TDS on payments u/s 195
This query is : Resolved
03 February 2010
As per the press release of CBDT no.402/92/2006-mc (04 of 2010) dated 20th Jan 2010, TDS needs to be deducted at higher rate of 20% for non-furnishing of PAN, my query is why is non-residents need to get PAN in india when they dont have business in India,
Is the circular of CBDT legally valid??
Is that possible?
Is the circular of CBDT legally valid??
Is that possible?
03 February 2010
Payments made to Non-Residents are governed by Double Taxation Avoidance Agreement (DTAA) entered by Government of India with Other countries. For non-residents not having permanent establishments in India, there is no need to obtain a PAN. The rates will be as governed by the DTAA agreements with the respective countries
The circular is relevant to the other TDS provisions like 194C, 194J etc.
The circular is relevant to the other TDS provisions like 194C, 194J etc.
03 February 2010
But if you see the press release, it has said that the law applies to non-residents also..
Then what is the status?
Then what is the status?
03 February 2010
But if you see the press release, it has said that the law applies to non-residents also..
Then what is the status?
Then what is the status?
27 July 2025
Great question! This topic has often caused confusion, so let me clarify:
---
### 1. **Why should non-residents get a PAN?**
* The law (Section 206AA) says if PAN is **not furnished by a deductee**, TDS must be deducted at a higher rate (20% or rate prescribed under law).
* This applies to **all deductees**, including **non-residents**.
* The rationale: PAN helps the Indian tax authorities track income and TDS credits properly.
---
### 2. **What about non-residents who don’t have business or PE in India?**
* Non-residents **without a Permanent Establishment (PE)** in India are generally not taxable on business income or services income (depending on DTAA).
* If income is exempt under DTAA, **no TDS is required anyway** (or TDS is to be deducted at lower/nil rates as per DTAA).
* So, **if no tax liability in India exists**, no TDS is actually deductible, and PAN may not be relevant.
---
### 3. **Is CBDT press release legally valid for non-residents?**
* The CBDT circular/press release applies **statutorily under the Income Tax Act** to all deductees.
* However, in practice, **DTAA provisions prevail over domestic law**.
* So, if under DTAA the non-resident is **not liable to tax in India** on the payment (e.g., no PE and business profits exempt), **no TDS is required**, and PAN is irrelevant.
---
### 4. **So what's the practical approach?**
* For non-residents who have a tax liability in India, PAN is required to avoid higher TDS.
* For those exempt under DTAA or not taxable, TDS is generally **not deducted** — hence, PAN is not a concern.
* If TDS has to be deducted, **PAN or TAN should ideally be obtained** to apply the correct rate.
---
### 5. **Summary**
| Scenario | PAN Requirement for Non-Resident | TDS Rate on Non-furnishing PAN |
| ---------------------------------- | -------------------------------- | ------------------------------ |
| Non-resident taxable in India | Yes | 20% or higher rate applies |
| Non-resident exempt under DTAA | No | No TDS deducted |
| Non-resident without PE and no tax | No | No TDS deducted |
---
If you want, I can help you draft a formal response or compliance checklist based on this for your company. Would you like that?
---
### 1. **Why should non-residents get a PAN?**
* The law (Section 206AA) says if PAN is **not furnished by a deductee**, TDS must be deducted at a higher rate (20% or rate prescribed under law).
* This applies to **all deductees**, including **non-residents**.
* The rationale: PAN helps the Indian tax authorities track income and TDS credits properly.
---
### 2. **What about non-residents who don’t have business or PE in India?**
* Non-residents **without a Permanent Establishment (PE)** in India are generally not taxable on business income or services income (depending on DTAA).
* If income is exempt under DTAA, **no TDS is required anyway** (or TDS is to be deducted at lower/nil rates as per DTAA).
* So, **if no tax liability in India exists**, no TDS is actually deductible, and PAN may not be relevant.
---
### 3. **Is CBDT press release legally valid for non-residents?**
* The CBDT circular/press release applies **statutorily under the Income Tax Act** to all deductees.
* However, in practice, **DTAA provisions prevail over domestic law**.
* So, if under DTAA the non-resident is **not liable to tax in India** on the payment (e.g., no PE and business profits exempt), **no TDS is required**, and PAN is irrelevant.
---
### 4. **So what's the practical approach?**
* For non-residents who have a tax liability in India, PAN is required to avoid higher TDS.
* For those exempt under DTAA or not taxable, TDS is generally **not deducted** — hence, PAN is not a concern.
* If TDS has to be deducted, **PAN or TAN should ideally be obtained** to apply the correct rate.
---
### 5. **Summary**
| Scenario | PAN Requirement for Non-Resident | TDS Rate on Non-furnishing PAN |
| ---------------------------------- | -------------------------------- | ------------------------------ |
| Non-resident taxable in India | Yes | 20% or higher rate applies |
| Non-resident exempt under DTAA | No | No TDS deducted |
| Non-resident without PE and no tax | No | No TDS deducted |
---
If you want, I can help you draft a formal response or compliance checklist based on this for your company. Would you like that?
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