Section 195 of Income Tax

Chetan Chauhan | Last updated: 09 January 2023

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Section 195 of India's Income Tax Act mandates that payers must deduct tax at source (TDS) when making payments to non-residents or foreign companies. This applies to various income types, including capital gains and interest, with specific rates outlined. The deducted tax must be remitted to the Central Government, and both payer and recipient have reporting obligations.

Section 195 of the Income Tax Act of India pertains to the deduction of tax at source on certain incomes received by a non-resident or a foreign company. Under this section, the payer is required to deduct tax at the applicable rate when making payment to the non-resident or foreign company. The tax so deducted is required to be deposited to the credit of the Central Government. This provision applies to payments made by a person resident in India to a non-resident or a foreign company for:

Section 195 Income Tax: TDS for Non-Residents

Particulars	TDS Rates (in %)
Income in respect of investment made by a Non-resident Indian Citizen	20
Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen	10
Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112	10
Income by way of long-term capital gains as referred to in Section 112A	10
Income by way of short-term capital gains referred to in Section 111A	15
Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A	20
Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC)	20
Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115A of the Income-tax Act, to a person resident in India	10
Income by way of royalty [not being royalty of the nature referred to point h) above] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy	10
Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy	10
Any other income	30

The payer is required to obtain a Tax Deduction and Collection Account Number (TAN) and furnish a TDS return to the Income Tax Department in the prescribed form. The non-resident or foreign company is required to report the income in their tax return and claim credit for the tax deducted at source. It is important to note that the provisions of this section are in addition to, and not in substitution for, the other provisions of the Income Tax Act.