The provisions relating to deduction of tax at source on payments made to non-residents have been restructured under the Income-tax Act, 2025. The earlier Section 195 of the Income-tax Act, 1961 is now covered under Section 393(2) [Table: Sl. No. 17], effective from 1st April, 2026.
This restructuring prescribes applicable TDS rates for payments made to non-residents while continuing the existing framework of taxation on non-resident income (excluding salary).
Quick Reference – Section Mapping & Reporting
- New Section (IT Act 2025): Section 393(2)
- Table Reference: Sl. No. 17
- Nature of Payment: Any interest or any other sum chargeable under the provisions of the Act (excluding income under the head “Salaries”)
- Earlier Section (IT Act 1961): Section 195
- Return Form: Form 144 (Earlier Form 27Q)
- Code (for return filing): 1057
- Rate: Average rate as applicable
What is Section 195?
Section 195 mandates that any person responsible for making payments to non-residents must deduct TDS if the income is chargeable under the Income-tax Act.
The section applies to a wide range of income such as:
- Interest
- Dividends
- Royalties
- Fees for technical services
- Capital gains
- Any other sum payable to a non-resident, excluding salary
This provision ensures that tax is collected at the source on income accruing or arising to non-residents from India.
Who is Responsible for Deducting TDS?
The responsibility to deduct TDS lies with the payer, which includes:
- Individuals
- Hindu Undivided Families (HUFs)
- Partnership Firms
- Companies
- Non-Resident Indians (NRIs)
- Foreign Companies
- Other Juristic Entities
Even individuals or HUFs not liable for tax audit are required to deduct TDS when making payments to non-residents.
TDS Rates Under Section 195
| Type of Income | TDS Rate (%) – Individual/HUF | TDS Rate (%) – Others |
|---|---|---|
| Income by way of long-term capital gains referred to in Section 115E | 12.5 | 12.5 |
| Income by way of long-term capital gains referred to in Section 112(1)(c)(iii) | 12.5 | 12.5 |
| Income by way of long-term capital gains referred to in Section 112A | 12.5 | 12.5 |
| Income by way of short-term capital gains referred to in Section 111A | 20 | 20 |
| Other long-term capital gains (excluding specified cases) | 12.5 | 12.5 |
| Interest payable by Government or Indian concern (excluding specified concessional sections) | 20 | 20 |
| Royalty (specific category under Section 115A) | 20 | 20 |
| Royalty (other cases) | 20 | 20 |
| Fees for technical services | 20 | 20 |
| Any other income | 30 | 30 |
Note: Rates are subject to surcharge and Health & Education Cess. DTAA rates may apply where beneficial.
Specific Applicability under Code 1057
Code 1057 applies to:
- Interest income not covered under specified concessional provisions
- Any other sum chargeable under the provisions of the Act
- Payments other than salary income
The applicable rate shall be the average rate of income tax depending upon the nature of income and status of the recipient.
DTAA Benefits
A non-resident payee may apply for lower or nil deduction of TDS by furnishing prescribed documents such as Form 145 (Earlier Form 15CA) and Form 146 (Earlier Form 15CB).
Where a DTAA exists, the applicable rate shall be the lower of:
- Rate under the Income-tax Act
- Rate prescribed under the DTAA
Key benefits include:
- Avoidance of double taxation
- Lower TDS rates
- Specific exemptions on certain types of income
Compliance Requirements
Payments covered under this section are required to be reported in Form 144 on a quarterly basis. Depending on the nature of remittance, additional documentation and reporting requirements may apply.
These may include:
- Form 145
- Form 146
- Tax residency documentation
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