Income Tax Taxation

TDS on Non-Resident Indians: Section 195 of the Income Tax Act, 1961



In the present era of globalization, there are minimal restrictions on the boundaries for business and their transactions.  Businesses are not restricted to one country and are spreading all over the world with a large number of transactions taking place daily. For transactions that take-place inter-country, it becomes difficult to check the country under whose tax regime such transaction would be taxed.

In India, Section 195 of the Income Tax Act, 1961 deals with the determination of the applicable Rate of Tax on eligible income & deductions that can be made on business transactions with Non-residents Indians. NRI can later claim the refund while filing his Income Tax Return.

Who are Non-Resident Indians?

Residential Status of an assessee depends upon the period of stay in India in previous years. The period of stay is counted for each financial year that starts from 1st April and ends on 31st March of every year.

An individual is said to be Resident of India if he has stayed in India for the following period:

  1. For 182 days or more in that relevant year


  • For a period of full 1 year out of 4 years preceding to relevant year and at least 60 days in a relevant previous year.
In case an assessee doesn’t satisfy any of the above-mentioned criteria, he/she will be treated as Non-Resident Indian (NRI) for the relevant previous year under review.

It is compulsory to check the residential status of Payee when the payment is made by an Indian payer. Section 195 would be applicable in those cases where the payee is NRI.

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Section 195- An Overview

Tax Deducted at Source (TDS) is the primary source of collection of tax by Government departments. This section covers the TDS on the income of Non-Residents. Any payment made to an NRI[1] or any international transaction entered into with an NRI is subjected to tax & deductions that are regulated by this section.

This section applies to the assessee who has the residential status of an NRI and has any source of income from India during the period under review. The Income Tax Act lays down the provisions for deducting the tax at source when the payment is initiated by an Indian payer for making such payment to an NRI. The TDS is implemented on such a transaction to avoid the loss of revenue of the Indian Government.

Defining Payer & Payee for the applicability of Section 195

The payer is the person who makes the payment to an NRI or remits payment and deducts TDS to deposit with the tax authority. The following can be the payer as per Section 195 of the Income Tax Act:

  • An individual
  • HUF
  • Partnership firms
  • Non-Residents
  • Foreign Companies
  • Any individual that has exempted income in India
  • Any juristic person irrespective of his income taxable in India or not

The payee is an individual who is a Non-Resident Indian as per section 6 of the Income Tax Act, 1961. The income of an NRI arising in India is subject to TDS under this section. All types of assessee like corporate, individual or any other entity can be payee under this section.

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Methods of Deducting Tax at Source under Section 195

Following are the ways of deducting TDS as per the provisions of this section:

  • As per section 203A of the Income Tax act, 1961, TAN is mandatory for deducting TDS. A buyer should obtain the TAN (Tax Deduction Account Number) before claiming tax deductions. TAN can be obtained by applying online in Form 49B. For submitting the form, a buyer should have PAN (Permanent Account Number) of himself as well as that of NRI (Payee).
  • As per the provisions of this section, it is mandatory to mention all the details of TDS deductions & applicable rates of TDS in the deed of all the transactions made between the payer & NRI payee.
  • TDS deducted shall be paid through Challan or form number on or before the 7th of the succeeding month on which the TDS is deducted.
  • Such TDS has to be deposited in the banks that are authorized by the Income Tax Departments or through the Government of India for the collection for Direct Tax.
  • Such a deposit of TDS has to be made by the payer.
  • After deducting tax at source, the payer needs to file the quarterly return.

Filing of TDS Return

After the deposit of the TDS by the payer as per the provisions of section 195, he/she has to file a return pertaining to the same. Such a return is filed online through Form 27Q. TDS return is filed quarterly. Following are the dates of filing TDS for every quarter:

Tax deducted in the Quarter   Due date of filing return
  1st April- 30th June     15th July
  1st July-30th September     15th October
  1st October-31st December     15th January
  1st January-31st March     15th May
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After filing the return, the payer can issue a TDS certificate that is also known as Certificate of deduction of Tax or Form 16 to the NRI payee. Such a certificate has to be issued within 15 days of the due date of filing of TDS return, for the particular quarter.

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