Non-Resident Indians (NRI) also have to file their tax returns for the income earned in India, just like the resident Indians. Therefore, the income tax payments for an NRI citizen are a bit complex compared to the resident Indians. The tax payment guideline for NRIs is listed in Section 195 of the Income Tax Act.
What is Section 195?
Section 195 of income tax act, 1961 (ITA) provides information on the Tax Deducted at Source (TDS) for all Non-Resident Indians (NRIs).
TDS is the primary way of gathering taxes. It is an efficient way of taking care of tax leakages by withdrawing the Tax at the time of payment and putting the responsibility of TDS on the individual making the payment.
Any amount gained through different business transactions, income or profits is chargeable under the Income Tax Act 1961. Like resident Indians, NRIs can also claim a TDS refund when filing tax returns.
Section 195 of income tax act provides information for TDS for NRI on payments made by NRI citizens. It highlights the tax rates and deductions involved in an NRI citizen’s business transactions. While making the payments, providing the certificate of remittance is compulsory. Section 195 also mentions the guidelines for avoiding a revenue loss from any NRI tax liability by deducting that amount from their source payments.
Steps for deducting TDS under Section 195:
1. The buyer should provide the TAN (Tax Deduction Account Number) number before deducting Section 195 TDS. You can get the TAN by providing the 4B form to the Income Tax department. In addition, the buyer should have their PAN number and the PAN of the NRI seller as well for completing the submission of Form 49B.
2. TDS should be deducted when making payments to the NRI. The transaction contract must include details like the TDS rate and amount.
3. The TDS deducted by the buyer should be deposited through an authorized bank with a challan or a form number. This can be done online, and it should be done by the 7th of the upcoming month.
4. The buyer should file their TDS returns after the TDS has been deposited. The filing should be done quarterly by providing form 27Q and through financial institutions authorized by the Government of India.
5. After depositing the TDS, the buyer should file the TDS returns. The dates provided in the guidelines should be followed for a seamless process. The dates for filing in a particular quarter are by June -July 15, September quarter – October 15, December quarter – January 15 and March quarter – May 15.
6. Once the TDS has been filed, the buyer can provide a TDS certificate to the NRI seller. It is essential that the buyer issue this certificate to the seller 15 days from the due date of filing the TDS returns for the quarter.
Who is a Non-resident?
According to the aforementioned provisions, if a person is not an Indian resident as defined in section 6 of the Act, they are considered non-residents in India.
In any financial year, a person is considered to be a resident of India if they meet the requirements listed below:
if they remain in India for 182 or more days throughout the fiscal year,
if they spend at least 60 days in India during the fiscal year and at least 365 days during the four fiscal years before it.
Who should deduct tax under Section 195?
Any person who makes a payment to a non-resident that is taxable in India (other than a wage or interest as defined in sections 194LB, 194LC, and 194LD) is required to withhold tax in accordance with this section.
A resident or non-resident, a person, a Hindu Undivided Family (HUF), a partnership firm, another NRI, a foreign company, or an artificial juridical entity might be the payer, the one who pays the NRI or remits the payment (for example, a corporation, government agency or non-profit organization).
TDS return and certificates
Any person making a payment to a non-resident must get a TAN and deduct tax at the appropriate rates in light of the provisions of section 195. Within the set deadlines, the payer must deposit the tax withheld with the government against the payee’s PAN. The payer must also provide the TDS return in Form 27Q by the quarterly deadlines and give the non-resident the TDS certificate in Form 16A.
Conclusion
Thus, Section 195 of the ITA provides the rates and deductions for Non-Resident Indians. It focuses primarily on the tax rates and deductions on business transactions with an NRI. The amount generated through these transactions is chargeable under the Income Tax Act. To deduct the TDS on Non-Residents, the steps provided under Section 195 should be followed. Following the guidelines can be helpful for a smooth process of deducting the TDS.
