under the head “Business & Profession” and file ITR 3, without any charges as Quicko is a DIY platform helping individuals to file taxes.

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