Applicablity on tds

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This discussion clarifies the applicability of Tax Deducted at Source (TDS) when a resident company purchases shares from a foreign shareholder. TDS under Section 195 is generally applicable if the shares are of an Indian company, as capital gains are deemed to accrue in India. Tax Residency Certificates (TRC) or applications to the Assessing Officer can help determine the correct TDS rate. TCS provisions are not applicable in this scenario. The rate for long-term capital gains on such transactions is typically 12.5%, though Double Taxation Avoidance Agreement (DTAA) provisions may also influence the final rate.

VARMA

VARMA (Querist)
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28 October 2025 Dear Learned professional,
kindly advise if resident company purchase shares from foriegn shareholder, while making payment by bank - tcs/tds to be deduction.
kindly advise

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 October 2025 If the shares being sold are shares of an Indian company, then as per Section 9(1)(i), capital gains arising from their transfer are deemed to accrue in India.

Therefore, the consideration paid to the foreign shareholder is taxable in India, and TDS under Section 195 applies.

Since the actual gain amount may not be known to the buyer, the buyer often applies to the Assessing Officer under Section 195(2) or obtains a certificate from the foreign seller under Section 197 / TRC (Tax Residency Certificate) to determine the correct TDS rate.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 October 2025 TCS under Section 206C or 206C(1H) is not applicable to this transaction.

TCS provisions typically apply to sale of goods or foreign remittances by authorized dealers—not on share purchase from non-residents.

VARMA

VARMA (Querist)
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29 October 2025 it is long term , what rate will apply

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 October 2025 Long-term capital gains arising from the transfer of the following assets as per Section 115E:

Shares of an Indian Company
Debentures and deposits of a Public Company in India
Securities issued by the government .... rate 12.5%

Rate applicability may also depend on DTAA provisions between India and the payee’s country.

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