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
Use TDSMAN Software to file seamless & error-free TDS / TCS returns, without any professional help.
Under which section I have to deposit TDS for purchase of property from NRI in July 2026
TDS on Purchase of Property from a NRI will be subject to TDS u/s 393(2) [Table: Sl. No. 17] (Old – u/s 195). – Correct
But under Nature of Remittance which do we choose. There is no option of Long Term Capital Gains on sale of Property
For the Nature of Remittance, you may refer to the remittance code list.
Please check the applicable Nature of Remittance from the list and confirm the appropriate selection with your tax professional before proceeding.
Under which section i have to deposit TDS for the brand fee (company)?
The ‘Brand Fee’ is specifically not defined in the Act. This may be treated Royalty or Professional Fee (Section 393(1) [Table: Sl. No. 6(iii).D(b)] | Tax Code: 1027 ). TDS @10% is applicable in both cases. Would suggest to consult a tax professional.
Under which section I have to deposit TDS for purchase of property from NRI in July 2026
TDS on Purchase of Property from a NRI will be subject to TDS u/s 393(2) [Table: Sl. No. 17] (Old – u/s 195).