www.caspot.com brings you the exclusive post of Faq's On Section 195 of Income Tax Act - TDS On Non Resident
Introduction: Tax
Deducted at Source (TDS) is the first way of collection of any taxes.
Under Income tax also TDS is the very important tax collection method.
TDS under income tax varies based on the nature of transaction and
payment by different sections, such as section.194A, 194B, 194C, 194I
etc. Out of different TDS sections, section 195 is the very important
section which covers the TDS on Non resident payments. Under
globalisation scenario the business boundaries are not restricted with
one country; it spread over all over the world. Accordingly tax laws are
also differing. In our country the TDS on Non resident under section
195 is the unique section to identify the tax rates and deductions on
our business transaction with non resident day to day basis. In this
article I would like to discuss about the Frequently Asked Questions
(FAQ) on TDS on Non resident payments under section 195 of Income tax
act.
Q.1 What is the meaning of Non resident?
Ans: To decide the
residential status of person under income tax, we need to check the
basic and additional conditions and other criteria prescribed under
section.6 of the Income tax act, 1961. Only Non resident covered under
this section, Resident but not ordinary resident ( RONR) not covered
this section.
Q.2 Who is the Payer under section.195?
Ans: Under section.195
all the payers are covered irrespective of their status like Individual,
HUF, and Firm & Corporate etc. So all the payers are responsible to
deduct TDS under this section if they are making payment to non
resident as per prescribed conditions.
Q.3 Who is the payee under section 195?
Ans: Under this section
all the payees are covered whether Individual or Corporate or any other
status. So making payment to non resident, not being company or to a
foreign company covered under payee if they meet the non resident status
under section.6 of the Income tax act.
Q.4 Which payments & expenses are covered under sec.195?
Ans: As per this section
any interest (not being interest referred to in section 194LB or
section 194LC or section 194LD) or any other sum chargeable under the
provisions of this Act (not being income chargeable under the head
"Salaries").
So following payment not required TDS deduction under this section
a. Interest referred under sections.195LB/LC/LD
b. Salary payment
c. Dividend payment u/s.115-O
Above payments are exclude under this
section from TDS deduction and all other payments are covered under this
section. But payment against import is not comes under purview of TDS.
Q.5 What about the Salary & Dividend payment to Non resident?
Ans: Section.195
specifically excludes Salary and dividend payment, Salary payment to non
resident covered u/s.192 not under section.195. Dividend not taxable
in the hands of recipient since the dividend distribution tax paid by
the declaring company.
Q.6 When to deduct the TDS?
Ans: TDS has to be
deducted at the time of credit or payment whichever is earlier.
Crediting which means even crediting in suspense account or any other
name called considered as deemed to be credited, accordingly the TDS
will apply.
Q.7 What is the threshold limit for deduction of TDS?
Ans: Under this section,
there is no threshold limit is prescribed, TDS need to be deducted the
entire amount without any threshold limit.
Q.8. What is the TDS rate as per section.195?
Ans: Relevant rate in
force as per chapter XVIIB. Incase payee not having valid PAN, then TDS
rate as per rate prescribed chapter XVIIB or 20% whichever is higher
will apply. While calculating TDS rates we need to consider the
provisions under Double Taxation Avoidance Agreement (DTAA) for the
relevant country if any. In case payee fulfilling all the conditions as
prescribed in the DTAA then rates as per DTAA will apply. Generally
rates under DTAA will be lower than normal TDS rates.
Q.9 What will be the exchange rate for TDS on non resident?
Ans: Exchange rate of Reserve Bank of India ( RBI) on the day which TDS required to be deducted has to be considered
Q.10 What is DTAA?
Ans: Double Taxation
Avoidance Agreement (DTAA) is the agreement between two countries with
an objective to avoid taxation on same income in both countries.
Presently India has the comprehensive DTAAs with more than 80 countries.
Q.11 What is the conditions & procedure to avail DTAA benefit by NR?
Ans: The Non Resident Deductee has to submit the following documents with deductor to avail the TDS rates as per DTAA
a. Tax Residency Certificate (TRC)
b. PAN card copy
c. Self declaration
d. Passport copy & Visa copy (if any)
The above documents need to submit with deductor annual basis every year.
Q.12 What is Tax residency certificate and how & where to get that?
Ans: Tax Residency
certificate (TRC) is the certificate duly verified and issued by the
Government of the country of which NR claims to be a resident for the
purpose of tax. The TRC certificate can be obtained from the Government
or Tax authorities of the particular country of NR.
Q.13 What are the details should contains in TRC?
Ans: A TRC should contain the following details
a. Name of the assessee
b. Status of the assessee (Individual, Firm, Company Etc.)
c. Nationality
d. Country
e. Assessee Tax Identification or Unique Identification number of the relevant Country
f. Residential status for the purpose of tax
g. Validity Period of the certificate
h. Address of the applicant
Q. 14 What is the procedure to deduct the TDS u/s.195?
Ans: Remitter as per
section.195(6) & rule 37BB need to obtain the form 15CB from a
Chartered Accountant while remitting the payment to non resident and
need to file the form 15CA ( undertaking by remitter) in online in the
income tax website through their PAN login. After online preparation of
form 15CA need to take print out and sign and submit along with form
15CB to their banker/AD to remit the payment. For every remittance,
remitter need to above procedure to remit the payment.
Q.15 What details are required to obtain form 15CB certificate from a CA?
Ans: The following details need to be produced with CA for getting form 15 CB
- Agreement and Invoices;
- Payment details
- Correspondences
- Technical Advice – prove bonafides
- Proof of services being rendered in case of Group Company transactions
- E-mails etc regarding pricing in case of Group Company transactions
- Remitting bank details
- Rate of conversion of foreign currency
Q.16 Whether Non resident eligible for getting Nil deduction certificate?
Ans: Yes. As per
section.195 (3) & Rule 29B, a non resident can make the application
to income tax department if he fulfils the following conditions
a. Assessee has been regularly assessed to tax and has filed all returns of income due as on date of filling of application
b. Not in default in respect of any tax, interest, penalty or any other sum
c. Not subject to penalty u/s.271(1)(iii)
d. Carrying on business in India
continuously for at least 5 years and the value of the fixed assets in
India exceeds Rs.50 Lakhs
Q.17 What is the validity of the certificate issued for Nil deduction?
Ans: Nil deduction
certificate issued under section.195 (3) shall remain in force till the
expiary of the certificate or cancel by the A. O whichever is earlier.
Q.18 Whether reimbursement of actual expenses covered u/s.195?
Ans: Since there is no
income element in the reimbursement of expenses actually incurred by a
non resident or foreign company not covered u/s.195. However the nature
of transactions and payments depends upon the situation because
different contradictory citations are available to justify for both the
applicability and non applicability.
Q.19 What is the status of TDS deducted if after deduction the contract or work is cancelled?
Ans: There is cases that
after making advance payment to Non resident or making partial payment
to non resident the contract or work is cancelled by both parties. Such
as case if any TDS deduction made while making payments, the same can be
claimed from the department CIRCULAR NO. 7/2007 DATED 23-10-2007
Q.20 What will be the consequences of non complying of section.195?
Ans: following will be the consequences for non compliance of section 195
a. Disallowance of the particular expenses u/s.40a(i) if the TDS not at all deducted
b. If the TDS is deducted but not paid
within time lime then interest @ 1.50 per month or part of the month
from the date of deduction to date of deposit (Sec.201 (1A)
c. If the TDS deducted and not paid – Penalty equivalent to the TDS amount Sec.221
d. TDS deducted short – Penalty equivalent to difference between actual deductible and deducted amount Sec.271C
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