Tds on non resident ( company)

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 February 2012 Dear all,
Plz suggest,
while deducting 20% tds on interest on loan taken from non resident company u/s 195 .
Is education cess is added on 20 % ie. tds will be deducted on 20.60% ?
Plz suggest as early as possible.

Thanks

CA. Hari Kishan

CA. Hari Kishan (Expert)
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16 February 2012 TDS may be deducted @ 20% flat.. do not add cess on the % age of deduction..

Querist : Anonymous

Querist : Anonymous (Querist)

17 February 2012 Dear
Plz clarify why education cess is not added on 20%.Because in FA2010, aslo specify that EC & SHEC will be added on tds rate ?

Plz clarify ?
Thanks

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Great question! This is a common point of confusion.

Here’s the clarification on **TDS rates and cess on payments to non-resident companies under Section 195**:

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### 1. **TDS on Non-Resident (including non-resident companies) under Section 195**

* The **Income Tax Act mandates TDS deduction on payments to non-residents**, like interest on loans.
* The **basic TDS rate on interest to non-resident companies is 20% (plus applicable surcharge and cess)** unless a lower DTAA rate applies.

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### 2. **Is Education Cess and SHEC added on TDS rate for non-residents?**

* **No, cess and surcharge are NOT added on TDS rates for payments to non-residents under section 195.**
* The reason is that **TDS on non-residents is treated as final withholding tax, and the rates mentioned are 'gross' rates.**
* So, you deduct **TDS at 20% flat (or as per applicable DTAA)** and remit that amount.
* **Education cess and SHEC are not added on top of the TDS amount.**

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### 3. **What about Finance Act 2010?**

* Finance Act 2010 clarified that **education cess and secondary & higher education cess apply on the tax payable by resident taxpayers**.
* For **non-resident TDS, cess is not separately added** because the tax is deducted as per the DTAA/domestic law rates, which are final.

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### 4. **Summary**

| Nature | TDS Rate on Non-Resident Interest | Education Cess / SHEC on TDS? |
| ------------------------------------ | --------------------------------- | ----------------------------- |
| TDS under section 195 | 20% (or as per DTAA) | **No cess added on TDS** |
| TDS under domestic law for residents | Tax rate + cess applicable | Yes |

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**Therefore, you deduct TDS @ 20% flat on the interest payable to the non-resident company. Do NOT add 2% education cess or 1% SHEC on the TDS amount.**

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If you want, I can share references from Income Tax Circulars or CBDT clarifications on this. Would you like that?

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