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What is Section 195 of the Income Tax Act? TDS on Non-Residents of India

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  • 10th Mar 2021
  • 1,137
What is Section 195 of the Income Tax Act? TDS on Non-Residents of India

A Non-Resident Indian (NRI) also has to file for their tax returns for the income earned in India, just like the resident Indians. 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 the Indian 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 the 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, be it income or profits, gained through different business transactions are chargeable under the Income Tax Act, 1961. Just like resident Indians, NRIs also have the option of claiming the refund of TDS when filing tax returns.

Section 195 provides information for TDS on payments made by NRI citizens. It highlights the tax rates and deductions involved for all the business transactions of an NRI citizen. 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. The buyer should have their own 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 payment to the NRI. Details like TDS rate and amount must be included in the contract of transaction.

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. After the TDS has been deposited, the buyer should file their TDS returns. The filing should be done quarterly by providing the form 27Q and through financial institutions that are 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 quarter -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 important that the buyer issue this certificate to the seller in the 15 days from the due date of filing the TDS returns for the quarter.

Conclusion

Thus, Section 195 of the ITA provides the rates and deduction for Non-Resident Indians. It focuses primarily on the tax rates and deductions on the 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.

- A Consumer Education Initiative series by Kotak Life

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