What is Section 195?
Section 195 of the Income Tax Act, 1961 mandates that any person (including individuals, Hindu Undivided Families (HUFs), firms, or companies) responsible for making payments to non-residents must deduct TDS if the income is chargeable under the Income Tax Act. This includes various income types such as interest, dividends, royalties, fees for technical services, and any other sum (excluding salaries) payable to a non-resident.
Who is Responsible for Deducting TDS?
The obligation to deduct TDS under Section 195 lies with the payer, who can be:
- Individuals
- Hindu Undivided Families (HUFs)
- Partnership Firms
- Companies
- Non-Resident Indians (NRIs)
- Foreign Companies
- Other Juristic Entities
Even individuals or HUFs, who are not subject to tax audits, must deduct TDS when making payments to non-residents.
TDS Rates Under Section 195
| Type of Income | TDS Rate % | |
| Indv / HUF | Others | |
| a) Income in respect of investment made by a Non-resident Indian Citizen | 20 | 20 |
| b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen | 12.5 | 12.5 |
| c) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112 | 12.5 | 12.5 |
| d) Income by way of long-term capital gains as referred to in Section 112A | 12.5 | 12.5 |
| e) Income by way of short-term capital gains referred to in Section 111A | 20 | 20 |
| f) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A | 12.5 | 12.5 |
| g) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) | 20 | 20 |
| h) Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern where such royalty is in consideration for the transfer of all or any rights (including the granting of a license) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India | 20 | 20 |
| i) Income by way of royalty [not being royalty of the nature referred to point h) above] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy | 20 | 20 |
| j) Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy | 20 | 20 |
| k) Any other income | 30 | 30 |
*Note: Rates are subject to surcharge and cess. DTAA rates may apply.*
Double Taxation Avoidance Agreement (DTAA) Benefits
A non-resident payee can apply for Nil or Lower TDS deduction by filing Form 15CA and Form 15CB, certified by a Chartered Accountant. Additionally, if a DTAA exists between India and the recipient’s country, the non-resident can claim a lower tax rate as per the treaty.
Some key benefits of DTAA include:
- Avoidance of double taxation (tax paid in one country may be credited in the other)
- Lower TDS rates compared to domestic tax rates
- Specific exemptions on certain types of income